Information economics, the information assets

1 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s

Information Economics | The Information Assets

Introduction

As we enter the digital economy, companies will find the business climate to be significantly more volatile than they have in the past, and leaders of industry to find themselves during change much more frequently than ever before. Information that these companies counted on being viable for the long haul tends to lose adhesion in the digital economy as a direct result of the rate of change in the digital economy. Understanding exactly what information assets are and how to ensure the viability of their information assets despite the highly volatile digital economy is critical for the survival or organizations.

There has been a fair amount of coverage on the importance of information economics and treating information as an organizational asset, but little coverage has been available on how to measure the value of information other than the traditional cost aspects of data and the costs of publishing into a multi-purpose environment (a star schema) for serving the largest number of business needs. In this model, which has served businesses well for almost 40 years, there is an assumption that there are underlying assumptions assuming viability of the usage patterns for information to remain consistent static for long periods of time. This slow rate of change has historically provided for the ability to construct an information presentation structure that would remain viable for several years and would accommodate most of the organization’s information needs. In the current business climate, however, as companies cross the crevasse to join the digital economy, the business climate is sufficiently volatile to challenge the underlying assumptions that enabled a well devised but static information model.

The purpose of this writing is to provide insights into how to thrive in this highly volatile digital economy and be one of these organizations who understand that there is measurable value to the information consumed in business processes. This appreciation of the fluidity of information needs for the organization and the preparedness to accommodate these changing needs will provide for information models that will withstand the forces of change in the digital economy. It also comes with an appreciation that the business stakeholders will not be afforded the time to machinate information to the needs of the business process, making it incumbent upon those who manage the information fabric of the organization to forge this alignment. By instituting an orchestrated process to record the use of information and measure its value, organizational accountabilities will surface that forces this necessary alignment with business process.

A macro view of the markets

From a macro view, the business climate has never been a stable environment, with organizational positioning in the marketplaces resulting in the growth and shrinking of organizations. Exhibit 1 shows such a macro view, the relative positioning and size of companies appearing in the Fortune 500 list for the years 1955 (the first year the Fortune 500 list was published), 1975 (representing the mid-point of the third industrial revolution, a topic to be covered in depth in a future writing), 1995 (the start of a jostle of the economy as computerization starts to gain a foothold), 2005 (the start of the realignment of

2 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s organizations as the 2008 meltdown approached) and 2015 (a current date view of positioning within the Fortune 500 list).

While we like to look at the marketplace with an expectation of business as usual conditions, over time every organization shrinks and grows as it positions itself in the marketplace and repositions itself in reaction to the repositioning of other organizations.

Figure 1 shows the positioning of the top 20 public companies on the Fortune 500 list from for the years 1955, 1975, 1995, 2005 and 2015. The top 10 and top companies are highlighted on figure 1.

Figure 1 | Placement of top 20 companies in the Fortune 500 list, 1955 – 2015, Fortune Magazine, InfoSight Partners, 2016

The Four Phases of the Industrial Revolution

3 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s In the earlier articles of this series, it was discussed that information is the enabler in the digital economy, and that information is worth more when it is used to achieve a value proposition in times other than those characterized as business as usual. Fortunately for those organizations who have figured out how to measure information value and treat it as an asset, it can be expected that they will be quipped to yield information as a catalyst for value, while other organizations will be buffeted with the uncertainties of the highly disruptive business climate for the next several generations. If history is any predictor of the future, a highly disruptive environment favoring companies who have learned to wield information for the next several generations.

Figure 2 | The four phases of the Industrial Revolution, InfoSight Partners, 2016, The fourth Industrial Revolution, Schwab, 2016

A pattern results in studying the leading companies from for the sixty-year period from 1955 to 2015 (the Fortune 500 list was first published in 1955). Companies that knew how to manage the catalyst of value for the phase of the industrial revolution flourished more than those that did not. For example, leaders in the third industrial revolution were those that figured out how to computerize their operations, from control of their refining business to the sales of products constructed on computerized assembly lines to those bringing to market the machinery that enabled computerization (1995 list used), namely, AT&T (5), IBM (7), ITT (23), Verizon (44) and Apple (123). Those who understood how to wield information started to emerge in the 2015 timeframe, namely Apple (3), Verizon (13), Fannie Mae (16), Amazon.com (18), Microsoft (25), IBM (31), Alphabet (36), Cisco (54) and Facebook (157). It should be expected over the next several years for those whose products are heavily influenced by information to gain prominence in this list.

The Problem: Most Data Scientists have little time for analysis

4 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s Data Scientists are enlisted as the experts to wield data and deliver analytics specifically devised to make a difference to the strategies and tactics of the organization. In business, as usual situations, there is ample time to perform a host of activities and align data to find meaningful patterns, but in non-business as usual or disruptive situations, that time is not afforded to the problems at hand.

Figure 3 | Fortune Magazine, March, 2016

Data scientists have not been able to make the difference they were enlisted to make in many organizations not because they don’t know the data but because it is misaligned in the form available to them for use to solve non-business as usual and disruptive situations in the time allotted. Many have constructed their own data pools using SAS data sets and other environments and have become mini IT organizations to deal with the misalignment of data. But even with the efforts they have made, 19% of the time data scientists are trying to collect the data pertinent to a situation and 60% of the time cleaning and organizing the data to fit the problem at hand. In many situations, because algorithms have not been constructed to fit deciphering these non-business as usual and disruptive situations, 9% of the data scientist’s time is spent identifying root cause and supporting it with meaningful patterns. And the time spend performing analyses, only 12% of the time.

Clearly, if we are in for a disruptive environment for the next several generations, this allotment of time available to data scientists will not serve the business community well. A better approach to managing information and aligning it to the needs of business is of tantamount importance.

One of the issues leading to the data science dilemma is the understanding of what data and information is, they are not, at least for the purposes of this writing, the same thing.


Asset Type Alignment Management Approach Resistance to use Data Source Aligned Most Prevalent today Low during BAU situations

High during other situations Information Consumption Aligned Emerging model Low in all situations

Figure 4 | InfoSight Partners, 2016

Today, it is not common to find organizations managing information aligned to its consumptions patterns. There are available commercially viable process engineering models with strong emphases on the management of data, but even those have as an underlying construct an alignment of data and its sourcing.

Delving into the information assets of an organization

Information is a non-depleting but expiring asset of the organization that and is one of the most poorly managed assets in many organizations. Information is normally managed as a necessary cost of doing business, but there is clear value to information when it is used as a catalyst to obtain incremental value for the organization. There are some components not in place at many organizations to truly manage information as an asset with a measurable value.

Organizations who are poised to use the information catalyst to garner organizational value have figured out that information is an asset of the organization with some special properties. Some of these key processes are:

• There is a difference between data (which is aligned to the providing sources) and information (which is aligned to the consuming targets). Because there is a high dependence on consumers aligning data to consume as information consistently, there is a high level of resistance to using information when its criticality is highest. For this reason, for this writing, there is the controversial statement that data has zero value while information has value when it is consumed. Data can indeed have value only if it is aligned to the consuming processes. The chances of this alignment are low and the likelihood of using data for critical time sensitive circumstances is similarly low.

• A plethora of information is not necessarily a good thing. Information clutter is a source of resistance. Information aligned to and the view of information restricted to the consuming process improves the likelihood that it will be used at critical times.

• Use of information doesn’t deplete the pool of available information. Information can be consumed as many times as possible up to the point of expiration.

• Information has a half-life, and expires very quickly. For example, if an organization restates the organization which defines content to the information going back only two years, then the information is not usable beyond the two-year window.

There are some terms that will be used throughout this writing. The definition of these terms are:

6 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s Data is what is sourced from internal and external providers, and has in its raw form no indication of quality, no context and is not aligned to any processes.

Machinery is the scripts and programs run to apply context to data, assess its quality, enrich it with master and reference data and align it to the form required for consumption by business processes.

Information is the prepared results of the machinery which is of trustworthy, aligned to the needs of processes that service the organization’s value propositions and have the necessary context for stakeholders or automated processes (we’ll talk a little about this emerging category) to understand the scope, breadth and appropriate use of the information.

Work in Process Information assets (WIP) are those information assets which are in a formative state, and still require additional machinery activity to be directly usable as information. Direct use of WIP has less resistance than raw data, but more resistance than prepared information.

Resistance is anything that blocks the direct consumption of information by business processes. Resistance can come in several forms:

• Lack of trustworthiness; if information cannot be consumed without its validating, then the likelihood of it being used in time critical situations is lessened.

• Clutter; Clutter masks the information that is relevant with meaningless trivia, information that was once aligned but no longer is and expired information. If it is up to the business stakeholder of their analyst having to decipher whether information is valid or clutter in time critical situations, then the likelihood of using this information will be lessened.

• Context; Lack of context that helps define the scope and breadth of information requires business stakeholders to first obtain context prior to the use of information, making the likelihood of using this information less likely in time critical situations.

• Expiration; Expiration is both a source of clutter and a reason for trustworthiness issues, particularly with information that has a short half-life.

• Alignment; Information that is misaligned must be aligned by the business stakeholder in a consistent way to other business stakeholders for it to be consumed and remain trustworthy. Misaligned information is less likely to be used in time critical situations.


Figure 5 | Information Resistance Sources, InfoSight Partners, 2016

Potential information value is the recording of an opportunity to consume information aligned to a business process as a means of obtaining information value. It is the triangulation of business process, actors (as mapped in a RACI diagram) and information.

Achieved information value is the potential information points which have been consumed in business processes.

Clutter is the information that was mapped at some time but is no longer mapped to the triangulation of business process, actors and information. Clutter is a source of disruption.

Half-Life is the time it takes for information to lose half of its relevance. For example, a person’s old address has value only for a short time. Intra-day commodity prices may have extremely high relevance until the information is available to everyone (approximately 15 minutes) and then is usable only for specific trending very quickly. Both examples have short half-lives. Availability of expired information (information that has gone through 2 – 3 generations of half-life) and is a source of clutter.

Information is an expiring but non-depleting intangible asset of the organization that obtains value by facilitating the processes that yield net incremental value to the organization. The value that is extracted

8 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s from information is highly dependent on the situations staging the processes which potentially can consume the information. There are several attributes in that statement.

1. Information can be consumed many times up to its point of expiration 2. It only obtains value by facilitating processes aligned to obtaining value. Those processes are

aligned to the business models of the organization, each of which have a value proposition. 3. Information expires at some point, and the potential value obtainable from information is

halved at each generation of its half-life. 4. The value extractable from information is highly dependent on the situations staging the

process which is consuming information. Put other ways, information consumed in a disruptive circumstance is worth more than information consumed in a Non-Business as usual (NBAU) circumstance, which is worth more than information consumed in a business as usual (BAU) circumstance. That is because the information potentially gains direction setting characteristics when it moves from BAU to NBAU to DISRUPTIVE situations.

5. Information is an intangible asset, but a portion of information is tangible to organizations in the business of selling information. Those who are in the business of selling information can allow market forces to help establish a value to the information, but that measurement only addresses the street value of the information and not the value to the organization which helps it alter information prices and policies.

6. Information which is not aligned to processes that yield net incremental value to the organization are clutter and is a potential source of resistance.

Just like other assets of the organization, information must be managed. Just as it would be unthinkable for companies to manage receivables, fixed assets or cash without assigned accountabilities, there should be accountabilities assigned for the management of data, the processes that convert data into consumable information and the finished aligned information. In most organizations, information is managed by its sourcing and not its usage. This realignment of accountabilities requires a realignment of the teams responsible for managing information.

Why Information must be treated as an asset

As presented earlier in this writing, the catalyst that will be wielded by organizations to obtain value is information. Information as the catalyst to obtaining value will be a differentiator to organizations for the next several generations. Organizations which do not have a solid grasp of their information assets will be at a distinct disadvantage for the foreseeable future. By approach the management of information assets in a way similarly used to manage other organizational assets, which includes establishing a value for information assets and assigning accountabilities for the management of these assets, a more solidified approach to managing information assets will result.

For information to be managed as an asset, several things must be known about information:


What must be known How this serves as a value creator An organization must have a good handle on how information is sourced that the cost to source the information.

Most organizations have a good handle on information sourcing and this will not be covered in this writing.

An organization must know how information is consumed in processes meeting the reporting needs (not necessary aligned), business as usual circumstances, non-business as usual circumstances and disruptive circumstances.

The For information made available for analysis, most organizations have taken an approach of creating a data pool that will satisfy most analytic needs rather than aligning information specifically to business use.

The alignment of information to business processes consuming information.

Because most organizations have taken a generic approach of providing information with a wide net, the consumption patterns of information are a mystery to many organizations

Identification of the consumption of information and the lost opportunities to consume information.

Because a star schema is cached in many circumstances, the usage patterns of the contents are not discernable. They must be discernable to proactively enhance the stickiness of information to business processes.

The value of the information assets to the organization must be computed.

Treating information as an organizational asset requires that it has a measurable and defensible value.

Figure 6 | Conceptual Depiction of the Value of Information, InfoSight Partners, 2016

Establishing a value for the information assets of an organization

To discuss the identification and legitimization of information as an organizational asset, an introduction to the shift in organizational roles is necessary as an organizational shift is a central tenet to the establishment of information as a measurable asset of the organization.

Role Current Accountability Nextgen Accountability Chief Data Officer Champion Data Assets Elevate Information Asset Valuations Chief Analytics Officer Drive Business Analytics Encapsulate Business Analytics Chief Risk Officer Eradicate Operational Risks + CyberRisks Data Governance Council Improve Data Assets Eliminate Information Use Resistance Chief Information Officer Manage Data Assets Manage Information Machinery Data Asset Manager N/A Manage Information Inventories Data Steward Business Rep for Data Assets Bus Rep for Information Assets Business Stakeholder Interfaces Stewards Interfaces CDO

Figure 7| Conceptual Depiction of the Value of Information, InfoSight Partners, 2016

The next generation approach to managing information is nothing less than a shift from managing information as aligned to its sources and genericizing a model to fit as many business needs as possible to managing information based on its consumption in business processes and managing a matrix of sources that can be utilized to meet the business consumption demands for information. Only in this way can information be ready for consumption at times which don’t fit the status quo.

10 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s For information to be managed based on its consumption rather than its sourcing, the accountability of roles need a shift as specified in the table above. In a future writing, a more detailed depiction of the shift in organizational accountabilities and what the implications of this shift really are will be given the full attention it deserves.

If information is an asset of the organization, it must have a measurable value that can be verified. Today, most organizations are not in a state to do this. Several things are required to establish value for information assets:

1. There must be a repeatable process that records the triangulation of information, business processes that consume the information to achieve incremental value for the organization and the actors who are involved in linking the two (note, this may not be a person, unmanned processes that yield incremental value).

2. There must be one or more people accountable for the repeatable process mentioned above. This is part of an orchestration layer, the result of which is recording potential information value.

3. There must be a capture mechanism for capturing the request for information by business processes. This is easily accomplished though some sort of a service which writes a record every time information recorded as yielding potential value is requested.

4. There must be a measurable means to determine the value of information requested for use in a process. While there are formulas that can be used to compute this value, many of the variables going into the computation are quite subjective and therefore will lead to soft valuation numbers. Alternatively, a predetermined % Value Proposition is agreed to which is used for valuation purposes.

5. There must be an orchestration layer which collects all the captured information requests, the business circumstances when the information was requested and the realization of the value proposition to compute the value of information. In some organizations, this will be recorded as a balance sheet item, while others will limit use of this information as a vehicle to justify their information investments.


Figure 8| Conceptual Depiction of the Value of Information, InfoSight Partners, 2016

Orchestrating the valuation process

The orchestration process is comprised of four discrete activities.

1. The identification of the intersection of processes devised to achieve the value propositions of business models with information and the actors who execute the processes are identified and recorded in a repository (the potential information value base).

2. An object with captures the request of information records the usage of information. This object needs to be called whenever information is requested. Information not utilizing the usage capture object will not be able to be included in value computations, because actual consumption activities will not be recorded. The usage of information is recorded in the potential information value base.

3. A usage aggregator analyzes the potential and actual usage of information. The scenarios in which information was requested applies royalty computation rates to the information usage as a means of computing information value.

4. The Data Asset Manager records the achieved value of information and the lost opportunities for using information through an orchestration tool (potential information value not achieved, or information usage resistance).


Figure 9 | The Orchestration of Information Valuation, InfoSight Partners, 2016

Activities to undertake now

There are several activities which are direction setting which should be undertaken now to migrate to the information management approach depicted in this writing.

First and foremost, the value propositions of the organization need to be recorded, the processes executed to achieve those value propositions need to be identified and the information serving those processes needs identification. While this is a large undertaking, it can be accomplished in small chunks, starting with those value propositions driven by the organization’s board and depicted in the organization’s mission and tactical statements, as these are the value propositions that will make or break the success of the organization.

A Chief Data Officer (CDO) needs to be identified who can serve as the data ambassador for the organization. The CDO is accountable for mapping the potential information value and royalty percentages for all information consumable within business processes. The CDO can be successful only if they can garner a keen understanding of how information is consumed in these processes and can decipher what can be done to elevate the valuations of information.

The CDO must have an orchestrated process to record the potential value of information. The quick creation of access databases and excel sheets to house such information will not serve this need.

13 | P a g e | I n f o r m a t i o n E c o n o m i c s | T h e I n f o r m a t i o n A s s e t s One or more software appliances (software objects) must be created to capture the request for information within business processes.

An orchestration layer used by all the leaders of the new information centric environment (CDO, CIO, CAO, DGC, CRO, DAM) must be available so that the recording of potential and achieved value of information can be defensible.

About the Author Mark Albala is the President of InfoSight Partners, LLC, a business consultancy which provides financial and technology advisory services devised to facilitate focus into the value of information assets. InfoSight Partners is led by Mark Albala, who has served in technology and thought leadership roles and serves as an advisor to analyst organizations. Mark can be reached at [email protected].

Information economics, the information assets

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