Most business executive acknowledges the value of information and it being a "critical corporate asset." Yet scant few measure its value as if it were one. In this article, Doug Laney, author of Infonomics, breaks down how information can increase shareholder wealth.
Nearly every business executive I speak with acknowledges that information has value and is a "critical corporate asset." Yet scant few measure its value as if it were one. In our recent probe into information-centric companies, we learned that while the gatekeepers of generally accepted accounting practices (GAAP) continue to deny asset class status to data, organizations that treat it like an asset garner more shareholder value.
It's hard today not to see the tangible, economic benefits of information all around us: Walmart uses social media trend data to entice online shoppers to purchase 10 percent to 15 percent more stuff; Kraft spinoff Mondelez grew revenue by $100 million through improved in-store promotion configurations using detailed store, chain, product, stock and pricing data; and UPS saves more than $50 million, delivers 35 percent more packages per year and has doubled driver wages by continually collecting and analyzing more than 200 data points per truck along with GPS data to reduce accidents and miles driven.
Even businesses from small city zoos to mom-and-pop coffee shops to wineries are collecting, crushing and consuming data to yield palpable revenue gains or expense reductions. In addition, some businesses beyond the traditional crop of data brokers monetize their information assets directly by selling or trading them for goods or services.
Yet while as a physical asset, technology is easily given a value attribution and represented on balance sheets; information is treated as an asset also ran or byproduct of the IT department. Your company likely accounts for and manages your office furniture with greater discipline than your information assets. Why? Because accounting standards in place since the beginning of the information age more than 50 years ago continue to be based on 250-year-old Industrial Age realities.
Investors May Unknowingly Reward "Infocentric" Organizations
At Gartner, we set out to answer the question, "Do businesses that demonstrate more savvy with information outperform others on Wall Street?" My colleague, Somendra Tripathi, and I identified businesses that demonstrate information-centrictraits such as having a chief data officer (CDO), an enterprise data governance program or data scientists (not just business intelligence [BI] analysts). Then we compared their market-to-book value (specifically, their Tobin's q) to the S&P average. We discovered that infocentric companies not only demonstrate a slight ability to generate more shareholder value per asset, but also have a 200 percent to 300 percent higher q value than the norm. In addition to that eye-opener, we found that information product companies (i.e., those in the business of selling data) have a 400 percent to 500 percent higher Tobin's q than average.
In a similar study, researchers at the University of British Columbia and New York University have corroborated our findings and demonstrated a causal relationship. Their work reveals how mere mentions of information and data related topics in a firm's 10-K filings presage a subsequent and significant increase in operating profits relative to the company's industry.
Accounting for Your Information's Value
Impressing investors is certainly a great argument for becoming more serious about collecting, managing and leveraging information as an asset. But why account for it as one? As Peter Drucker famously quipped: "You can't manage what you don't measure."
But the answer to this specific question about quantifying information value was articulated best by a CFO of a major global financial services firm who, after reading my Forbes piece Infonomics: The Practice of Information Economics, contacted me and proclaimed, "We stink [sic] at managing data around here. And I can't do much about that other than control the purse strings. But if I start putting dollar signs on datasets I think it could radically change people's behavior around here."
To put a finer point on it, imagine the difference between telling someone in your organization that he's in charge of the customer database versus telling him that he's responsible for the company's $500 million customer information asset.
It may be that the accountants, insurers and many courts don't acknowledge the measurable value of information or that it's a legitimate asset. But shouldn't your organization start behaving as if it does? Because in actuality, it is.
Joy of Strategy by Allison Rimm
Your life is serious business, but who says you can't find joy along the way? As a person with unique gifts to offer, it is your responsibility to use your talents wisely and it is your right to enjoy yourself while doing so. In The Joy of Strategy, Allison Rimm provides a structured, step-by-step program to create a business plan for your life. Find out more about this title here.