5 minutes with… Jyoti Banerjee
The latest instalment of our ‘5 minutes with…’ series; a brief catch-up with private equity operational professionals and service providers to learn about their work and views on current trends.
From the “information economy” to depictions of data as the “new oil”, headlines of recent years showcase the extent to which information flows are powering, and also disrupting, today’s business landscape.
Could an “information architecture” be the answer for firms looking to better read a data-based world? That is the premise of a paper launched by the Integrated Reporting (IR) initiative in mid-June.
Put together by Deloitte, EY, KPMG and six other consultancies, the “Chief Information Officer Guide” lays out four steps – data incorporation, enterprise modelling, integrated reporting, adaptation as needed – for all organisations to control the rising information flows, and understand how they create value.
The Drawdown recently caught up with Jyoti Banerjee, co-author of the guide, to discuss what an information architecture holds for private equity. Himself part of VC house Ibex, he reflects on how the industry can use data to communicate its story and why chief information officers should be the ones to tell it.
The Drawdown (TDD):Your guide lays out the perks an “information architecture” could bring to private equity and other organisations. Could you elaborate on what the concept is about?
Jyoti Banerjee (JB): For a hundred years or so, our management thinking has focused on one thing: maximising return on financial capital. We’ve created immensely complicated processes and very sophisticated technologies around this specific goal. However, every business uses more than financial capital as an input; it uses people and society, it uses ideas, it uses the planet and natural resources. We never really examined what we do with these inputs, their broader impacts and yet – if we really want to understand how a business creates value, we have to look at all the resources it is using.
Integrated Reporting (IR) was created by a group of companies and investors around the world to change the debate. What we’re saying in effect is, if you’re going to track resources beyond the financial sphere in the short but also the long term, the information set you have to manage is much deeper and wider than ever before. From decisions on what kind of information you want to track across your organisation to who needs to use it, the governance of who you disclose that to, these are all real challenges an information architecture can help to solve.
TDD: To what extent would such an architecture be relevant for private equity organisations?
JB: When we got IR up and running, we didn’t initially have any private equity firm on board and it is a shame because it could have brought a different perspective. The industry’s position means it intrinsically understands businesses work with more than just financial capital, whereas institutional investors can sometimes be more removed from the processes of business management.
Perhaps not all GPs care equally about this but if a firm is seeking to understand how value gets created and captured inside a business, who benefits from such value, how value is being lost or destroyed in one area of the business while everybody focuses on creating value in another… If there is an interest in this interplay, then GPs would want to go beyond tracking financial capital, they would want to bring the other capitals – human capital, intellectual capital, etc. – into play.
TDD: Private equity can sometimes struggle to be understood beyond industry circles. Could an information architecture help GPs to use data to tell their story?
JB: Private equity certainly is about facilitating the creation of value. To do that, though, firms must be able to define what value looks like, who provides resources, what are the impacts on all the different parts of an organisation. Trying to put that story together is complicated yet for so long, we’ve tried to tell it entirely through the lens of profit statements and balance sheets. Eventually, we’ve realised that the bulk of value created in a modern business is not represented there, only a small part. What about the rest, how is it created? If PE firms can’t decipher the intangibles of value creation in a business, which usually represent 80% of the value of a typical modern business, how can they get the most out of them?
To me, the problem we have is we’ve got so many disconnects inside our businesses. Some people and processes in firms are interested in strategy, others in compliance, others in management. Often these groups are completely separated from each other, they’re not maintaining a unified perspective. A single information architecture can help break these disconnects, link the simple things in a business – what it is trying to do, how is it trying to achieve it, and what it is saying to regulators and other outsiders who want that information. A failure to connect these means we end up with several systems each doing their own thing, duplicating, repeating the same information.
TDD: The lack of technology know-how is an often-cited barrier to innovation in private equity. Who is best placed in a firm to build an information architecture and are CIOs necessary?
JB: Currently at firms, the professional overseeing this sort of area can sometimes be the chief investment officer or the CFO, and often there is just too much already happening in the context of those roles. Today, CFOs must keep up with management issues, regulatory issues – should we add technology issues too? We’re asking too much from them and quite likely they’ll fail or focus on the bits they’re comfortable with, which in the case of a CFO typically links to a background in finance and accounting.
Whether you call it chief information officer or use any other title, I can’t see how you can structure a modern business without somebody being responsible for information. The presence of information is a given, it will continue to multiply all the time. The decision is how to use that information; the moment you think about that, you’re creating flows, you need technology to manage them. I see these three elements – the information itself, its flow to the right people, the technology to support it – as deeply interrelated; I see the CIO role as the one able to take charge of this.