What allows a company to make money and an organisation to be successful ?
Typically, you will hear business leaders describe how they have great products or, especially in the more service-oriented industries, how the talent and quality of their employees has driven their growth. I’m sure this is true.
But how do those business leaders know just how well they are doing ? They will typically gather data on their costs ( raw materials, labour costs etc ), the sales they have made, the services they have delivered and hence determine profit and success. This all ends up on the balance sheet to become meaningful information.
Comparing that meaningful balance sheet information to similar information from other companies helps answer the question on how well you are doing. It also helps others make their decisions on how well you are doing and whether to invest in you, buy from you, engage with you.
If you want to do better, perhaps to impress investors, then you are going to need to sell more products and services, improve them further, invent new ones and all the while make your employees more efficient at doing what they do. That’s going to require more data about your markets, your customers, your suppliers, your competition. More measurement, more analysis to get more information and more insight. And so it goes on.
Surprising then that data, this curious “ether” that is oh-so important to yield the information and insight required for a company to make money or an organisation to otherwise be successful, doesn’t seem to be properly recognised of itself.
Does data have value ?
Data is the raw material for insight. Like any raw material, it has to be processed in order to deliver a usable product. That raw material can be stockpiled into inventory, ready to make more of that product in the future or possibly as part of some brand new product when combined with other raw material.
Thus data can be used to deliver current insights – the “product” you need to run your business every day. But it may also be used in new ways to deliver future insights and totally new value, something that will transform your business.
So if data is like a raw material, and is collected and stored like the rest of your inventory, and it has current and future value, should it be recorded on the company balance sheet as an asset ? Doug Laney at Gartner thinks so.
Proof that data has value
Let’s consider a customer record in your CRM system – what is that worth ? You are used to having this data at your fingertips. What if you didn’t ?
Consider the following examples:
- You need to phone customer for a satisfaction survey. By not having their contact data and background information easily available, you immediately see the impact to your productivity. Multiply that for similar situations across the entire company and the costs quickly mount up.
- By not having survey results for that customer, you are uncertain as to their loyalty to your brand. How much annual revenue do you have from that customer ? What would be the impact if you risked losing some or all of that revenue ?
- Later you need to contact the customer to negotiate a license renewal on a product they purchased from you. If the license expires, will they contact you ? Will they be unhappy their use of the product was interrupted ? Will they just go to a competitor ? That risk is now becoming more real.
- What happens if one of your competitors launches a rival product claiming better features or functionality ? You need to prevent your customers defecting. You want to identify the relevant demographic of customers who may buy the rival product and offer them an early-bird discount on your brand new product, due out later this year. What will be the revenue impact on your company if you cannot succeed in this campaign ?
Maybe we should look at this another way ? What if a cyber-criminal tries to break into your system to steal your customer data and sell that to the highest bidder ? What would that be worth to them ? And what financial impact is that to your company ? There may be the direct financial costs as discussed above, there may also be regulatory fines, and always the less quantifiable but nonetheless significant costs arising from reputational impact to your brand. If you could, how much would you insure your customer data against loss, theft or damage ?
And in these examples we have only looked at customer data. What about your inventory, supply chain and product design data ? What about your employee, contingent labour and talent data ?
Part 2 of this blog will discuss why and how organisations should put value on data.
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