Whether you call it the digital economy or the information age, we have reached an economic era where regulated financial reports, and the balance sheet in particular, captures less than 20% of the market value of companies. The International Integrated Reporting Council has a model that uses six capitals to present a comprehensive view of an organization’s value. Those capitals are: financial (sources of funding), manufactured (buildings/equipment created for internal use), intellectual (knowledge-based intangibles), human (employee competencies, capabilities, and experience), social and relationship (relationships between communities, groups of stakeholders and other networks), and natural (environmental resources and processes that support current or future prosperity). All of these capitals apply to manufacturers, and it is well worth the time of the manufacturing CFO, COO, CEO, and board to gain an understanding of them to broaden their assessment of the company’s value and strategy.
One asset that is often overlooked, which digital manufacturing is creating at an exponential rate, is data. Valuing data is a relatively new concept, but increasingly our data is recognized as a valuable asset. Some estimates have concluded that data may be 30% of today’s market capital value, making it one of the largest, intangible valuation factors. This is significantly more than the value captured on balance sheets. Data often hides within an organization’s functional stovepipes since we have not traditionally considered it an asset that had a monetary value. Understanding and increasing the visibility of your data assets internally, and to potential investors, is a clear opportunity to improve and promote the value of your organization.
Monetary valuation is an important tool to grab organizational attention. This valuation will not pass muster for inclusion on a regulated financial statement, but achieving a more tangible sense of data’s value can improve internal management and appeal to some types of investors.
Given its importance, what methodologies exist to value data? Well, since such methodologies are still in their infancy, it remains a complex and highly context-dependent problem. We may base value on type and frequency of current and projected use, content, age, history, reputation, creation cost, strategic value, revenue potential, security requirements, and legal importance. Though advice on the best way to approach this remains to be seen, it is still an endeavor that merits serious consideration and study.
What about technology? Isn’t it essential to data, even inextricably linked? We record technology investments on balance sheets, accounting rules typically depreciate them rapidly, and much of the internal intellectual and human capital associated with their implementation remains intangible. Data links to technology but is distinctly different. Information technologies both create data (often more than they use) and use data to create information. Ultimately, data are raw facts and figures. Information results from processing and organizing data to create knowledge or improve decisions. We can use data in multiple ways and the same data can create many types of information.
Once your organization understands its data is valuable, many questions need answers: What unique data should be protected? What data should be shared more widely inside the organization? What data should be shared with the supply chain and customers? Is your data governance function sufficient for the value of your data? What data are risks, and should we delete them? What data could we sell or trade? What additional data could we collect and create to enhance value? How can we use our data to improve our business and decisions?
The value of organizational data is a clear case where managing purely from traditional financial statements for traditional business results can severely limit the opportunities an organization sees and explores. Modern manufacturing must rethink its business in nearly every respect to compete in today’s highly connected digital environment.
>>Larry White, CMA, CFM, CPA, CGFM, [email protected], is Executive Director of the Resource Consumption Accounting Institute which trains and advocates for improved cost information connecting operations to business performance.
