Is Putting Data On The Balance Sheet The Holy Grail?

Nothing is impossible. Or so they say.

Brendan Ellis
DataDrivenInvestor

--

We are constantly told that the secret to a company’s success resides in its data.

Photo by Victor Garcia on Unsplash

Whether it be the press reporting on the FANG companies, Management Consultancies concluding to the C-Suite or the Chief Data Officer convincing their employees… the message is the same:

“Data is a strategic asset”

“Data is the new oil”

“Data is the lifeblood of the business”

Or something along these lines.

Personally, I can’t stand these tag lines as think they are nothing more than clickbait.

Without getting into it, every asset a business has should be strategic, so in this case, why is data any different??

Nevertheless, the race to unlock the value hidden within an organisations data landscape is ever increasing.

Peer (or more accurately competitor) pressure forces management to undertake data initiatives at breakneck speed. The truth, although most will not admit, is their company is not as far along the journey as they say.

A consequence of hast means data initiatives are not linked to business outcomes with all parts of the business being accountable in its success.

For example, how many times are the revenue generating parts of an organisation actually held to achieving the benefits realisation they committed to in a business case?

(Answer: rarely. If ever).

As a result, value eludes even the most enthusiastic pursuer.

In a bid to increase the chances of success, decisions are made to deploy technology…there’s a problem, here’s a technology solution!

Unfortunately, technology alone will not solve your problems or achieve success (no matter how much sales patter is given).

At this point I want to point out that I am not anti-technology, far from it.

In fact, I would class myself as a technologist. My frustration lies in the lack of understating the problem in the first place.

As a trained life coach, I am practiced in hearing what is not said; the undertones of the conversation, the reading of body language, the words which are implied but not spoken.

In turn, when a client comes with a particular problem, I am not surprised when the issue raised initially is not the root cause. The problem stems from the client being unaware of the true cause, therefore they focus on what they know.

It is about opening the client’s eyes to seeing something they didn’t know existed.

Which brings us nicely to the value of data for a business. I believe most companies are looking at the wrong problem.

If you ask the majority of companies how they will derive value from their data, the response is likely to be one or both of the following:

  1. Create benchmarking services i.e. selling back client’s data in a different form, and / or,
  2. Create new products or services i.e. using data to identify new revenue streams

I can’t disagree with these options as both should be aspired to.

However, I do believe this misses the point.

The true value of data, in my opinion, is being part of the Balance Sheet. The Balance Sheet captures the assets a business uses to operate to determine it’s net worth.

In its simplest form, there are current assets (lifespan of one year or less) and non-current assets (assets that are not likely to be turned into cash easily and a lifespan of greater than one year).

Data would appear to fit in the latter, forming a long-term part of the company.

So if the statement that ‘data is a strategic asset’ is true then why has it not been captured on the company’s financial statements??

The answer is why don’t know how.

Photo by Dan Dimmock on Unsplash

The accounting implications are considerable.

Ranging from asset measurement to cost determination (of the data in this case). Now throw in data would be classed as an ‘internally created asset’ which cannot be recognised as an intangible asset, as well as any deprecation, context and compliance considerations.

All of a sudden, the barriers to entry on the Balance Sheet become sizeable.

However, this should not put us off.

Establishing a mechanism to put a value on an organisation’s dataset should be where the effort is focused. This will encourage companies to be serious in their data pursuits.

Imagine if data quality was assessed as part of the external audit review?

Audits (for companies who fulfil size criteria) could also opine on the quality and value of the Company’s data in much the same way they do for valuing illiquid investments.

It would be based on models and market valuation assumptions along with the ability of Management to execute their strategies.

This means that a company’s data does not reside solely in it’s systems; it is also reliant on the employees (under Management guidance) to extract this value.

This brings us to the crux of the matter.

The value of data to it’s company is multi-faceted.

Companies need to be able to:

  • Identify the data
  • Access the data
  • Make the data available
  • Cleanse the data
  • Make it useable

These steps are hugely simplified but not unique to any business — they are applicable to every business.

In fact, if it were that straight forward, applying technology to perform the steps above would immediately leverage the value Management are seeking.

This is where the ability to execute on deriving value becomes so important.

As mentioned at the beginning, if the business outcome or ‘exam question’ is not defined in detail, value will never be realised regardless of the technology used.

That’s why having an independent view could add so much value (It does not have to be external auditors, as could be a regulatory body) — this would be the 1st step in getting data on the Balance Sheet.

I fully appreciate this may sound a bit far-fetched, but my question is why not?

We need to push boundaries.

We need to widen our thinking and challenge our assumptions.

If Data really is that important to business, as many say, then who is setting the Big Hairy Audiacious Goals??

It is through thoughts like this that innovation happens.

Just ask Elon Musk.

Gain Access to Expert View — Subscribe to DDI Intel

--

--

“Data drives the world but people bring it to life.” No BS articles on life experiences, personal development, mindset & habits.