When Micheline Casey, chief data officer at the Federal Reserve Board, referred to data as an asset at last year's MIT Chief Data Officer and Information Quality Symposium, she sparked a debate that, at first, appeared to be purely semantic.
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"Have you ever tried to use the 'asset' word with an accountant?" asked an attendee.
"Yes," Casey responded.
"And they're happy to call data an asset?" he said.
"Depends on the accountant," Casey said.
Semantics, though, soon cut away to fact: "Assets are on the balance sheet," he said. "It's pretty tough to find companies doing that."
Tough indeed. According to Gartner analyst Doug Laney, even companies whose business models are built on collecting and selling data -- Facebook, Google, Nielsen, for example -- don't have a line item for their information assets. Yet more than 80% of business executives surveyed by Gartner believe data is on the balance sheet, tucked under other intangible assets. "It, I'm sorry to say, is not," said Laney at the consultancy's recent Gartner Business Intelligence and Analytics Summit.
The omission is due mainly to red tape; insurance and accounting industries do not, in general, consider data to be an asset. But the debate itself is a red herring. Regardless of how insurers and accountants define it, CIOs, CFOs and, increasingly, CMOs know data has value. The key is figuring out how much value. That's where infonomics, or the economics of information, comes in. A term coined by Laney in 1990, infonomics can help CIOs determine a baseline value for data as well as how to measure the value of that data over time. It can help to put a price tag on data, turning what many considered for years to be just a byproduct of business into a corporate asset.
Is your data an asset?
When Doug Laney asked himself if data really fit the bill as an asset, he turned to his accounting books and began tracking down other definitions. He discovered three key characteristics that make an asset an asset. They are:
- It can be exchanged for cash.
- It can be owned by a particular entity.
- It generates probable future benefits.
Source: Gartner Inc.
CIOs are familiar with the old adage "you can't manage what you can't measure." They understand the importance of data management and governance, both of which lie at the foundation of Laney's infonomics. But it also makes good business sense to not only talk about data as an asset, but also to treat it as one. Businesses that value information, like Google, appear to enjoy a higher-valued stock price; companies productizing their data, like The Kroger Co., are building new lines of business and revenue streams; organizations like San Diego's Scripps Health see infonomics as a framework to usher in mission-critical data governance reforms.
Market value of info-centric businesses
How far along are companies in assessing the value of data? "You probably have a better accounting of your tables and chairs than your own information assets," Laney said. "Now ask yourself: Which one actually generates more value for your company?"
While few companies are recording data as an asset on their balance sheets, the marketplace does put a premium on "information-centric" companies, according to Laney. As defined by Laney, these are companies that have invested in their data by hiring data scientists or a chief data officer, or by building a data science organization or a data governance function. Companies that meet these criteria, including Netflix, GlaxoSmithKline, Nokia, Apple, American Express and Ford, enjoy a market value to tangible asset or book ratio that's two to three times higher than the norm. "I'm not going to say there's a causal relationship, but it certainly is an interesting correlation," Laney said.
Information product businesses, or companies that sell data in one form or another, have an even higher market-to-book ratio, according to Laney's research. Google, Yahoo, Moody's, TripAdvisor, Harte Hanks and Dun & Bradstreet, for example, have a market to book ratio more than four times higher than the norm.
Lest CIOs infer that trading on data is just for data brokers or Internet giants, Laney's research also turned up traditional businesses that have figured out how to productize their data. The Kroger Co., for example, is generating $100 million in incremental revenue per year by selling its inventory and point-of-sale data and "making that available as a syndicated data provider," Laney said.
Stories like this one will slowly become more commonplace. By 2016, Gartner predicts 30% of businesses will directly or indirectly monetize their information assets by bartering or selling them outright. The percentage is big enough to indicate a market demand for these information products, said Frank Buytendijk, research vice president at Gartner, but small enough to confer a competitive advantage on companies that jump into this market. "There's true business opportunity out there to be excited about," he said.
Buytendijk believes every CIO is sitting on data that could be productized -- in six months. He points to the public sector, where cities like Boston, Palo Alto and Chicago are opening up budget or public works data to create more transparency and connectivity to constituents. Or to established companies like GE. At 125 years old, the company is reinventing its services business by capitalizing on big data. One effort well underway is through its use of sensors to predict when industrial equipment such as jet engines, wind turbines and MRI scanners require maintenance. Even a seemingly low-tech company like John West, a U.K. canned-seafood manufacturer, is figuring out how to use data to enhance the customer experience, Buytendijk said. To provide visibility into its sustainability practices, the company tags the fish it catches, gathers data on where its fish are caught and then makes that data available to consumers. "With a little bit of information and master data management, you can identify certain touch points" between product and customer, Buytendijk said. The consumer may not be purchasing company data outright, but the data is helping sell the product.
Create a common language
Productizing data can lead to innovation, but infonomics can also reshape company culture, including C-suite dynamics. "It creates a common language between IT, business leaders and CFOs," Laney said. He's currently working with a CFO from a financial services firm to create an internal balance sheet to help data stewards and owners designate the value of its data to the organization.
Principles of infonomics
- Information is an actual asset (if not a recognized asset class).
- Information has both potential and realized value.
- Information's value can be quantified.
- Information should be accounted for as an asset (internally).
- Information's realized value should be maximized.
- Information's value should be used to help budget IT and business initiatives.
- Information should be managed as an asset.
Source: Gartner Inc.
"Imagine the difference if I tell you that you're in charge of our customer database versus you're in charge of our $50 million customer information asset," Laney said. "It's a bit of an attitudinal change that can take shape."
Placing dollar signs on data to create a common language across the enterprise is an intriguing idea to Jimm Johnson, enterprise data warehouse liaison for Scripps Health.
"We're saying we have to become an information management company," Johnson said after Laney's infonomics session. "We're trying to turn the dial around so people understand that no matter where you are in the organization, you need information."
One of the first steps in getting there is implementing a data governance program. Massive healthcare reforms, including adoption of the electronic medical record, require it, Johnson said. But "explaining what data governance is, what information management is -- any of those concepts -- to the C-suite is difficult."
Right now, data is siloed, even duplicated in some cases, and multiple versions of the truth are common. "How do we look across the entire enterprise and get everyone on the same page with all of the data?" he said. Embracing infonomics, he believes, may help by making an intangible concept -- the value of data to the organization -- tangible.
Although he's only been with Scripps for a year and a half, he sees progress -- and momentum, he said. "We have a long way to go. But I think if you can lay out the argument in a coherent, objective way, with concrete examples, it starts making sense to people."
Read part two of this feature to learn about Laney's six models on measuring the value of data assets.