While many businesses are in a constant battle to shore up their balance sheets, there are assets worth literally billions of dollars that go unrecognized, unaccounted, unappreciated and unvalued in almost every business. There are a few astute financial analysts that recognize these assets and invest in them heavily. You will find this primarily manifested in the stratospheric valuation of "dot com" and e-business companies.
How can these companies possibly justify this valuation? Two things drive this topsy-turvy world of market capitalization. The first is a bet on the value of the standard brand icons of tomorrow. Just as we grew up with Sears, Coke, American Express, Hilton, AT&T, Bayer, etc., the current and future generations will grow up with Amazon, Yahoo!, AOL, etc., as the names they know and trust.
The second big reason is the incredible repository of information that these companies are collecting every day about every aspect of their interaction and relationships with their customers and their associated demographics and psychographics, be they B2B (business to business) or B2C (business to consumer) business models. This collection of information, properly leveraged, is almost infinitely valuable, and the astute financial analysts are perceptive enough to invest in the current and future value of this asset.
As we become more and more an information economy, the general financial world will begin to recognize this incredibly valuable jewel hidden in most businesses today. Eventually, we may see the FASB (Financial Accounting Standards Board) develop a formal information valuation process, which would flow into standard GAAP (Generally Accepted Accounting Principles) methodologies. In the long term, if all assets are truly valued, we will begin to see annual reports with a line item in the balance sheet listing the asset value of the information resources of all businesses, not just ones built on an information-value business model.
The resulting valuation of these information assets will involve, at a minimum, the following factors:
- The core value of the information resource. Although the accounting world will prefer to value these assets based on the cost to create them, to truly reflect the business value, it will be necessary to attach a fair market value to this information. There will be a formal process established for valuing information based on its core content, aging, market pertinence (ability to be utilized in a market-meaningful fashion), etc.
- The quality of the information. A formal methodology for evaluating and ranking the data quality of an information resource will be created. This multiplier will be applied to the core valuation of the data resource to yield a "quality data" valuation. Organizations that invest in processes that engender the production and utilization of quality data will be rewarded. Businesses that continue to stick their heads in the sand about the impact of data quality will be penalized.
- The infrastructure required to leverage the information resource. Organizations will be rated on their technological infrastructure's ability to utilize and leverage the information resource. Now that data warehousing is recognized as a fundamental requirement for effective CRM (customer relationship management), SCM (supply chain management), one-to-one marketing, e-commerce, etc., organizations are expected to have the infrastructure items, systems and processes required to utilize the information assets they possess. Businesses that lack these items will receive a zero valuation of their information resources. Naturally, this will reward management teams that recognize and leverage the information assets in their business and integrate them into the core business management processes they use to move their organizations forward in the marketplace. Management teams that choose a "gut feel" management model and discount or disdain information/fact-based decision-making will witness a negative impact on their balance sheets.
- The business vision, leadership, model and processes to effect business change based on the information asset. This will be most self evident in the income statement of these organizations. As with any asset, it is possible to have a very strong balance sheet and a lousy income statement if you lack the ability to envision the possibilities to leverage assets (the job of the executives) and to execute on that vision (the job of the managers). Organizations that score well on the first three factors, but whose information assets have little to no effect on the bottom line compared to their peers, will suffer greatly in market valuation.
We have worked with organizations that have discovered that the information in their data warehouse was more valuable than the business model that produced the data. Their resulting shift to a "data as revenue" business model is the ultimate manifestation of the hidden jewel of the information resource.
To read previously published columns or articles by this author, please visit http://www.dmreview.com/authors/.
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