Your strategy is to roll up companies and drive value through economies of scale, market influence, and more efficient operational processes. That all makes sense, but what should you do about all the disparate enterprise resource planning (ERP) or core application data that you need to drive that value from all those disparate organizations and systems? How can you best achieve your target returns without spending all that money to rip and replace those expensive ERP applications without disrupting the business?
The ideal reference architecture for private equity firms with roll-up strategies is to design and build a data hub. The data hub would be external to your ERP and existing application systems at your portfolio companies. It is likely cloud-based and serves as a single source of truth for managing and monitoring performance. Data is sourced from all the disparate ERPs in your world, scrubbed and standardized, and then used to build dashboards and analytics solutions for use across your organization.
Your goals with a roll-up strategy are:
- Quickly integrate any acquired companies into your data and analytics world.
- Provide a common view of to-be-measured processes and performance.
- Establish benchmarks and target performance levels.
- Broadly disseminate actual performance data.
- Drive accountability for value creation through improved operational performance.
You have to deal with several data challenges in your roll-ups. The first is likely the use of different ERP or core applications from different vendors, with no easy way to consolidate or integrate. Your acquired companies don't all share a common set of metrics or KPIs, nor do they all define key metrics the same way. (Product gross margins are calculated differently at different companies.) The more organizations you roll up, the more likely you can't access the data that you want, can't compare performance easily across acquired companies, and can't build accountability without a standard set of performance metrics that are broadly disseminated across the organization.
The data hub approach is the right solution. It sources the data from your existing disparate ERP systems without the expense or costly delay to replace the ERP in your acquired companies. The data can be cleansed and standardized regardless of which ERP it came from. The data hub also incorporates a business layer that transforms the data into an easily understood and highly accessible form, so every executive in your portfolio companies can easily access, digest, analyze, and act on the data.
The data hub reference architecture you use should be mature and proven across many companies. Using modern analytical tools, it provides real-time data in dashboards for CEOs down to individual account executives. It supports ad-hoc analytics and advanced data science modeling, and leverages best-of-breed reporting software with real-time data feeds. Modern data hubs can also take in internet of things (IoT) data and unstructured web data like social media feeds and sentiment analysis.
Data hubs are the tool to drive your value creation, and you also need to develop people and process tools like an integration playbook, gamification dashboards, and alerts for driving real-time decision-making and management actions. The preferred solution is 50% technology and 50% people and process changes to drive quick results and optimum performance.
If you buy three different companies, you are buying three sets of ERP data, three sets of KPI definitions, three sets of processes, and three sets of management styles. You need a data strategy, and a data hub, to move those companies to the single consolidated and standardized view to achieve the quick returns on your investments.
Get your data out of the three ERPs, or 30 ERPs, and into a data hub for quick value creation post-close without waiting years or spending millions to standardize your ERP systems across your portfolio companies.