July 18th, 2016
Information has its greatest value when it is most available to, and accessible by, people for immediate use in understanding their world. I not only believe this, I put this insight to work in my consulting and teaching.
To implement this, I often use stories from the headlines to illustrate my key points. There are so many examples illustrating the KVC in the news that I am confident that I can pick up a Wall Street Journal at random and find a real-world illustration of a key point.
I call this technique a “flash case” — since it has the teaching value of a standard business school case — but it has the key advantages that (1) it can be developed quickly and (2) it evolves over time as the actual events play out.
The Deutsche Bank Case
For example, I recently used the warning letters from the NY Federal Reserve Bank to Deutsche Bank (DB) about deficiencies their capital requirements reporting process. Yes, all that detailed, boring, low-level stuff — that can gut the fortunes of enterprises heretofore thought unassailable.
Graduate students in my audience at Columbia University were able to identify each aspect of the knowledge-value relationship in the case. Much of the discussion focused on this pivotal issue: was this a technology shortfall, or rather a systemic problem in corporate culture originating at the top? More the latter than the former was the class consensus — a view that has been largely borne out by subsequent events.
Around the same time as the capital reporting issues, DB was involved in the LIBOR-rigging scandal, in which several huge banks were found to have essentially fabricated data used to set key rates in the world financial markets. In April 2015 the bank was fined $2.5 billion by US and British authorities for its role in the scandal — more than any other single institution.
These and related issues led to a top-management shakeup at the bank in June 2015. DB’s stock currently sells for 1/3 of what it sold for at the beginning of 2014, and the cost of insuring the bank’s debt has risen significantly — a clear signal that the once-dominant institution is now considered a risky asset.
There are other cases, with increasing frequency, that I have not yet developed into rigorous analyses. Recently in the news has been the case of Theranos — specifically, does their “pin-prick” blood test data fall into the quality tolerance allowable for them to accurately measure key indicators of patient health? Independent tests said no, and the credibility of the company and its services were questioned, first in sharp reporting by the Wall Street Journal, then by Medicare and other payers.
Walgreens cancelled a major contract with the company, and the viability of Theranos going forward is in question. Now their founder has been barred from the industry for two years, the company is under criminal investigation by federal prosecutors, and the Securities and Exchange Commission is looking into allegations of stock fraud.
In the Theranos case, the quality of data was driving the viability of a venture-funded start-up which had staked its entire future on this issue. In another recent case, the credibility of an established global company, Volkswagen, was called into question by a data-quality issue.
The company’s US division was charged with tweaking its test software to give positive results on emissions of diesel engines during mandatory testing — then reverting to a higher level of emissions (and performance) once the test was over. This brilliant, highly unethical subterfuge had a huge negative impact on Volkswagen’s sales, brand, and corporate reputation. Several top executives were dismissed, and in 2015 the company experienced its first drop in global sales since 2002.
In June 2016 the company agreed to a $14.7 billion settlement with the car owners in the US — the largest class action settlement ever. They are expected to make additional restitution to the dealers.
Data and Value
The cases of Deutsche Bank, Theranos, Volkswagen, and others like them illustrate that in our knowledge-driven economy, the connection between data and value is neither theoretical nor abstract. It’s having a huge impact on the bottom lines and corporate reputations of the companies who fail to see or to act upon that relationship.
My title exaggerates to make a point. While it’s not screaming in the headlines, the connection between data and value is an issue that affects many organizations, and has an increasing impact on their financial results and future viability.