Organizations can and should assess the business value of its data and information to generate economic benefits.
Data professionals often talk about the importance of managing data and information as organizational assets, but what does this mean? What is the actual business value of data and information? How can this value be measured? How do we manage data and information as assets?
The first question to ask is: What exactly is an “asset”? According to the Financial Accounting Standards Board,[i] an Asset has three essential characteristics:
- It can be managed for the benefit of an enterprise, either singularly or in combination with other assets
- A particular enterprise can obtain the benefit of the asset, and control access to it by other enterprises
- The transaction or event giving rise to the enterprise’s right to control the asset has already occurred; that is, the investment has already been made and the asset is available for use
Therefore, an asset can be defined as a resource that can be managed to create some sort of value (or benefit) for an enterprise. The generated value, in turn, can be managed in ways that give an organization competitive advantage. Both the asset and the generated value of the asset must be manageable, and the economic benefit of the asset must be measurable.
What Is the Business Value of Data?
What is the business value of data and information (or, to put it another way, why can data and information be regarded as business assets)? For one thing, data is used to bring business stakeholders together around a common set of facts and information that can be shared across an organization and used for decision-making. To use another metaphor, it provides a community with a common pool of water from which everyone can drink. If there is common access to a unified and agreed-upon set of facts, it is easier to see the current state of an organization and have intelligent, reasoned discussions about what should and should not be done. These conversations become impossible when everybody is living in self-selected “information bubbles” based on cherry-picked data, data selection bias, cognitive bias and narrative fallacies. Everybody needs to be on the same page about what is and isn’t happening. This “common pool of water” is a critical enabler of many important business functions, including cross-divisional reporting, regulatory compliance, data analytics and real-time decision-making.
Another value of data is that it can be used to create value-generating Virtual Value Streams[ii] that connect organizations and their stakeholders together in creative and profitable ways. David R. Vincent[iii] has made the point that in the new global economy, business value is created by establishing and nurturing relationships with business stakeholders. He makes the further point that the essence of effective relationships lies in empowerment; in giving people the ability to do more things for themselves, often based on data, and to create value at the lowest possible level.
For example, Cabela’s, the sporting goods store, automatically emails discount offers to preferred customers on goods that are being closed out of inventory. American Hospital Supply (AHS) created an online subscription portal that customers can use to order directly from AHS’s suppliers. Customers pay AHS a monthly subscription fee for use of the portal’s data and get discount prices and faster service. AHS’s suppliers get more customers, and more orders. AHS gets a percentage of each order and saves on not having to maintain a warehouse of inventory and a fleet of delivery trucks. They also get happier customers!
Data and information can also be used to help organizations improve and streamline their business processes. For example, Six Sigma is a data-driven process improvement methodology used by many large corporations. Ford Motor Company used such a methodology to streamline their order procurement process,[iv] replacing a manual process involving three different paper documents and three groups of people with a single database containing the order that can be verified and updated at the receiving dock. This streamlining cut weeks from the process of invoicing orders and paying vendors! Ford also automated its design-to-manufacture process, enabling it to take bigger design risks and produce car designs that have greater customer appeal.
Data and information can be used to flatten (and therefore streamline) corporate hierarchies and reduce intermediaries, thus giving more responsibility to empowered individuals and entrepreneurial teams. Businesses can lower costs by, for example, automating material handling and delivering parts “just in time” to workers on the assembly line. They can use data and information to add intelligence to their products. For example, streaming data broadcast from long-haul trucks can signal dispatchers when a part failure in the truck is detected. The dispatcher can then direct the truck driver to the nearest service center. And companies can use data and information to enhance their brand differentiation. American Express, for example, has developed differentiated travel services for its corporate customers, using information systems to search for the lowest airline fares, hotels and rental cars, and tracking travel expenses for each cardholder.
Data and information also act as essential disruptors; Hammer and Champy[v] note that customers have gained the upper hand in their relationships with sellers, in part because customers now have easy access to enormously more data. The popularity of online ordering through Amazon, for example, can be explained by the ease with which consumers can compare products and prices side-by-side to get the best deal. American Airlines used its SABRE reservations system to develop a preferred (and highly profitable) relationship with travel agents. Now, consumers can use sites like Travelocity and Expedia to book their own reservations and bypass travel agents entirely!
Finally, most organizations have data that can be packaged and monetized (i.e., sold to others). Customer and order data is often sold to third-party marketers and used for targeted advertising of related goods and services. Polk Automotive (now part of S&P Global) sells packaged data and metadata pertaining to national vehicle registration that is used by most car and truck manufacturers.
It is important to note that the common denominator is that data creates business value when it is in motion, not at rest. The key to getting business value from data is to share it, not hoard it!
[i] Financial Accounting Standards Board. Statement of Financial Accounting Concepts No. 3: Elements of Financial Statements of Business Enterprises (Stamford, Conn., December 1980).
[ii] See Rayport, Jeffrey F. and John J. Sviokla: Exploiting the Virtual Value Chain. Harvard Business Review, November-December 1995, pp. 75-85.
[iii] Vincent, David R. The Information-Based Corporation: Stakeholder Economics and the Technology Investment (Dow Jones-Irwin, 1990).
[iv] Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution (HarperCollins Publications, 1993), pp. 40-44.
[v] Reengineering the Corporation, op. cit., p. 20.