January 05, 2021
PEI Operating Partners Forum 2020 Wrap-Up: Using Data to Assess Leadership and Make Informed Deals With Guy Barnes
Guy Barnes, an Acertitude managing partner, recently moderated a panel of acclaimed private equity experts in a session titled “Workforce Analytics: Uncovering Initiatives in People Data Science” at the PEI Operating Partners Forum: Virtual Experience 2020, the world’s largest event dedicated to best practices in private equity portfolio operations and value creation. The panelists offered vital perspectives on the role of data in talent assessment and due diligence. These are a few of the questions discussed:
- How do you gain access to important data before making a deal?
- What kind of talent data should you collect?
- How do you use data to assess leaders properly?
- What are the people assessment best practices to follow during due diligence?
According to the KPMG 2020 CEO Outlook: COVID-19 Special Edition report, talent risk is the No. 1 threat to long-term growth. The panelists see this insight as a key indicator for the increased use of data science in private equity. However, talent is a relatively new function for PE companies, and it’s not often at the top of operating partners’ agendas when making deals.
As one panelist aptly pointed out, an amazing product or company without the right leader won’t be as successful. One need only to look at the departure of Steve Jobs from Apple in 1985, which led the tech giant to the brink of failure, and his 1997 return, which put the company on track to become the most valuable brand in the world.
The access challenge
When it comes to leadership assessment, there is one key that locks or unlocks insights: access. Everything PE talent professionals do depends on it.
Access tends to be limited in a competitive bid, making it difficult to gather any data about the portfolio company. In these instances, asking even a few pointed questions can tell you a lot about the organization. The panelists offered other covert ways to gather information: Simply getting access to the room and observing the management team’s interactions and body language can present beneficial data about the company’s leadership.
When approaching a proprietary deal where you have full access, on the other hand, the panelists believe it’s essential to do your due diligence by collecting data on a wide range of functions — like compensation, communication, diversity, and attrition — to get an intimate understanding of the organization’s performance and culture. The more information you can collect, the more insights you can apply to make smarter investment decisions.
In both cases, the panelists suggested using third-party data consultants and tools, such as Teamscope and Sova Assessment. If you get access but lack the capacity or capability to sift through the data internally, a third party can do that work for you. If you cannot obtain any data, third-party providers often had access in the past and may have a wealth of valuable data and insights about the leadership team.
For example, an executive search firm may have recruited a leader into that company’s C-suite, or a management consultancy may have advised the CEO on strategy in the past. Fortunately, you often gain more access as you get further into the process, which allows you to gather more details related to your investment thesis prior to pulling the trigger on a deal.
Data-driven due diligence
When performing due diligence, the panelists said it is valuable to look at data about the executive team rather than just individual contributors. The goal is to determine whether they will collectively get the organization where it needs to be in five years — or whenever you sell the asset down.
According to the experts, assessing leadership talent requires both internal processes and external input. Although companies benefit from using internal assessments and measurements to determine whether a new executive will strengthen the C-suite, they gain even deeper insights when comparing them against outside benchmarks and big data. Using a variety of sources will provide the most robust information during the due diligence process. This entails taking advantage of the third-party data tools mentioned above and forming unique interpretations of the data instead of simply taking it at face value.
Despite the many advantages of using data to assess talent, the panelists said it’s important to remember that data is a tool — not a fait accompli. It doesn’t always tell you everything, but it does give you a piece of the whole picture. With access to multiple data sources, you can widen your view to put the best leaders in place with more certainty and steer your deals toward lucrative exits.