Private equity Moneyball: spring training metrics for post-season glory

“There is an epidemic failure in the game to understand what is really happening.”

That’s the beginning of fictional-character Peter Brand’s now-famous speech to A’s GM Billy Beane in the movie Moneyball, which depicts the birth of the sabermetric era of baseball (based on Michael Lewis’ book of the same name). With the MLB playoffs in full swing, we take a look at how Beane’s identification of “winning” metrics and his application of analytics to baseball strategy and player personnel decisions fundamentally transformed the game. In moving toward an analytics-based approach to value creation, the private equity industry has followed a similar trajectory—though one that hasn’t been as transformative.

What’s the difference? Speed. Beane didn’t wait until mid-season to start leveraging analytics. He understood that for the metrics to matter, they needed to inform decisions…now.

Speed is a concept that PE hasn’t fully embraced. Or rather, it’s a concept partners have embraced but not quickly enough. In the typical PE playbook, advanced analytics aren’t developed until 2-3 years into an investment when large-scale system upgrades and implementations become fruitful. However, sponsors needn’t wait that long—today’s next generation business intelligence (BI) applications are cost-effective, simple to implement and deliver immediate and impactful analytics. Sponsors can—and should—immediately leverage these BI applications to move at Moneyball-speed to validate/adjust their value creation strategies.

Don’t End Spring Training Without Analytics

Let’s set some context: The traditional PE playbook has an initial 90-day plan focused on table-stakes workstreams (transaction accounting, day-1 balance sheet, treasury management, etc.). Call this the spring training of the PE investment lifecycle. This spring training is followed by a medium-term systems assessment and, finally, a roadmap to create the analytics to support value creation. This roadmap often calls for new systems (e.g. ERP upgrade, CRM implementation or CPM adoption) and can take years to implement. Once in place, the desired analytics and KPIs are the final outputs.

Until then, the existing reporting is considered good enough. The problem is, it’s not. You need metrics—and you need them before the regular season starts… But how?

Moving from Paper Scorecards to Sabermetrics

New PE acquisitions, particularly those under first-time institutional ownership, often lack robust KPIs and analytical insights. Similar to paper-based scorecards in baseball, the existing reporting is fragmented, ad hoc, and often obscures what is actually driving performance. As a result, any new analytics required by the sponsor will take significant resources and will be delivered via time-intensive, manual and error-prone processes. Not a fair ask of an already-stretched finance team.

The immediate solution comes not from an expensive system-of-record upgrade but rather a next-gen BI application.  Today’s BI tools have advanced data integration capabilities and can incorporate fragmented, diverse data sets. They can generate a variety of automated analytics and facilitate real-time root-cause analysis. And it no longer takes an army of IT consultants to implement a BI solution, making it a cost-effective investment.

It’s key to put this BI solution in place before the season starts. Here, companies can follow a 6-step Spring Training Analytics Playbook:

  1. Review the Existing Reporting: Understand the people, process and technology driving the current reporting.
  2. Develop the Required Reporting: Identify the operational and finance-related metrics that are required to drive value creation and are aligned with the investment thesis.
  3. Get the Data: Upload raw data feeds and cleanse where needed.
  4. Build a Data Model: Integrate the uploaded data sets into a relational model.
  5. Transform Data into Metrics: Craft the financial and operational outputs, KPIs and trends. A single data model can power both high-level board reporting and detailed operational dashboards.
  6. Create Value (like signing Scott Hatteberg, former first baseman with the A’s and others): Utilize new KPIs (e.g. on-base percentage) to make an immediate impact to your portfolio company—and leverage root cause analyses to improve the metrics going forward (tell Mr. Hatteberg to lay off the high cheese!).

Starting with analytics means early identification/validation of your value creation plan. It means quick access to automated metrics without burdening management. It means the creation of dynamic outputs, which facilitate drill-down analyses to reveal underlying issues. It means repositioning finance as a provider of strategic insights.

Starting the season with analytics means ending with post-season glory. This is PE Moneyball.

Rishi Jain
J.T. Cecchini                                                                                                                                      By Rishi Jain, Managing Director, Head of Performance Improvement, Co-Head of Western Region and J.T. Cecchini, Director, Strategic Finance, both of Accordion