Data is not just a tool for growth — it is the growth
Financial institutions recognize the importance of valuation of intangible assets, but few of them recognize just how valuable their data is, and how critical it can be to the success of the digital transformation process.
A definition for what constitutes the “Enterprise Value of Data” — or EvD — has only recently been developed. But EvD has the potential to become a centerpiece of corporate value creation and business continuity. The failure to quantify EvD may not only rob a company of value, but may severely inhibit its ability to get the most out of the digital transformation process.
EvD and digital transformation intersect in a number of ways. One example is the valuation of personal data through the eyes of the shareholder. Personal data is worth whatever a shareholder is willing to pay to acquire client data from a data-centric company, as was the case when Facebook acquired WhatsApp and Instagram for what to an outsider appeared to be wildly excessive valuations. At the time of their acquisitions, neither app was profitable, so their valuations were based on their respective user base and data, and how Facebook believed it could monetize them. In the knowledge economy, the ability to maintain the quality and strength of that relationship over time is where value resides.
Another example is accounting for the revenues generated by customers and estimating the value of a client as a function of the net present value it will generate for the company in the future. This can be predicted by using customer transaction data, enabling decision-makers to pursue the most profitable business actions. Doing so estimates the value of the commercial relationship the company has with individual customers, providing a maximal range of personal data valuation. The personal data collected by a company, and that data’s connection to individual customers, tbecome intertwined. The practice of monetizing data collected digitally is accelerating, with the number of data brokers and data exchange centers expanding at a rapid pace.
Just as protein is broken down and absorbed by the human body, products and other components of the corporate value chain can be broken down into their component parts and absorbed into the body of an organization. This “absorption” process is multi-faceted, includes data from internal and external sources, and has varying business outcomes, depending on the variation in how those sources interact. The ability to put a value on each component of the value chain can be an important element in determining EvD. The challenge, however, is that most enterprise data resides in vast data lakes (or, more likely, data swamps) and financial institutions usually only realize what is at stake when they lose access to this critical business information. For this reason, EvD is an important counterpart to an enterprise cybersecurity strategy.
To unlock the hidden value of data, financial institutions should begin to treat the data itself as an integral part of their business models, because data affects the entire ecosystem in which a firm operates. Determining not only what EvD means today, but what it will mean for a financial institution in the future, is a critical part of the process.
