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Past Issue • Jan-Mar 2015

Measuring Digital Value: Why Valuation Metrics are Inadequate

Technological innovations have moved beyond the level of products and processes to encompass virtually every aspect of a business, in both tangible and intangible ways. Yet, in measuring the impact and contribution of such innovations, we persist in using traditional models of productivity and profitability, which can give us, at the best, a partial understanding of their value to firms and customers. Professor Anandhi Bharadwaj argues for a new set of valuation metrics that will more accurately capture and quantify how digital innovations, in all their varied forms, create value across the business ecosystem. Innovation is lauded as the economic engine of growth and it is often the most critical parameter that financial analysts and investors look for when evaluating firms and their growth opportunities. There have been numerous studies linking innovation in products, processes and services to competitive differentiation and advantage across a variety of industries. Furthermore, the speed of innovation in many industries has accelerated to a point where incumbent companies have to rapidly adapt to new competitive environments to thrive and prosper. This has been most acutely felt in the information technology (IT) industry over the last three to four decades, and increasingly in other industries that have been subjected to the disruptive power of digitisation.

ABOUT THE AUTHORS

  • Anandi-Bharadwaj

    Anandhi Bharadwaj

    Anandhi Bharadwaj is Professor, Information Systems and Operations Management at Goizueta Business School, Emory University.
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