Infonomics – I’m often asked ‘so this information thing, how do you place a value on it’?
Businesses today are increasingly ‘information centric’ and their business models are founded on data collection, retrieval, value addition and sale. Interestingly, despite the pivotal role that information plays in their businesses, these companies do not have a way to practically account for this asset on a daily basis.
We believe the valuation of information provides a significant opportunity to gain competitive advantage. Those that don’t invest in their information in the coming years may experience greater business hurdles unless they acknowledge their information holdings as a valuable asset, if not the most valuable.
Presently, the scope for information valuation using traditional methods is fairly restrictive. However, emerging industry practices point to a trend of increasing information monetisation as highlighted by Forbes in 2012. It is important that businesses stay alert to opportunities for information valuation within their environments and begin early to achieve a head start in the process. Doing so will present a better understanding of actual corporate valuations and guide strategic information based investments for improving performance.
With information undergoing such sweeping changes in its role and attribution in driving businesses, and emerging as a market in itself, companies are aware that they have to rethink their valuation of the information asset.
Information projects such as ‘Business Intelligence’ generally fail due to the lack of support from senior management commitment as the return on investment is not easy to define. Currently, there is a lack of a simple and accessible information valuation process for business leaders to understand and utilise. Furthermore, the ability to easily benchmark information holdings is also a major capability gap for businesses.
The pursuit of valuing information or ‘Infonomics’ has a significant amount of underpinning academic research. This research has produced many well-known mathematical models that generally require expert knowledge to fully exploit. Despite the weight of research, there remains no simple approach for the most basic of valuation and estimation. With the growth of information as a strategic business asset showing no abatement, we believe this area need not be so complex.
So let us start to frame our perspective. Below are six areas we believe can help any organisation start to understand the value of their information holdings? Ask yourself these questions:
What is the intrinsic value of your information – How good and easy to use is the data versus how likely are others outside the organization to have it also? This is the presumptive value of information enabling apples-to-oranges comparisons in business.
What is the business value of your information – The value of information to a business process: How good is the data? How applicable to the business or a particular business process is it? How quickly can we get fresh data to the point of the business process?
What is the loss value of your information – The cost of not having information: What would it cost to replace the data, and what is the financial impact to the business if the data were lost over a time period?
What is the performance value of your information – Value of information to business objectives represented as key performance indicator (KPI) targets: How much does having a unit of information incrementally contribute to moving closer toward all KPI targets over a given period?
What is the economic value of your information – The bottom-line financial value for the information asset: The Performance Value of Information (PVI) for a revenue metric less the cost of acquiring, administering and applying the information.
What is the market value of your information – The income that can be generated by selling, renting or bartering this information – how much is a business partner willing to pay for access to this information?
With the rising importance of information based business models, information asset valuation is rapidly emerging as a key area of study within financial sciences. The availability of such evaluation approaches and principles will help info centric businesses in measuring the present and future value of their information assets.
While the above information is not new and is widely available from other consulting companies you are still thinking – ok, show me how? If you want to know more about the ‘how’ we would be keen to hear from you.