Justifying any significant business investment is challenging. For data managers, the struggle is especially familiar. The difficulty is convincing decision makers to invest in data when measures of data’s value either do not exist or feel too ambiguous to estimate.
As digital transformation accelerates, interest in frameworks for linking data to monetary measures grows.Connecting data and value requires an approach of “treating data as an asset.” Through wide industry collaboration, the Data ROI Working Group of EDM Council has collaborated to define a three-step framework for how organizations can advance the concept of treating data as an asset by measuring, managing, and creating value from data, as follows:
- Measure: Assign a specific value to your organization’s data.
- Manage: Understand how to treat data with the similar care as physical assets.
- Create value: Establish a practice of determining the return on investment (ROI) of data initiatives.
Much like digital transformation, treating data as an asset is a journey. There is no “quick fix” or turnkey solution. But organizations can begin by carefully considering and challenging this approach to confirm its relevance and applicability as they progress their business and further mature their data management function.
Why Treating Data as an Asset Is Important
The association between financial performance and leading practices in data management is strong. A desire to connect data to value reflects a need to determine investment budgets and make optimal investment choices.
Closely related to investment in data is digital transformation, a broad notion involving many forms of investment (e.g., cloud, artificial intelligence, advanced cyber defenses, Internet of Things, etc.), most of which are costly and increasingly viewed as required.
The link between data and successful digital transformations should not be underestimated. Data is the foundational element of any successful digital transformation. In the digital age, not thoroughly considering all aspects of effective data management will result in most strategies, investments, and operating designs facing higher risk of failure.
An organization’s value today is less about tangible assets and more about intangibles — data included. Intangible assets are inherently harder to value and typically do not appear on a balance sheet, contributing to a lack of understanding and appreciation among business leaders and financial professionals. Evidence showing the rise of intangible assets are many. Here are just two examples:
- As of year-end 2020, 90% of the market value of firms in the S&P 500 were intangible assets. Compare that to 1975 when intangible assets made up only 17% of its market value.[1]
- Sectors that have invested the most in intangibles — more than 12% of their gross value added (GVA, a measure of economic growth) — achieved 28% higher growth than other sectors in GVA, or more than 2.7% per year between 1995 and 2019.[2]
Measure: Data Has Value. How Much?
The first pillar of treating data as an asset is to Measure. Specifically, measure means we are placing an estimated value on the data in an enterprise.
The value need not be precise, but it will be a value and one that will quite likely be eye-opening. This eye-opening effect is more important than the value’s precision, but the number needs to be credible.
The Working Group devised an approach that splits “unattributed intangible value” across five categories: brand, data, talent, innovation and other. “Unattributed intangible value” is the difference between a company’s market capitalization and its book value. The net result is that for many publicly traded companies, the value of their data is commonly between 10% and 25% of this “unattributed intangible value”. An organization’s overall data value sets an upper boundary for evaluating the value of individual data assets within the organization. These may be evaluated using various methods of discounting the cash flows relating to the data assets. The benefit of having values for data assets is helping decision makers justify investment decisions.
Manage: Caring For Your Data Asset
Managing data as an asset not only justifies placing a value on data, but it is also the foundation to creating more value from data. The journey to manage data as an asset is an enterprise-wide effort; aligning data with normal business processes and outcomes supports a better understanding of data’s value relative to business initiatives. Managing data as an asset includes the support of systems, organizational talent, controls and more, with similar attention as valuable physical assets.
Key considerations to managing data as an asset include:
Aligning data strategy with the business strategy. Leaders should consider the question, “Could we deliver on our business strategy without using data?”
Organization & Taxonomy. Sustaining an enterprise-wide classification of data assets requires organizations to produce and maintain data inventories that follow established metadata management standards.
Security & Control. A well-defined control framework with multiple lines of defense to execute, monitor and audit control procedures across the organization is crucial for risk management.
Ownership. Data ownership should lie with the business executives and be supported by risk and technology.
Governance. Data governance is necessary for organizations to manage their data appropriately by implementing data management standards and policies.
Creating Value
Creating value, in treating data as an asset, means having a consistent and disciplined approach to measuring value creation. The explosion of data, together with its easier and wider availability, is transforming many sectors and domains — leading to, at times, powerful value creation. Forward-thinking businesses, across several sectors and industries, are leveraging troves of data to transform themselves to become more efficient, agile, and customer centric.
How does an enterprise create more value from its data? After measuring the value of data, a typical path for creating value from data is simply using it to increase the cash flow to the business where the data already resides. That tends to mean doing what the organization already does, but better. There are many ways to categorize value-creating use cases from data. Whichever categories are used, each must have a well thought out path to realizing measurable incremental revenue, cost savings, risk reduction or other valuable outcome.
Learn More
Read the comprehensive report, Measure, Manage, Create Value – Practical Steps for Achieving High Data ROI by Treating Data as an Asset, downloadable from the EDM Council Data ROI webpage. The EDM Council also invites industry participation in the Data ROI Working Group.
This quarter’s column contributed by leading members of EDM Council’s Data ROI Working Group:
- Brian McConnell, Wellington Consulting Group
- Matt Noll, EY
[1] Ocean Tomo, “Intangible Asset Market Value Study, 2020,” https://www.oceantomo.com/INTANGIBLE-ASSET-MARKET-VALUE-STUDY, 2021
[2] McKinsey Global Institute, “Getting Tangible About Intangibles,” 2021
