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Being an Information Company and the Value of Data

by Andrew White  |  September 18, 2017  |  Comments Off on Being an Information Company and the Value of Data

 

In today’s US print edition of the Wall Street Journal there was an interesting Opinion piece by Mark Mills, a senior fellow at the Manhattan Institute and research fellow at Northwestern University’s McCormick School of Engineering.  In ‘The Cyber Age Has Hardly Begun‘ Mr. Mills calls out the different way in which the investor community values traditional companies and information companies.  The latter tend to be household names (and some not) that we might recognize from years past such as Wal-Mart, Sears and Texaco; the newer information companies include forms whose products and services are information such as Google, Apple and Facebook.  Correctly he suggests that information-based companies attract a higher stock market capitalization.  But this misses a major point.

What happened to Yahoo!?  What just happened to Equifax?  Both are information-based firms, but their stocks have not followed the Simone pattern called out by Mr. Mills.  And there are good examples of traditional firms who had transitioned a part of their business to ‘digital’ and other traditional firms whose stocks have done every nicely.  So what’s the issue?

Technically there is a third group of companies that are valued more positively but we all struggle to find them and call them out.  Traditional and information-based forms can be good and effective users of information or they can be poor users of information.  Thus the third category is neither traditional nor information-based; they represent firms that just excel at exploring information (data, and/or analytic).

So the three groups we would like to call out are:

  • Traditional firms
  • Information-based firms
  • Either kind of firm that uses data effectively

In fact each of the first two categories could be split: would information-based firms that use data poorly outperform traditional firms that use data effectively?  I don’t think they would.  But we don’t know.

We are not able to discern easily the three distinctions.  Tobin’s q ratio has been used to express the differences in investment interest between traditional and information-based firms but what is really needed is an analysis of firms’ success and investment interest for those that are effective at data and analytics, or information maturity.  This is very hard to do.  Even we at Gartner struggle to do this.  And the problem gets way more complicated than just this.

What if two firms were reasonably mature or effective at data and analytics (e.g. business intelligence, MDM and information monetization) but one firm was much more effective at, say, ERP, or BPMS, what then?  So it maybe that maturity and effectiveness at ‘IT’ is the real dimension.  And perhaps the recipe of what constitutes the IT in ‘is good with IT’ and ‘is less good with IT’ changes over time.  After all, what is tomorrow’s next practice is today’s best practice and yesterday’s industry standard or table-stakes..

Lastly if you thought this was daunting there is as yet another dimension that trumps even this complexity.  Many firms are successful, and attract good valuations, without IT.  More precisely a business decision, perhaps selecting a new product or market, may have more impact in a firm’s success than its effective use of IT.  We see time and again:

  • Two similar firms even in the same industry with different maturity in terms of IT ‘use’ that perform very differently.  It’s as if IT does not matter in all cases and people do.
  • A firm successful with IT at one period of its life ends up being less effective and less successful in another.  Turns out that as people change role, get promoted or leave, what was effective at that point erodes over time due to them leaving.

So bottom line could well be like this:

  • Maturity and effectiveness of IT should go a long way to being a successful organization
  • What constitutes ‘good IT’ is not fixed; the recipe changes over time.  So don’t assume any book written about examples of winners will continue the answer to life, the universe, and everything.
  • Focus first and foremost on people and culture, leadership and collaboration.  Supplement this with ‘good IT’.
  • Don’t assume you need to be an information-based company.  You can still ‘win’ if you exploit information better than the other guy.

No there is one book that may hold the secrets to how to sustain effective information capabilities over the long haul.  Gartner’s Doug Laney just published Infonomics.  This book contains ideas and tips on how to exploit information.  It applies to traditional firms as well as information-based firms.  So I would look here first.

infonomics

 

Additional Resources

Category: chief-data-officer-cdo  cio  cio-first-100-days  infonomics  information-value  information-yield-curve  

Andrew White
Research VP
8 years at Gartner
22 years IT industry

Andrew White is a Distinguished Analyst and VP. His roles include Chief of Research and Content Lead for Data and Analytics. His main research focus is data and analytics strategy, platforms, and governance. Read Full Bio




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