Should Information Be On The Balance Sheet?

This painfully viral meme comes to you courtesy of none other than James Governor of RedMonk Consulting, perhaps better known as @monkchips.

He infected me badly at the recent EMC megalaunch event in London.  The words escaped his lips, and I had to go think about it -- a lot.

And maybe you should, to.

The Basics

The balance sheet is one of four basic financial statements, showing the financial status of an enterprise at a given point of time.

At a high level, assets minus liabilities equals shareholder equity, e.g. unique value created.

It's hard to argue that information wouldn't play in all three categories.  Certainly, a robust information portfolio can be considered an enterprise asset.  Poorly managed or secured, that same information can often be a liability as well.

Indeed, as more and more goods and services have an increasingly relevant information component, should we start asking ourselves this rather obtuse yet insightful question?

I think the answer is -- yes -- since I believe in the act of asking the question, we drive the right behavior.

We Know Money, Don't We?

We, as a society, know how to think about money and finances.  We know how to value financial assets, we know how to use them efficiently, and we know how to protect their value.

Are we anywhere near as collectively proficient when it comes to information assets?

We Struggle To Think Of Information As Potential Value

Generationally, we have not been trained to think of information as money. 

At one of the spectrum, traditional IT organizations view massive amounts of information as a cost, a risk, or perhaps both.

And at the other end of the spectrum, many business users have fallen into the lazy habit of thinking in terms of silver-bullet applications that somehow magically deliver the right information at the right time, without going deeper to understand the nature of the information behind these convenient applications.

Somewhere in the middle of these two extremes is a potential treasure trove of information-based value waiting to be unlocked for those that go looking. 

And asking the right questions can force attention on an unfamiliar topic.

Examples Everywhere?

Consider the all-too-frequent scenario of multiple databases, lying around an organization, each providing a partial glimpse into customers, markets, or other key aspects of the business.   The total value of the information asset can only be realized when the pieces are assembled, and used to generate new insights.

Or consider enterprise knowledge management.  At EMC, I am convinced that, for the vast majority of questions, there has been a document written somehow, somewhere.  Finding it can be a problem, though :)

It doesn't take too much consideration of business-as-usual, and realize that we don't think of information as an asset -- one that must be used efficiently to be of full value.

Thinking About Asset Maintenance

If you've got an expensive manufacturing machine, you invest periodically to keep the asset running in top shape, otherwise its value falls sharply over time.

Are information bases any different?  How many databases in your organization are providing declining value simply because there isn't a regular program of data maintenance and enhancement?

You wouldn't buy an expensive manufacturing machine without investing in ongoing maintenance.  Why should a value-creating information base be any different?

And, Yes, Risk Management

Turning to the liability side of the balance sheet, can large information bases be a corporate liability?  We've certainly proven that case for, say, credit card information as well as sensitive diplomatic communications.

Put differently, if you're accumulating large amounts of information as part of your business, perhaps you're gradually building up a risk profile that's invisible and hence unmanaged.  Generations ago, companies dumped toxic wastes into the environment, and eventually there was a day of reckoning.

Putting financial provisions for the unlikely but possible event of having a "bad information day" directly on the balance sheet would certainly focus better behavior across most organizations.  It certainly would drive better controls and governance.

And, Finally, Shareholder Equity

Finishing off the thought, so many of the newer value-added products and services that are driving economic growth are essentially information-based, or -- at least -- have a significant information component.

Most aspects of healthcare have turned into an information business, as have energy production and distribution.  Manufacturing is largely an information-based vertical these days, as is retail.  And financially services -- well, take away their information bases, and there wouldn't be much there, would there?

Getting The Right Behavior By Asking The Right Questions

When you watch good leaders and executives in action, one of their more powerful techniques is to ask the right questions.  

They may not always give you the answer, but they want you to go think about something, in the hope that actions and behavior changes for the better.

As I think about it, this is certainly a potential example of this principle in action. 

Do you believe that -- over time -- we will increasingly become an information-based economy?  That the vast majority of newer business models will have a significant information-based component?  That the discussion around 'big data" has less to do with technology, and more to do with new ways of creating value?

If that's the case, maybe you should start asking the question -- should information be on the balance sheet?

 

 

 

 

 

 

Comments

[David Gingell]

"At EMC, I am convinced that, for the vast majority of questions, there has been a document written somehow, somewhere. Finding it can be a problem, though :)"

Didn't you buy a content management system back in 2003 to solve that problem? ;-)

[Chuck Hollis]

Hi David

I'm assuming the question is a bit facetious, but -- in case you're serious ...

Yes, we've got a lot of content in our Documentum-based systems, as is the case with many organizations. But the potential of the tools can only go so far without the supporting process, behaviors and organizational investments to get the value out of the information, as well as the tools that manage it.

But you knew that, didn't you?

-- Chuck

[David Gingell]

Chuck, yes, I was having a bit of fun. Cheap thrill, sorry about that. As a 13 yr Documentum (& EMC) staffer I still wear Documentum on my sleeve even after all this time :-)

[CyberFonic]

Mining companies value their discovered but undeveloped reserves. Information could be viewed the same way. For example, if we look at gold mining. Even once we extract the gold and refine it, there are many ways of further increasing it's value. For example, jewelery is worth more than bullion.

The value of information, like ore bodies, depends very much on how much it costs to discover, extract, process and transform. Well you've opened the door to an interesting new way of looking at what was under our noses all this time.

[Hans Timmerman]

Working in the aerospace industry about 2 decades ago and at that moment responsible for the CAD/CAM center, we started to migrate hand-made drawings into CAD-models. We valued each new CAD file based upon it's number of engineering and management hours. So our growing digital database of CAD-models was the 'engineering capital' we had to maintain and protect.

That was a great way to value the digital assets, due they were the basis for our certifications and licenses, needed to sell and deliver our planes. They were part of our technical capital (including molds etc.) that was valued on the balance-sheet and even used later in a sale and leaseback contract to obtain new risk-based money for development.

While the labor cost of a handmade drawing and a 3D CAD model were about the same, we even could prove that digitizing gave us much better productivity in the product life cycle and it was a basis for the investments needed in HW/SW and new product data management systems.

I know that also in the pharmaceutical and nuclear business their digital capital is somehow shown as 'capital'. All businesses where this 'digital capital' is key and needed to get formal licenses to sell and deliver their products. So putting digital assets on the balance-sheet is not new and already done by companies who understand that value.

[WASP]

Looking at latest financial statements I have to guess that a lot of that "information asset" intangibles you're talking about are probably already baked into EMC books. 33% of all company Assets belong to Goodwill, for all those overpaid acquisitions (many of which will likely destroy shareholders value I have not doubt) that must hold within a goto information bucket. Maybe most of the rest know how to think about numbers and finances, a concept exuberant EMC management seems to lack in certain circumstances.
So your digressions, whether FASB should give management yet another discretionary dial to tune and manage quarterly numbers are pointless and behind the cure. It is already there!

[Chuck Hollis]

WASP

That's an interesting rant. I have no idea what your point might be. Thanks for sharing.

-- Chuck