Friday, November 15, 2013

Be Mindful of Data Arbitrage

Arbitrage is a term often used in economics and finance to describe the practice of taking advantage of a price difference between markets [Wikipedia]. This then leads to the opportunity to make profit without taking any real risk. As a result, arbitrage is usually very short lived and leads to a natural re-balancing of the price differences.

People also refer to arbitrage when they talk about using enhanced amount of information to improve marketing and sales, or to use some unique piece of information to keep you ahead of competition.

In a system with high information transparency, or an effective information feedback, arbitrage is a self-regulating control mechanism for the system. However, this is not true where the feedback system is broken. In these situations, the arbitrage becomes the power of knowledge, as one holder of information stands at the advantage point from another party.

This happens across all areas of life, and in particular where any type bargaining is concerned. Whilst it is true that you might be willing to pay for convenience or a brand, you may not always have the ability or the right to know what is the real value of the deal for the other side.

So, while the arbitrage in data is broken, and feedback loops are dysfunctional - knowledge remains power. However, once standardization and governance kicks-in - balance is restored.

Therefore be careful with your information strategy, and be critical of the competitive advantage out of your information assets. Consider how the maturity of industry standards and governance, demands from regulators and technological capabilities might impact the value you derive out of your information assets.

In the meantime, it might help to acknowledge that information arbitrage is all around us and take decisive actions to master or surrender to information management gaps where it specifically benefits and aligns with your business strategy.

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