How should Wall Street fairly value a business? Conventional assets like sales, earnings and brand recognition are routinely considered. Now Gartner is suggesting that a company’s data should be thrown into the mix.
In a new report on the growing economic impact of data and analytics, the IT researcher argues that the value of a company’s information should be included on its balance sheet. By 2021, it predicts, many companies will have adopted formal valuation and auditing practices for their information portfolios and stock market analysts will include the outcomes in their buy, hold and sell recommendations.
Today, “Information simply is not valued by those in the valuation business," says Gartner analyst Douglas Laney. "However, we believe that, over the next several years, those in the business of valuing corporate investments, including equity analysts, will be compelled to consider a company's wealth of information in properly valuing the company itself."
Per the Gartner study, companies engaged in "information-savvy" behavior — such as hiring a chief data officer (CDO), forming data science teams and engaging in enterprise information governance — already command market-to-book ratios well above the average. That means that "Anyone properly valuing a business in today's increasingly digital world must make note of its data and analytics capabilities, including the volume, variety and quality of its information assets," Laney argues.
Ted Friedman, another Gartner analyst, cites three key trends prompting this change:
1. Data and analytics will drive modern business operations and not simply reflect their performance.
2. Organizations will adopt a holistic approach to data and analytics, as they create end-to-end architectures that allow for data management and analytics across the enterprise.
3. Executives will make data and analytics part of their business strategy, paving the way for data and analytics professionals to assume new roles and generate growth for the business.
In light of all this, the Gartner report says that corporate boards and CEOs, if they have not already done so, should move now to appoint CDOs to optimize the collection, generation, management and monetization of their information assets.
The importance of algorithms
Gartner also predicts that by 2019, 250,000 patent applications will be filed that include claims for data algorithms—a tenfold increase from five years ago.
According to a worldwide search on Aulive, a provider of innovation and business value creation tools, nearly 17,000 patent applications in 2015 mentioned "algorithm" in the title or description, versus 570 in 2000. The number of applications that mention "algorithm" anywhere in the document also soared—to more than 100,000 last year versus 28,000 five years ago.
Among the 40 organizations seeking to patent the most algorithms during the past five years, 33 are based in China. IBM was the only western company among the list’s top ten applicants.
Despite their growing importance, many business leaders ignore the strategic importance of algorithms. They “don't care too much so long as they 'work,'" says Laney. But, he adds, “Algorithms can make a great deal of difference. The list of important algorithms is endless. To name just a few: Google's PageRank algorithm, mp3, blockchain and backpropagation in deep learning."
Developing methods for valuing and patenting algorithms, the Gartner report says, should be a significant part of how companies seek to monetize their information assets.