Data is a strategic asset that allows companies to acquire or maintain a competitive edge in the knowledge economy. To unlock the hidden value of data, firms should treat data as an integral part of their supply chain, because it impacts the entire ecosystem in which a firm operates.
May 24, 2017 | Dante Disparte
- Products and other components of the corporate value chain can be broken down into their component parts and absorbed into the body of an organisation
- Firms should begin to treat data itself an integral part of their supply chain to unlock the hidden value of data
- The failure to quantify the “enterprise value of data” may not only rob a company of value, but may severely inhibit its ability to maximally benefit from the digital transformation process
It is truly surprising that, given the growing importance organisations attribute to the valuation of intangible assets, so few of them recognise just how significant the value of their data is, and how critical it can be to the success of the digital transformation process. Although a definition for what constitutes the “enterprise value of data” (EvD) has only recently been developed, EvD has the potential to become a centrepiece of corporate value creation and business continuity. The failure to quantify EvD may not only rob a company of value, but may severely inhibit its ability to maximally benefit from the digital transformation process.
In the knowledge economy, data is a strategic asset that allows companies to acquire or maintain a competitive edge. Indeed, as Eric Schmidt, Google’s co-founder and Alphabet’s CEO, has observed, data is so powerful that countries will likely go to war over it. Yet most organisations continue to struggle with the digital transformation process more generally, and have not even begun to contemplate EvD. Doing so requires a spectrum of capabilities designed to capture and organise vast amounts of data – diving deep into the so called “data lake”, making sense of that data, linking it to business objectives, and executing an effective and perpetually current data strategy. This is no simple task, and the truth is, very few organisations have the ability to do it, but attributing economic value to data is central to being able to manage it as a corporate asset.
EvD and digital transformation
EvD and digital transformation intersect in a number of ways, one of which being the valuation of personal data through the eyes of the shareholder.
Another is to account for the revenues generated by customers and estimate the value of a client as a function of the net present value it will generate for the company in the future. This can be predicted by using customer transaction data, enabling decision-makers to pursue the most profitable business actions. Doing so estimates the value of the commercial relationship the company has with individual customers, providing a maximal range of personal data valuation. The personal data collected by a company, and its relationship with individual customers, therefore become intertwined. The practice of monetising data collected digitally is accelerating, with the number of data brokers and data exchange centres expanding at a rapid pace.
Just as protein is broken down and absorbed by a body, products and other components of the corporate value chain can be broken down into their component parts and absorbed into the body of an organisation. This ‘absorption’ process is multi-faceted, includes data from internal and external sources, and has varying business outcomes, depending on the variation in how those sources interact. The ability to put a value on each component of the value chain can be an important element in determining EvD. The challenge, however, is that most enterprise data resides in vast data lakes (or, more likely, data swamps) and organisations usually only realise what is at stake when they lose access to this critical business information. For this reason, EvD is an important counterpart to an enterprise cyber security strategy, for which the vast majority of organisations are woefully underhedged and ill-prepared.
To unlock the hidden value of data, firms should begin to treat data itself an integral part of their supply chain, because data impacts the entire ecosystem in which a firm operates. Determining not only what EvD means today, but what it will mean for a firm in the future, is a critical part of the thought process. A firm’s data may ultimately become more valuable than its traditional products and services. Traditional firms are not spared the need to address how data impacts their business models and value creation strategies; they may need to do so more than other businesses already focused on data valuation. These firms labour under the weight of legacy operating systems and dated modes of thinking, making the concept of EvD and digital transformation seem too intangible to have value. Such thinking is precisely contrary to the direction most organisations need to go to remain competitive and have a meaningful long-term orientation.
Harnessing the power of EvD
As EvD becomes anchored as a business and regulatory priority, data becomes the domain of the entire organisation, and indeed the market. All too often, it is only in stress scenarios -- such as a cyber-attack or unplanned system outages -- that organisations come to realise their dependency as going concerns on data. Organisations must dedicate significant capital and other resources to managing and taking advantage of the many opportunities data can provide. There is great value to be gained from becoming deliberately uncomfortable at an organisational level with how data impacts a firm. Stress testing and simulating “dark days” is a great way to establish executive support for data valuation and digital transformation efforts.
To do so, cultural changes may be required throughout an organisation in order to foster creativity, experimentation, and a willingness to make data-informed decisions. Decision-makers must be willing to challenge, adapt and refine their approach to strategy and execution, based on the management of data. Organisations should integrate data as a foundation for cross-functional analysis, while simultaneously developing ways to measure, track, and value data -- particularly when data is in motion or utilised in core business processes. Doing so allows organisations to empower the comingling of front and back office functions through better access to the right information and the insights data may contain, while providing an opportunity to reassess how a business operates on a holistic basis.
Getting out in front of EvD will require dedication of substantial resources to get it right. That may include hiring data scientists and highly qualified business analysts to properly examine data and provide independent insights that mesh well with the overall digital transformation process. This is especially true for financial accounting standards and the advent of EvD measures that are compatible with generally accepted accounting principles. Accepting proper stewardship of data by setting data governance, reporting and control standards, and by recognising the central role data occupies in the value creation process will enable firms to harness the value of data in their long-term strategic planning, while creating a pathway for future growth.
Dante Disparte is founder and CEO, and Daniel Wagner is managing director of risk solutions, Risk Cooperative, which is based in Washington, D.C. The views expressed herein are strictly of the authors.
Categories: Data & Analytics
, Financial Technology
, Risk and Regulation
, Risk Management
, Technology & Operations