by Andrew White | February 17, 2016 | Comments Off on When Telling All is Not Enough – and Information as an Asset
I read with interest an article in today’s US print edition of the Financial Times. The title of the article was, “You Should not Always Believe a Balance Sheet“. The article, by John Kay, explores the recent publication by the Bank of International Settlements, the central banker’s central bank, that presents the scale of financial assets and liabilities for derivatives. The report presents that data that gives you an idea of the scale and complexity for how some of our largest banks are invested in the financial markets.
Interestingly Mr. Kay explores how much of the risks in the data presented in the BIS report do not find their way into the official financial record keeping of those banks and institutions. The point of the article is that accounting standard differ around the world and therefore you cannot easily compare one balance sheet with another. For example, US accounting standards lead to banks’ presenting slightly smaller balance sheets to those of European banks, for what is essentially the same asset.
In a related manner I myself have thought about an organizations P&L and balance sheet form time to time. Some 20 years ago I was facilitating some effort by large retailers and their suppliers to collaborate over supply chain and product introduction business processes. Collaboration (as opposed to cooperation) only persists when the party’s goals and desires remain in alignment. When these goal diverge, the desire and willingness to continue to invest in the collaboration fails. When you then realize that the benefit of any collaboration won’t likely accrue evenly, you understand why real B2B collaboration is so fleeting.
To help facilitate the accounting of the investment and the return, and to make the effort more transparent, I came up with the idea of a shared P&L. I had thought that by tracking, as automatically as possible, all investments and returns from the collaboration, the effort to support the work would be easier to justify and support. I put the idea into practice conceptually and it helped – but I never used technology to automate the idea.
More recently I toyed with another idea related to financial systems. Firms have data – we know this. Firms can treat data as if it were an asset – we know this too. In fact a colleague of mine, Doug Laney, came up with the idea of Infonomics – a method to quantify the value of your information assets. The techniques presented in Infonomics are intriguing – but for the fact that normal accounting practices do not, as yet, recognize information as an asset. If they did, Infonomics can help add information as a financial asset to the balance sheet.
Independent of Infonomics, I was looking at information initiatives more as investment vehicles – akin to stocks, bonds and so on. In other words, firms invest in all manner of information uses (for example, business intelligence, advanced analytics, ERP, mobile etc.) and each are thought to provide some kind of return. Perhaps that return is recurring over time. And even if different firms adopt the same investment plan, each will realize a different return due to their own unique maturity and capabilities. This each firm has its own unique “information yield curve” that, if measured, would explain the likely return for every dollar investment in any information program. This would then add data to the P&L.
- Infonomics provides additional insight to the balance sheet;
- Information yield curve provides additional insight to the P&L.
But as with regular accounting standard, firms cannot put this data on their official P&L and balance sheet. So I came up with yet another idea – why not publish a second set of accounts? This might sound a little untoward, especially in the current untrustworthy period we find ourselves in, but the idea has some merit. A firm could at least publish internally their recognized information assets and information yield models, and could then use that data to make more informed decisions related to which information assets to exploit and which information programs to invest, and disinvest in. This would help a firm be smarter in using its money. This remains an interesting idea – that of publishing a second set of “books” to help guide overall investment decisions. But I bet this won’t remain only an idea for long.
View Free, Relevant Gartner Research
Gartner's research helps you cut through the complexity and deliver the knowledge you need to make the right decisions quickly, and with confidence.Read Free Gartner Research
Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.