Digital Transformation: be aware of Digital Assets
In the digital age, digital assets may pose one of the biggest risks to companies and other organizations. Especially when not properly recognized as such, unmanaged, and obscure to business management. Digital risk running lose.
Decision effectiveness - an important asset
As I pointed out in my last blog 'Forget processes, think decisions', decision effectiveness is directly related to financial results. How many companies really are in full control of the effectiveness of their day-to-day operational decisions? The answer may be disturbing. In most cases, the decision effectiveness is determined by the expertise and motivation operational staff and largely obscure to the responsible business management. Or determined by business logic, the classical way programmed into a wide variety of applications used in the organization. Business logic, not transparent to the IT department, and even more obscure to the responsible business management. Either way business management not fully in control of the effectiveness of day-to-day operational decisions. Thus leaving organizations incapable to strategically steer for excellent decision effectiveness and excellent financial results. In a highly competitive environment, where the competitor is in full control over its business logic, this is a major risk, that strategically should be managed.
Now that it is clear decision effectiveness is a success determining intangible digital asset, organizations should be eager to control this asset. However, it rarely shows up on the organization's balance sheets. Classical accounting seldom is aware of a decisions business logic actually being a digital asset. A valuable piece of digital production equipment, requiring management, maintenance and in fact representing a certain amount of capital. And therefore should show up somewhere on the organization's balance sheet. And it is not the only type of digital asset. Uber, Amazon, eBay—these companies really understand to use their digital assets.
Harvard Business Review pointed out that digital assets across the entire economy doubled over the past 15 years, as firms invested not just in IT but in digitizing their physical assets too.
Digital Assets are different
As digital assets differ from physical assets, the concept of an intangible digital assets can be challenging to grasp. For example, a single piece of data can fuel multiple algorithms, analytics, and applications simultaneously. And analytic models deriving insight from data is just another valuable Digital Asset. Digital Assets, as valuable they are, can easily be duplicated and altered. Digital Assets do have their own specific dynamics.
Digital assets mostly are a blind spot for the financial department. Non the less becoming more and more important to the world economy. Digital assets are invisible, but still, something that smart managers should keep an eye on.
Economy of Digital Assets
Most digital assets do not provide value in itself, but the right combination of assets makes the difference. As for example the decision of a next best action designed to maximize the value of every interaction for both the bank and its customers use an analytic model deriving insight from customer profile history data. It is the chain of individual digital assets that make the difference, expanding digital asset usage, and creating an increasingly digital workforce. Innovations using chains of Digital Assets, often create network effects and enjoy far higher profit margins than the rest.
Harvard Business Review: How digital is your industry?
Putting their digital assets to work for them, financial services, and professional services often are in the lead, leaving other sectors behind government, healthcare, construction, hospitality. But even there are companies utilizing their digital assets to innovate and in some cases disrupting others business, creating a new digital divide.
Key impacts and considerations
- Digital Asset management is to be considered a business-critical task
- The CFO of the organization should be involved and work closely with the CTO
- The value of Digital Assets should be accessed and put on the financial balance sheet
- Value and financially manage your Digital Assets in a separate Digital Asset Account
- Classical accounting rules may need reconsideration in respect to Digital Assets