The FINANCIAL — Buy and sell-side analysts anticipate a significant rise in the strategic use of data and analytics to drive investment decision making, valuations, and improvements to companies’ performance in coming years, according to Data and Analytics – A New Driver of Performance and Valuation, a new global report by KPMG International and KPMG LLP in the U.S.
Importantly, 45 percent of respondents stated that they were very or somewhat likely to change their valuation or investment opinions of companies over the next two years as a result of their D&A strategy. In addition, 52 percent believe D&A strategies have already begun to deliver better business performance or will do so during this period.
“The results of our study illuminate one of the key variables in the complex process of capital markets valuation as company boards of directors look to the future,” said KPMG U.S. Data & Analytics Leader Brad Fisher. “D&A will undoubtedly alter the competitive landscape in the longer term, rewarding some companies and punishing others. Companies that are willing to see the value in the vast amounts of data being collected today sense a significant opportunity ahead, with respondents emphatically stating that they would view investing in a company in their sector more favorably if it were to use D&A to control costs, shrink inventory, and optimize resource allocation.”
Additionally, the data revealed that the use of data and analytics by issuers (publicly traded companies) has already begun to alter the competitive dynamics of nearly all industries, with a vast majority (82 percent) of investors and equity analysts expecting some level of disruption from D&A during the next three years. As part of the anticipated disruption, investors and analysts believe that D&A strategies will improve company performance and bring higher valuations.
A majority (52 percent) of all respondents believe that D&A strategies have already begun to deliver better business performance to companies or will likely do so within the next two years. One-third of respondents also believe that proactive D&A strategies reward companies with higher valuations or will do so during this period.
opportunities vary by sector
The results of the study also indicate that investors and analysts expect D&A to enable companies across sectors to achieve various broad business objectives over the next two years. These include improvements in operating performance (i.e., increased profitability), followed by companies’ expansion of current lines of business, risk management, and finally expansion into new products and business models.
Respondents’ views regarding which specific D&A opportunities are most attractive for companies vary considerably from sector to sector. Of all respondents, 54 percent expected D&A strategies to cause a dramatic or moderate disruption of competitive dynamics over the next three years across all sectors. By individual sector, however, the results show that the most likely disruptions from D&A—along with the accompanying opportunity and risk—are expected in the technology sector and the business and professional services sector. Of respondents focused on each, 71 percent and 70 percent expect D&A strategies to cause a dramatic or moderate disruption in the technology sector and in the services sector, respectively, during this period. These sectors are followed by the consumer, financial, health care, capital goods/industrials, energy, and basic materials sectors.
“For companies looking to identify the business goals to which they should apply their D&A efforts, our sector-by-sector rankings serve as a useful guide for resource allocation,” said Marshall Toplansky, KPMG’s Managing Director of U.S. Data & Analytics. “In the services industry, for example, we found that investors and analysts would most favorably view investing in companies that use D&A to develop new business models and information products, to improve operating performance by controlling costs, and to expose fraud. In the capital goods and industrials sector, on the other hand, investors and analysts favor companies’ using D&A to forecast business performance faster.”
Regional variations on key findings
Regional comparisons among the US/Canada, Europe, Asia and Latin America showed marked differences in key areas. Regarding views on whether investors would change valuation or investment opinions over the next two years as a result of a company’s D&A strategy, 72 percent of respondents in Asia and over half of respondents from Europe and Latin America said that they would do so, compared to 41 percent in the US/Canada.
Similarly, respondents in Latin America and Asia ranked highest – 92 percent and 73 percent respectively – among the regions on whether the use of sophisticated D&A to improve operating performance would favorably influence their investment decision or recommendation. The response from the two regions were notably higher than US/Canada respondents at 65 percent, and Europe, the lowest at 44 percent.
A related report
Additionally, in a recent KPMG International survey report of 700 senior business executives, Going Beyond the Data – Turning Data from Insights into Value, key findings suggest that businesses are also increasingly concerned about the value they derive from their data. To address investors’ call for better operational performance, 47 percent of respondents said their biggest motivation for using D&A was improved productivity, with 37 percent using D&A for cost reduction. However, the findings suggest that bridging the gap from turning insights to value continues to be a challenge; while over 80 percent of respondents say that D&A enables them to make faster, more accurate decisions, 58 percent say they have difficulty relying on the quality and reliability of their data.
The road ahead
“Our research validates what we’ve long suspected across board rooms and investor meetings within the last decade. Data and analytics matter at a fundamental, financial level and businesses of all sizes need to take notice,” said Christian Rast, KPMG’s Global Leader for Data & Analytics. “From the two-person startup in Silicon Valley to the mid-cap businesses and multinational Fortune 500 companies, D&A will continue to influence investment decision making and valuations. Those who take the time now to develop and implement their D&A strategies – and understand how to effectively articulate these plans – will be the ones to see the greatest rewards in the coming years.”
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