There is no doubt about it; the future is digital.
CEO of Microsoft Satya Nadella once said that “every company is a software company” and explained that businesses “have to start thinking and operating like a digital company” if they are to survive. Since Nadella said this in 2019, the world has gone through an unprecedented pandemic that has changed, well, everything.
At onefourzero, we are digital data enthusiasts; it’s our bread and butter. Of course, data is an essential tool for businesses in all sectors. How would brands know how their products and services are performing without data? Data isn’t only vital for companies to measure their success but is increasingly important in due diligence. If what Nadella says is true (and we believe it is), then why aren’t all companies embracing digital due diligence?
Private equity is fundamentally changing. Data is just as essential, if not more essential than expert opinion. Data tells the whole story; there is no bias, no mistakes, only factual information laid bare for all to see. Identifying assets that are likely to succeed requires a new form of due diligence that utilises the available colossal amount of data.
But why is digital due diligence so integral? Put simply, digital due diligence benchmarks a company’s digital performance and allows investors to form a cohesive business strategy that considers all aspects of the business. At onefourzero, we believe that digital due diligence is the key to success.
Digital due diligence must be part of an investors tool kit if they want to increase the likelihood of significant financial return. Deloitte found that enterprises that made several digital pivots towards digital maturity broadly perform better financially. These pivots include ‘data mastery’, utilising under-utilised data to increase operational efficiency, revenue growth, and customer engagement. Similarly, Deloitte found that ‘higher-maturity organisations surveyed were far more likely than lower-maturity ones to significantly outperform their industry average on key financial metrics’.
Short-term financial growth is important, but, when it comes to due diligence, it is important to consider the long-term future of an asset. Today, this process must involve digital considerations. However, the due diligence process for acquisitions, in some cases, has not fully embraced digital. A report into private equity’s relationship with digital found that ‘PE can be sceptical when it comes to digital projects, often viewing them as a cost center or taking too long to deliver ROI before sale’. Private equity firms that are less inclined to consider digital aspects of assets risk being left behind as other firms embrace digitisation.
Furthermore, the digital aspect of businesses will only get more critical with time. Digitisation is happening at lightning speed, expedited by the COVID-19 pandemic. Conducting digital due diligence enables businesses to future proof as much as possible. Due diligence is no longer about short-term gains; future-proofing is high up on the agenda.
In-depth analysis of a whole sector, or a specific asset, can give a sense of market share, growth, and future projections. This form of digital due diligence can add layers to early-stage commercial work that will allow you to stand out from the competition. In the process, you can identify consumer demand by location, provide audience and sentiment analysis, assess market efficiencies, engagement, pricing, and web and mobile analysis.
By analysing brand reputation, audience profiles, and brand operations using data from social media, review websites, and online surveys, you can gauge how consumers perceive brands, products, and overall sectors. What are consumers looking for? Is there a gap in the market that is yet to be filled? How is the asset of interest perceived by consumers?
Marketing is a key aspect of a business. Successful marketing activities enable brands to reach consumers and convert them to paying customers. By conducting in-depth digital due diligence, you can see how audiences are interacting with a brand’s marketing efforts. By observing data such as click-through and engagement rates, and other similar marketing metrics, you can see how a brand’s marketing is performing. Additionally, it will allow you to ask yourself what can be improved in the future.
Many organisations struggle to make good use of the huge amounts of data they have available to them. By conducting in-depth digital due diligence, potential investors can gauge how data is being utilised. Is there scope for the asset to utilise data more effectively? Are company leaders receptive to digital transformation? Are employees adhering to the company’s wider digitisation goals?
It is vital to identify critical threats to an asset before acquisition. Currently, many businesses will see a couple of existential threats that they must address. Notably, machine learning and artificial intelligence (AI) have huge potential in almost every sector and every market. Consequently, the growth of machine learning and AI has been unpredictable and quick to advance. Businesses must do their research into these two innovations, as they are not a passing trend.
Indeed, the momentum shows no signs of slowing. For instance, the number of businesses adopting artificial intelligence grew by 270% in four years according to research by Gartner. To mitigate the risk of becoming irrelevant, brands need to harness machine learning and AI tools.
Recently, many private equity investors have expressed that digitisation is high on their list of priorities. However, there is also a distinct lack of expertise in this area within private equity firms. An asset that champions digitisation will be increasingly critical for future growth and innovation.
Every business claims to embrace digital technologies in some way, shape or form. But, to separate the assets claiming to be digital, and the assets enacting digitisation in a meaningful way, digital due diligence is required.
Our expert analysts use current and historic digital data on audiences, activity, consumer sentiment and operational efficiency to quantify brand equity, modelled headroom and growth opportunity. Using 19 data sources, which are triangulated for credibility, we create concise reports with clear commercial recommendations and insights. In our opinion, robust digital data is a key asset to businesses: it provides a clear indication of the health and opportunity of a company and can act as a proxy for wider market trends.
If you would like to learn more about how we can help you with digital due diligence, please click here. Alternatively, please don’t hesitate to contact us to discuss your requirements in more detail.