Does Private Equity Help or Hurt the Infobesity Problem?

Does what private equity professionals do help or hurt the infobesity problem?  Is there an infobesity problem?

First some background.

Over the past decade or so, the amount of digital and analog information in the world has grown at an exponential rate.  One estimate of the total amount of information in the world is about 295 exabytes, or about 315 times the number of grains of sand in the world (as a side note, the amount of digital and analog information is still dwarfed by the amount of information nature contains, with digital and analog amounting to about 1 percent of the total information DNA contains).

With such large and growing amounts of information available, one shouldn’t be surprised that corporations and individuals try to use information for a competitive edge.  Of course, with the additional resources and the potential of benefit comes costs.  The costs potentially include decreased corporate agility, decreased timeliness, and wasted time on unfruitful analysis of “big data”.

Not surprisingly, corporate executives generally take the cautious approach, meaning more information is better than less.  This practice leads to managers and decision-makers consuming and analyzing large quantities of data before decisions are made.  The extra time spent analyzing large data sets before making a decision is known as infobesity.

The effects of infobesity on agility and quickness in making good decisions has been compared to the effect bad cholesterol has on the clogging of the flow of blood through the arteries.  With this background in mind, when discussing infobesity, there are two camps.

In one group are individuals who make the aforementioned “paralysis by analysis” claims, readily accepting that too much information is an unhealthy corporate practice.  Individuals in this group include fast-paced corporate executives concerned about the competition who generally have a greater understanding of first mover advantage and the benefits of timeliness.

In the second group are individuals who generally argue that big data may sometimes slow down decision-making, but the “sometimes” is far and few between, with the advantages of “big data” much greater than inefficient managers and corporate executives.  Individuals in this camp include data scientists, researchers, and cautious corporate executives.

Who is right, and where does private equity fit into all this?  The answer to the question on who is right largely depends on a number of factors, such as the industry, how quickly a strategy or decision is needed, personality of the firms’ executive officers, and the usefulness of the information.  And although perspectives on how private equity plays a role vary widely, anyone connected with the private equity industry would likely agree with the general observation that private equity professionals are more interested in big data than most other professions, while the effect of big data on private equity professionals’ performance is more ambiguous.

Some private equity firms, without naming names, certainly get caught up in the “paralysis by analysis” trap, which lowers their overall returns, whereas others are quite good at digesting large amounts of information in a short time frame and then making a decision.  The second guessing that big data makes possible is generally ignored.  What is interesting in all this is that private equity firms likely are part of the problem rather than the solution.  Private equity firms considering investments generally want more and more information.  Target firms generally comply.

In any event, infobesity may or may not be a problem, with the private equity industry perhaps part of the problem rather than the solution, although there aren’t many industries more nimble than the private equity industry.