Determining Data Equity: Capture and Calculate Valuation at Risk

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1 Matthew Mikell- IBM Market Manager IOT North America April 15, 2015 Determining Data Equity: Capture and Calculate Valuation at Risk

2 Agenda Foundations of Capturing Equity Closing Gaps Between Financial and IT Worlds Trends Forcing Data Equity Analysis Costs of Data Ownership & Maintenance Practices for Data Equity Audit Managing Data Risks and Replacement

3 What s changing: The world of Big Data & Analytics is expanding quickly Data is the world s newest resource.. not all data is created equal Decision-making extends from few to many.. but new risks and abuses arise As data grows, so does potential data equity.. but managing the lifecycle

4 What s missing: Transparency between data and finance worlds Maintaining and delivering high quality services Delivering and monetizing high quality data Monitoring and reporting on financial health

5 Trends of valuation Valuation is the process of putting a price on a piece of property. The value of businesses, personal property, intellectual property (such as patents, trademarks, and copyrights), and real estate are all commonly determined through the practice of valuation.

6 Brand Equity: Value of the brand in the marketplace Millward Brown 2014 Forbes 2014 Interbrand 2014 Logos are property of their respective owners.

7 What are foundations of brand equity? Value of the brand is to make money.. A premium that accrues to a brand from customers who are willing to pay extra for it Logos Symbols Sound Designs Tag lines or slogans Trademarks Brand alliances

8 Value of the brand is to make money.. A premium that accrues to a brand from customers who are willing to pay extra for it Brand Value (brand equity) - The sum of all distinguishing qualities of a brand (image, loyalty), drawn from all relevant stakeholders, that results in personal commitment to and demand for the brand; these differentiating thoughts and feelings make the brand valued and valuable. Brand Audit - Assessment of the health of a brand, analysis of individual sources, and recommendations to further improve or leverage brand equity. Example use only. Brands are protected by their respective owners

9 Data Maybe Be Bigger Than The Brand! Tangible asset emerging over financial treatment of brands on the balance sheet of it s useful life.. -Intangible assets often now constitute up to 70% 80% of Fortune 500 companies overall market valuations -For companies like IBM, may be closer to 90% -For asset heavy businesses such as airlines, the figure will be closer to 60%. (The Economist Group

10 How is a valuation defined? *Valuation - The financial rigor of identifying and measuring the economic benefit ($) - brand value - that derives from brand ownership. In finance terms, is considered to be the net present value of the estimated future cash flows attributable to the Brand. Market share Price sensitivity Profitability Revenues Marketing investments Growth rate Cost to acquire new customers Cost to retain customers

11 Data equity: Closing gaps between IT and finance worlds Personnel & Mandates Budgets Staff Hardware (on/off premise) Compliance, PCI, HIPAA Third-party intrusion tests Risk Management Business losses Costs of insurance Impact on brand Cost (per record $194).. Profile & Benchmark Cost across peers Exposure of breach cost Staffing metrics Operations by country GAAP, ASC

12 Managing Growing Risk Vs. Data Investments

13 Data valuation against costs and (potential) revenues 2010 (Brand & Tabular) Systems of record (ERP, HR) Systems of engagement (CRM) Web traffic (search, etc) (Sentiment & Non-Tabular) Web traffic (search, etc) Social (Twitter, blogs) Machine data (telemetry) Human data (fit bit) Mobile Video Imagery 80+% of IT budget allocation 80+% of IT data allocation

14 Maintaining Data Value requires establishing Speed and Confidence.in every decision, interaction & process System of Record Systems of Engagement Big Data & Analytics Infrastructure Security Intelligence Enterprise Applications Mobile Commerce Call Center Social Business

15 Data Equity Accounting: Scenario #1 Grade it (Asset-based) 1. Calculate a data quality score on a scale of 0 to 10 1.Data duplication 2.Cold contacts 3.Repeat buyers 4.Uniqueness or proprietary quality 2. Determine specific values as proportion of data types and quality score 3. Use an adjustment or allowance for a geography 4. Forecast specific growth rates of data types 5. Apply Net Present Value Method

16 Data Equity Accounting: Scenario #2 Monetize it (Income-based) 1. Calculate a data quality score on a scale of 0 to Calculate a proprietary nature of data on a scale of 0 to Determine useful age 4. Calculate royalty rate 5. Use an adjustment or allowance for a geography 6. Determine specific revenues as proportion of different data types 7. Apply Net Present Value Method

17 Data Equity Accounting: Scenario #3 Compare it (Market-based) 1. Use valuations from current M&A activity of peers 2. Calculate a data quality score on a scale of 0 to 10 1.Data duplication 2.Cold contacts 3.Repeat buyers 4.Uniqueness or proprietary quality 3. Use an adjustment or allowance for a geography 4. Use an adjustment or allowance for market share

18 Data Equity Benchmarking: Privacy Investment The average surveyed Fortune 1000 company's privacy program has a budget of $2.4 million Roughly $1.9 million (80%)is spent internally, the other $500k (20%)is spent externally -Of internal spend, 50% is for salary and benefits of privacy program employees. The median budget is $1 million 12 percent of firms have budgets of more than $5 million annually Fortune 1000 companies sampled spend an approximate average of $76 per employee on privacy, or $204 per $1 million in revenue International Association of Privacy Professionals (IAPP) - Industry of Privacy Project: New Budget Benchmarking

19 Data Equity Benchmarking: Data Breach and Cyber Insurance Strong security posture, incident response plan and CISO appointment reduced the cost per record by $14.14, $12.77 and $6.59, respectively. Average breach cost to a company was $3.5 million Average cost paid for each lost or stolen record containing sensitive and confidential information increased more than 9% to $145 -Most costly are German and US firms on average ($195 and $201 per record respectively) -Least costly breaches are in Brazil and India ($70 and $5 per record respectively) All participating organizations experienced a data breach ranging from a low of approximately 2,415 to slightly more than 100,000 compromised records - Smallest number of breach records are Japanese and Italian companies (18,615 and 19,034 records, respectively). -Greatest number of exposed or compromised records USA and Saudi Arabia (29,087 and 28,690 records, respectively). Benchmark research sponsored by IBM Independently conducted by Ponemon Institute LLC May 2014

20 Intelligent Data vs Big Data: De-Risking Process Cut the noise Valuation of what data /metric carries predictive potential (ex. audits) Balance privacy, storage, investments accordingly to data valuations Maintenance - Staffing commensurate to data equity valuations and industry peers (privacy, legal) Data breach, security and disaster recovery (ex. stress testing) Double down- Monetize data/attributes that drive other revenue streams Build in KPIs to track data equity strategies (ex web bounce rates) Investments in new analytic talents and technologies

21 Actions Data quality initiatives must be operationalized across the organization, or high-valued assets, to assure the efficacy of the information. The politics and management needs of multiple data owners across the enterprise must be rationalized. Create or designate a champion from senior management with revenue or valuation goals Determine a long-term valuation and engagement model with stakeholders (legal, accounting, IT, investors)

22 Tools Data warehouse with capacity and reach into systems of engagement and systems of operation Business intelligence capability to query and calculate across a wide range of data types Process to review dark data and archival strategies Data quality software to ensure necessary revenue streams or equity valuations Analytics to forecast valuation growth against investments and risks

23 Thank