Infonomics is the discipline of valuing Information Assets and it is based on the idea that information is an enterprise asset that should be counted and managed. This article explains why Infonomics is becoming increasingly important.
Information Assets (data, information, published content and knowledge) are arguably an organisation’s most vital and strategic resource. Providing the right data to the right people at the right time is critical to every business activity, every business process and every business decision. Information Assets are the only ones that cannot be replaced if lost or destroyed. They are foundational to all high-profile business solutions and technology enablement: to analytics, artificial intelligence and machine learning; cyber-security; cloud computing; Blockchain and the Internet Of Things; and almost any form of innovation and disruption.
Unlike other physical or even financial assets that can only be used once then are used-up, any Information Assets can be used again and again, and be used a multitude of ways simultaneously. And wherever information is used, it typically generates more valuable information. In this way, Information Assets are a non-depleting, non-rivalrous, and regenerative resource. Organisations that capitalise on these properties are the ones that are winning – and they are winning big today.
In 1975 intangible assets contributed 17% of the value of the S&P 500; today (2015) it is 84%[i]. In the early 1950s the share of corporate market value attributed to book value was well over 80%; today (2013) it is just over 40%.[ii] Welcome to the Information Age and the Data Economy! Business leaders who don’t recognise the need to treat their information as an actual strategic business asset are positioning their organisations for failure. It’s trendy for executives and others to spout on about data being “the new oil”. But when we hear this, it’s a signal that they just don’t get it. They don’t get that information has economic properties that make it orders of magnitude more valuable than oil.
Despite the value of Information Assets and the contribution they make, according to executives of a US based law firm and an Australian oil and gas producer that have discussed the problem with us, if their organisations were to manage their money the way they manage their data, they would be ‘broke in a week’. When I asked why, they both replied to the same effect that, anyone in their respective organisations would be able to spend any quantity of money at any time for any purpose without authority and without having to report on it because that is the way they manage their information. That is, money would walk out of their organisations in wheelbarrow loads. There is a fundamental disconnect here.
In the words of Julius Sumner Miller, “Why is this so?” Doug Laney, pioneer of the discipline of Infonomics notes that, ‘information isn’t considered a capital asset by current accounting standards and regulatory bodies (e.g., GAAP, AICPA, and FASB)’ and is not recorded on the balance sheet. [iii] It naturally follows that, ‘stinking at information management may seem overstated. But when compared to the rigor and process and discipline with which other ‘balance sheet’ assets are managed, the attention paid to information assets pales.’ [iv]
Experience Matters and the University of South Australia have been addressing this disconnect with their research into the Barriers to and benefits of managing Information Assets effectively.[v] Findings from the research support Doug Laney’s views; they provide evidence that one of the greatest barriers to managing Information Assets effectively is Justification, in all its manifestations. Observations include: there are few catalytic events or burning platforms; compliance and risk management are burdensome; other priorities prevail; the cost of managing Information Assets well and the benefit of doing so are unknown and are not recorded on the Income Statement; the value of information is contextual and is not recorded on the Balance Sheet; benefits are intangible, intertwined and difficult to crystallise; inefficiency is often rewarded; and the management of Information Assets is boring.
But if Information Assets had a value that was recorded on the balance sheet, the disconnect, and our associated problems, would vaporise in an instant. Infonomics analyses the production and consumption of information and the transfer of money to produce, sell or obtain it.[vi] Doug Laney explains: [vii]
Infonomics is the concept and practice of treating information as an actual corporate asset. Everyone talks about information as one of their organization’s most critical corporate assets but scant few actually behave as if it is. That is, they don’t monetize, manage or measure it with nearly the same discipline as their physical or financial assets – or even their human capital. In fact, most companies treat their office furniture with greater asset discipline than their information…perhaps because even in the midst of the Information Age the accounting profession refuses to recognize information as a balance sheet asset.
Laney says, ‘for most practical purposes it makes perfect sense (and dollars) to monetize your information in a variety of ways.’ [viii] Infonomics posits that information should be considered a new asset class in that it has measurable economic value and other properties that qualify it to be accounted for and administered as any other recognised type of assets – and that there are significant strategic, operational and financial reasons for doing so. Infonomics provides the framework businesses and governments need to value information, manage it and wield it as a real asset.[ix] It allows organisations to transform from just using information to optimising it. It also allows organisations to better understand, gauge and financially leverage the benefits from managing Information Assets well.
Laney discovered Infonomics when he was at Gartner. After the 9/11 terror attacks on the twin towers, clients lamented to Doug not only the tragic loss of life but the loss of their data. They told him that their businesses had submitted claims for their data to insurance companies which refused to honour those claims by arguing that electronic data wasn’t a type of property covered by their policies.
So he researched the definition of an asset in an old accounting text and he researched balance sheets in the online financial database EDGAR. He found that although information meets all the criteria of an asset, because it is not included in the balance sheets, it is not recognised as such. And so the penny dropped. Information doesn’t have a value. Therefore, it can’t be measured. You can’t manage what you can’t measure. And you can’t monetise what you can’t manage.
Over time Laney and his colleagues developed and adapted models for measuring information’s value – in a variety of ways and for different purposes. They have explored how to manage information as an actual asset by applying asset management approaches from other fields. They have designed approaches to monetising any Information Asset that takes advantage of its unique economic properties. And they have begun exploring how traditional economic concepts like supply and demand, marginal utility and price elasticity must be tweaked to apply to Information Assets.
The value of Information Assets is contextual. In an oil and gas producer, seismic data is extremely important to a Reservoir Engineer because they use that information to do their job. But it is also useful to the Director of Investor Relations because they have to sell the company to the investor community. And it is of value to the Chief Financial Officer who has to determine how much (s)he can spend to develop the resource and still make a profit. And after 10 years and the well has been capped, that seismic data may no longer be of use to the Reservoir Engineer. So Information Assets will have a different value according to different professions, different levels of seniority and different time frames
Because the value of Information Assets is contextual, and because different organisations have different corporate objectives and measurement approaches, one size does not fit all. To address that issue Laney has developed six models for valuing information that fall into two categories, namely Foundational Measures and Financial Measures. The models are:
1. Foundational Measures
a. Intrinsic Value of Information – how correct, complete and exclusive are the data
b. Business Value of Information – how good or relevant are the data for specific purposes
c. Performance Value of Information – how do the data affect key business drivers
2. Financial Measures
a. Cost value of Information – what would it cost if the data were lost
b. Market value of Information – what could the data be sold or traded for
c. Economic value of Information – how the data contribute to the bottom line
Each of the models has its own formula, an equation for determining the value of the organisation’s Information Assets.
Applying a value to Information Assets allows executive management to see them for what they really are – a vital and strategic resource to be managed, deployed and exploited. It allows them to be managed the way other assets are – with effective governance, leadership, management and business behaviours. It allows the fundamentals of good asset management to be applied – a framework, measurement, reporting and management tools, clear responsibility for the management of those assets and unavoidable accountability.
And from our research, the potential business benefit of good Information Asset management is in the order of 20% business improvement per year.[x]
Infonomics is a discipline that is well worth investigating.
James Price, Founder and Managing Director, Experience Matters
[i] Ocean Tomo, Valuing Intangible Assets,September 2017.
[ii] Baruch Lev and Feng Gu, The End of Accounting and the Path Forward for Investors and Managers, 2016
[iii] Doug Laney, Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage, 2017, 20.
[v] Nina Evans, and James Price, Barriers to the Effective Deployment of Information Assets: An Executive Management Perspective, Interdisciplinary Journal of Information and Knowledge Management (IJIKM), 7:177-199.
[vii] Note iii.
[ix] Information Governance World Issue 1 Volume 1, 50.