MITSloan Management Review
Magazine: Winter 2014
Jeffrey L. Sampler and Michael J. Earl
Land, employees and equipment were all traditional drivers of wealth.
But now information is also key to generating economic value.
How much land do you own? How many people do you employ? How big is
your factory? At different times in history, these questions have all
been surrogates for a far more basic question: How wealthy are you?
That’s because, at different points in the evolution of business, each
of those questions inquired about the fundamental asset that was at the
heart of wealth creation at the time — land, people or machines.
Today we are on the cusp of a period in which another question may serve as an indicator of potential wealth. That question is: How much information do you have? Advances in information technology are finally becoming so robust, affordable and increasingly omnipresent that the business world has now arrived, we believe, at the beginning of a new form of information-based competition and competitive advantage.
We argue that IT is so available and affordable for most organizations that, increasingly, information has the potential to be a valuable asset — one worth managing as a product, not merely a byproduct. In other words, technology is the enabler, but information is the real source of value creation. Information technology is very visible, and companies spend large amounts of money on it. However, information is the less visible but high-potential beneficiary of the technology, as modern digital technologies significantly increase the amount and scope of information we can gather and use.
Internet-based companies like Google and Amazon have already shown the value of creating, collecting, analyzing and deploying information. What’s more, traditional companies such as UPS and Capital One have also demonstrated that the information generated by transactions can be valuable in optimizing operations and sparking innovation. Many businesses have borrowed ideas from these and other information-savvy companies, but we propose a comprehensive framework, the information footprint, for finding and assessing information-based, value-creation opportunities. Indeed the information footprint is a metaphor for posing and answering an increasingly important question: What information assets does our company have?
A footprint has three dimensions: length, depth, and breadth. So does an information footprint.
Such diffusion of information throughout the value system led to greater synchronization of activities and timelier fulfillment because everyone was working with the same information — which was actual data, not historical or projected sales or production numbers. In other words, information diffusion — and lengthening the information footprint — is about efficiency. This often has been measured in the reduction of time, lower inventory levels or greater customer convenience and intimacy. IT-enabled improvements, for example, are what have enabled UPS to track every package shipped as it progresses throughout its journey — and share that information with customers via the Web.
The key question for managers that the length dimension of the information footprint raises is: What information can we gather and then share externally with key stakeholders in the supply chain or value system to increase efficiency?
Investment in information detail allows companies to fine-tune their decisions and activities by taking advantage of additional insights provided by richer information. Some well-known success stories in this area include Capital One’s fine-tuning of credit analysis in its lending and Deere & Company’s analysis of product configurations to reduce production and sales complexity.
The goal of this dimension of the information footprint is effectiveness — using digital technology and more detailed information to improve decision making and transform processes. The fundamental question for senior management here is: What additional information do I need, or is now available, to make my current business more effective?
Information for this purpose will generally come partially from existing activities (this is one of the sources of differentiation the company brings to new product offerings), but this internal information can be combined with external data.
A simple but powerful question that many organizations should ask themselves in today’s competitive environment is: How many new businesses or how much additional revenue have we achieved from exploiting information? This is at least one measure of how extensively the breadth dimension of the information footprint is being developed.
However, executives at traditional companies need not despair or feel their organizations have minimal information potential. In their existing operations, traditional companies may have a wide range of activities that yield information — possibly far greater than Internet-based companies. Furthermore, many of these information-generating activities will be company-specific and thus carry unique value.
In other words, all companies can and should think of information as an asset. We think the day may come when executives speak of “return on information” as readily as return on investment and return on traditional assets. When that happens, companies will be well on the way to advancing from the Industrial Age to the Information Age — and to understanding and building information-based competitive advantage.
Today we are on the cusp of a period in which another question may serve as an indicator of potential wealth. That question is: How much information do you have? Advances in information technology are finally becoming so robust, affordable and increasingly omnipresent that the business world has now arrived, we believe, at the beginning of a new form of information-based competition and competitive advantage.
We argue that IT is so available and affordable for most organizations that, increasingly, information has the potential to be a valuable asset — one worth managing as a product, not merely a byproduct. In other words, technology is the enabler, but information is the real source of value creation. Information technology is very visible, and companies spend large amounts of money on it. However, information is the less visible but high-potential beneficiary of the technology, as modern digital technologies significantly increase the amount and scope of information we can gather and use.
Internet-based companies like Google and Amazon have already shown the value of creating, collecting, analyzing and deploying information. What’s more, traditional companies such as UPS and Capital One have also demonstrated that the information generated by transactions can be valuable in optimizing operations and sparking innovation. Many businesses have borrowed ideas from these and other information-savvy companies, but we propose a comprehensive framework, the information footprint, for finding and assessing information-based, value-creation opportunities. Indeed the information footprint is a metaphor for posing and answering an increasingly important question: What information assets does our company have?
A footprint has three dimensions: length, depth, and breadth. So does an information footprint.
Length
Length is the extent to which information is deployed outside the organization’s boundary to support existing business operations. This dimension lay behind many of the early strategic uses of IT in, for example, customer-connecting applications, supply-chain logistics and just-in-time production.Such diffusion of information throughout the value system led to greater synchronization of activities and timelier fulfillment because everyone was working with the same information — which was actual data, not historical or projected sales or production numbers. In other words, information diffusion — and lengthening the information footprint — is about efficiency. This often has been measured in the reduction of time, lower inventory levels or greater customer convenience and intimacy. IT-enabled improvements, for example, are what have enabled UPS to track every package shipped as it progresses throughout its journey — and share that information with customers via the Web.
The key question for managers that the length dimension of the information footprint raises is: What information can we gather and then share externally with key stakeholders in the supply chain or value system to increase efficiency?
Depth
Depth is the degree to which information is deployed inside the organization to improve existing operations. This was the initial focus of computer and IT applications in most companies. However, advances in IT have increased the potential diversity, amount and speed of internal information flows. This is seen in the adoption of business analytics and in the “big data” movement.Investment in information detail allows companies to fine-tune their decisions and activities by taking advantage of additional insights provided by richer information. Some well-known success stories in this area include Capital One’s fine-tuning of credit analysis in its lending and Deere & Company’s analysis of product configurations to reduce production and sales complexity.
The goal of this dimension of the information footprint is effectiveness — using digital technology and more detailed information to improve decision making and transform processes. The fundamental question for senior management here is: What additional information do I need, or is now available, to make my current business more effective?
Breadth
Breadth is the degree to which information is being deployed as the key resource or springboard to enter new markets or develop new products or services. The goal of this dimension is primarily entrepreneurship — in other words, identifying diverse ways that information can be used to develop new products or enter new markets.Information for this purpose will generally come partially from existing activities (this is one of the sources of differentiation the company brings to new product offerings), but this internal information can be combined with external data.
A simple but powerful question that many organizations should ask themselves in today’s competitive environment is: How many new businesses or how much additional revenue have we achieved from exploiting information? This is at least one measure of how extensively the breadth dimension of the information footprint is being developed.
Developing the Information Footprint
New types of companies are emerging that are information-rich, yet light in measures of traditional assets. Companies such as Google, Facebook and others are the early harbingers of change in the way to think about a shift in sources of value. These companies provide a set of information-based services that create an even richer stream of value-added information-driven activities.However, executives at traditional companies need not despair or feel their organizations have minimal information potential. In their existing operations, traditional companies may have a wide range of activities that yield information — possibly far greater than Internet-based companies. Furthermore, many of these information-generating activities will be company-specific and thus carry unique value.
In other words, all companies can and should think of information as an asset. We think the day may come when executives speak of “return on information” as readily as return on investment and return on traditional assets. When that happens, companies will be well on the way to advancing from the Industrial Age to the Information Age — and to understanding and building information-based competitive advantage.
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