Assets, Data and Data as an Asset

Managing data as an asset has become a cliche. But what does it actually mean? Is it a metaphor, like saying that a person’s greatest asset is their sense of humor? Or do we mean it literally, that data is an asset just like cash, equipment, or inventory? And what would it mean to treat enterprise data as an asset?

In the following series of posts I will explore whether and how data is an asset, and if so, the implications for business. I will attempt to get beyond the cliche to discuss what “data as an asset” means for executives.

To dig beneath the cliche we should first understand what we mean by “asset”. So what is an asset?

We commonly think of assets as items that appear on financial statements: cash, securities, real estate, and plant and equipment. These assets are both tangible and liquid.

A tangible asset is something that can be touched. We can see and touch assets such as machinery, inventory, or buildings. Cash and securities are not tangible in the same way, since they usually appear as numbers on a computer screen. But a cash balance in a bank account could be converted into physical currency if we wanted, and stocks and bonds have physical certificates, even though we may never see them.

But other assets are entirely intangible. Intellectual property such as patents and trade secrets are not physical or financial, but are assets just the same. Although they are intangible, they appear on the balance sheet when they are bought and sold. Commercial brands are assets, and can appear on a balance sheet as “goodwill” after an acquisition. But brand value can’t be seen or touched. Thus tangibility is not a determining characteristic of an asset.

Liquidity is the ability to immediately convert an asset into cash. Most securities are fairly liquid as long as there is an active market for them. Inventory is more difficult to convert into cash, but it can be liquidated at a discount if necessary. But commercial buildings and real estate are less liquid, and depending on their location and condition may be very difficult to convert into cash. Similarly, patents are liquid only if they are of value to a potential buyer who will pay for the IP. Brands can be sold, and have been, but only after a long spin-off or licensing process. IP and brands are not liquid, but they are still assets. As with tangibility, liquidity is not a necessary characteristic of an asset.

So what makes something as asset? An asset has value to the organization, and is legally owned and controlled by the organization. All of the types of assets we discussed above meet these criteria. Items that don’t meet these criteria aren’t assets. Employees, for example, are very valuable, but are not owned by the organization. They are not assets.

In the next post in this series I will take a look at whether data is an asset, and how it is similar to and different from other asset types.