Michael D. Moberly July 27, 2012
We all know, or at least we should, the knowledge – intangible asset-based business (transaction) economy is for real, it’s irreversible, and, we’re probably only on the front edge of it. I still find however, what some management teams are less familiar with is, the significance-importance of communicating internally, at least, information and data about the performance of their intangible assets, i.e., intellectual, structural, relationship capital, brand, goodwill, reputation, etc.
This post is not about offering the proverbial ‘sound bite, quick fix, or silver bullet’ for there is nothing particularly quick or easy about…
- building and sustaining core attributes that can help put and keep a company on the leading (competitive and financial) edge of their industry and/or market space, or
- developing practical and measurable ways to consistently improve the competitive, and thus financial, health of a company.
What may be innovative for some management teams though, lies in the premise of a 2007 Deloitte survey which states (paraphrased) that…financial indicators coming from conventional balance sheets as well as financial statements alone, neither capture, nor characterize a company’s (competitive, financial) strengths and weaknesses internally or within its value-supply chain.
There should be consensus by now that in an economy in which 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets, continued reliance on conventional balance sheets and financial statements that seldom, if ever address intangible assets other than possibly lumping them together as goodwill, does not constitute a complete picture, nor do they provide strategic perspectives necessary to sustain competiveness.
It is always my preference that my 65+%…phrase (above) serve as a prompt of sorts, for management teams – companies that are experiencing (a.) competitive – financial stagnation, and/or (b.) missed or lost (business, transaction) opportunities to recognize it may well be a consequence of relying on conventional financial statements as the primary source – guide for strategic planning and outlook. Again, absent an articulation of the contributory role and value of intangible assets.
To spark an internal dialogue within c-suites, management teams, boards, and business units to literally engage their respective intangible assets, I have developed and apply several, what I refer to as dialogue initiators, two of which are described below. I seldom execute them in a specific sequence, instead I find it more appropriate to ‘mix and match’ them in a ‘what fits best will usually work best’ manner.
One such dialogue initiator is revisiting the adage attributed to Dr. Deming many years ago, i.e., ‘you can’t manage what you don’t measure’! As we have come to know well, value and revenue constitute market drivers, and, by extension, lay the foundation for the destiny of many companies. So, when 65+% of most company’s value and sources of revenue originate – flow from intangible assets, as they do today, c-suites, management teams, and boards alike, would be well served to devote time, resources, and energy to developing, for internal consumption at least, practical and defensible methods for measuring intangible asset performance, particularly, which ones, relative to competitors.
Another dialogue initiator involves the importance of elevating management teams’ operational familiarity and achieving (business) confidence in utilizing – exploiting intangible assets, with emphasis on…
- what tangible assets are, what they aren’t, how to identify them, how they originate-evolve within a company, and how to assess their status and measure their contributory value.
- strategies for utilizing and extracting value from intangibles.
- the tenants of effective intangible asset stewardship, oversight, and management.
In best case, these, and other dialogues render decision makers more inquisitive and receptive to…
- asking the right questions and demanding more answers about the performance of their company’s intangible assets, and
- drilling down far enough (companywide) to determine precisely what asset performance indicators their company should be measuring.
Admittedly, some of the existing intangible asset performance – measurement methods (tools) warrant refinement (be more company specific) to engender the confidence that they actually paint the sort of comprehensive portrait of a company’s financial and competitive advantage health that’s so needed today, e.g.,
- the actual tools (techniques, formulas, measurement points, etc.) need more internal-external reliability and validity testing to become more defensible and mitigate skepticisms about their relevance and use.
- overcoming the often repeated misperceptions that measuring intangibles is too time consuming and doesn’t deliver a timely return.
- addressing the very relevant concern that developing and then communicating intangible asset metrics could render a company more vulnerable – at risk to competitive advantage undermining and/or asset value erosion, among other potential negatives.
I believe it’s the CFO who, in most instances, should take the lead in stewarding, overseeing, and managing a company’s intangible assets. But, that must be premised on, among other factors…
- getting the correct information/data to the CFO.
- the CFO being receptive to and confident in that information/data, and
- the CFO recognizing how to effectively utilize and execute on that information/data in a timely manner to achieve the desired results.
(This post was inspired by a 2007 survey/report produced by Deloitte titled ‘In The Dark II: What Many Boards and Executives Still Don’t Know About The Health Of Their Business’.)