Data as a business asset.
If organisations managed their finances as they do their data; many would be facing Section 11 within just a few short months.
It’s almost criminal that one of the most valuable assets owned by a business can be – in some cases – so mishandled or worst still, overlooked. This is why it is crucial that data gets the recognition it deserves and gets a place on the balance sheet.
So how valuable is data?
Well this is the $64,000 question – actually more like the $64,000,000,000 when we’re talking about data-driven organisations like Facebook and Google.
Thirty years ago it would be inconceivable that businesses, which on the surface of it, have few tangible assets could dwarf asset rich sectors such as Aviation, Agriculture or Automotive. And yet today Airbnb, a platform with minimal owned property on its books is worth more than Hilton and its portfolio of 6,000 hotels.
But whilst most businesses are unlikely to achieve the stratospheric growth realised by the big disrupters a leaf can certainly be taken out of their books.
Data is a source of competitive advantage
How has Netflix produced Oscar-winning content?
Through its forensic, behaviour-led (rather than demographics) understanding of its customer.
How is it able to produce hit series after hit series?
Because it knows what its audience wants and even better it can push specific content to specific viewers so they don’t even have to go searching for it.
It’s a number game
If Netflix was a country it would almost be as big as Bangladesh by population and Facebook would be the third largest country outranking the USA by over 33,000,000 people.
This volume of information is incredibly difficult to replicate. It is no accident that Clubcard propelled Tesco to supermarket dominance. Putting real customer data at the heart of the business revolutionised almost every facet of the organisation from logistics to merchandising, not to mention marketing.
Moreover, it’s no surprise that many organisations monetise this data further.
Tesco sells insight to brands about how customers behave.
Facebook sells access to specific demographic groups so that insurers can make better underwriting decisions than their competitors.
With data there are a lot more ways than one to skin a cat. But the upshot is this – data is a real, tangible and accessible source of Corporate value.
The complexities behind valuing data
Quantifying the value of data is a different matter altogether and one that continues to confound.
In 2016, US-based FASB started an investigation into finding ways to include data on the books. Four years on and they are no closer. It cites a number of barriers, but two of the largest are depreciation and compliance.
It is no coincidence that depreciation and compliance have been a focus following the introduction of GDPR in 2018.
The impact of GDPR on data valuation
Under GDPR data essentially now has a sell-by date as Article 5 (e) states that Personal data shall be kept for no longer than is necessary for the purposes for which it is being processed.
Moreover, the concern about compliance is the fact that data can very quickly transform itself from an asset to a huge liability if it has poor security – just ask Equifax, EE. BA and Marriott.
However, under GDPR data security has been moved much higher up the corporate agenda and as a result the liability conversion risk should be minimised. And here’s a little career advice for free – Data security is currently the fastest growing job market.
So with data now one of the largest sources of competitive advantage, combined with the impact of GDPR surely it’s time for the Accountants to take another look at getting data on the balance sheet.
The impact this would have would be enormous. More organisations would become aware of just how valuable data can be, treat it more respectfully and encourage the monetisation of data assets through innovation, out reach, Service Design, NPD and enhanced Knowledge Management.
Yes GDPR has gone a long way in promoting data security and consumer protection, but for many organisations this is just housekeeping. Data is yet to form part of the DNA of the businesses. With compliance and data as a business asset in place the business landscape would be transformed and customer centricity would become the factory setting, which can only be a good thing.