Firstly, this is not an article on accounting, it is more a chance to look at the relative value of the information kept in your organisation and its ability to raise productivity.
Weak productivity growth is often cited as a reason behind New Zealand’s economic performance being below its potential. In terms of average hours worked per annum, New Zealanders are some of the hardest workers in the OECD (12th out of 34 OECD member countries in 2010); however our productivity levels are lower than many other OECD countries, resulting in a reduced GDP per capita.
The more fixed capital used per worker, the more productive the worker can be, other things being equal. For example, a worker who tills the soil with only a spade is normally less productive than a worker who uses a tractor-driven plough to do the same work, because with a tractor one can plough more land in less time, and thus produce more in less time, even if a tractor costs more than a spade. Obviously one would not normally use a tractor to plough a small garden, but in large-scale farming the income earned using a tractor by far outweighs the expense of using the tractor. It is not economical to use a spade for large-scale ploughing, unless the labour is extremely cheap, and the supply of labour is plentiful.
So with this analogy, is standard reporting from your operational system a spade? And does that make an enterprise data warehouse with business intelligence the equivalent of a tractor?
Before I attempt to answer that question lets go back a step.
Information in business started out with notes taken down and stored in envelopes, binders, boxes or drawers. This changed dramatically with the invention of the vertical filing cabinet in the late 1800’s with its papers standing upright and cardboard dividers. From this point on information exploded from one drawer to many, to walls or rooms full of cabinets.
Then in the 1980’s came the invention of computers that allowed us to easily collect more information. As it was difficult to access this information we attached printers which ironically generated even more paper. Luckily today we don’t need to print so much information as it can be read on screen but our rampant collection of information now requires large data centres to house it. Even small businesses are now collecting vast amounts of data.
Where once Information systems for company management were a competitive advantage they are now a competitive necessity.
An asset is officially defined as a resource or possession controlled by the enterprise as a result of past events that will bring the business benefits in the future. In short, an asset is anything that will add future value to your business. Information therefore falls into this category, and Business Intelligence and Information Management experts are calling for organisations to treat information as an asset its own right.
An additional requirement for an asset is that you need to be able to measure its value somehow and you have to be able to measure this accurately. This is usually quite simple, as the value is equal to how much you paid for it. The basic approach is that the cost of an asset includes all costs necessary to get it to the business premises and into a condition in which it can be increased in value. We can normally do this quite accurately with information. But how do we increase its value?
To maximise the strategic value of information as an asset, it must be used effectively. It must be available as a shared, easily accessible service within an organisation. This means transforming your data into a format that is suitable for analysis. When done properly the cost of implementing a solution that will achieve this can be significantly less than the business gains which include:
- Timely response to fluctuations in risk, profitability and other critical business processes requiring prompt action.
- Serving your customers better with increased understanding of their needs, thanks to the accessibility of relevant data.
- Streamlining core processes across your business because of a free flow of information.
- Better productivity from better-informed decision making.
- Ability to adapt to a changing market based on accurate information.
In short, quality information means access to accurate data to gain the insights needed to deliver on business goals and performance that can be turned into competitive advantage.
So coming back to my first question. Is standard reporting from your operational system a spade? And does that make an enterprise data warehouse with business intelligence the equivalent of a tractor? I say yes and believe that too many New Zealand businesses are using the spade (operational reports and spreadsheets) and should be investing in a tractor (data warehouse and analytics).
Considering NZ has such low productivity by international standards, leveraging information as an asset seems to be low hanging fruit to creating a more prosperous country for all of us.