Michael D. Moberly June 3, 2010
The timeless management adage ‘you can’t manage what you don’t measure’ has relevance to the knowledge-based economy where intangible assets have become the overwhelmingly dominant source (65+%) of most company’s value and revenue. But, as important and valuable as intangible assets are to most companies, regardless of size or industry sector, relatively few management teams and boards take a consistent role in managing or measuring them.
So, why is that? One reason (rationale) frequently cited, is that intangible assets are ‘lumped together’ and appear on balance sheets only in the context of goodwill, thereby dismissing or relegating all other forms and categories of intangibles that a company produces and uses to subordinate, non-contributory roles.
Thus, it begs the question, why devote time and resources to managing, measuring, and delineating things (intangible assets) that are not going to individually appear on a balance sheet? The conventional accounting practice of not delineating/distinguishing intangibles on balance sheets, provides a stronger rationale then for management teams and boards, perhaps already so inclined, to be less receptive to learning how to identify, assess, value, manage, and, most importantly, extract value and exploit competitive advantages from their intangible assets.
Today however, as intangible asset rich/intensive companies become the norm globally, it’s seems prudent for management teams and boards to consider revisiting those aforementioned ‘why should we bother’ rationales by posing this single question, ‘what does my company possess or produce that is valuable and provides competitive advantages, but is not included on its balance sheet’?
The answer to the question of course, is intangible assets. (For a comprehensive list of intangible assets please go to https://kpstrat.com and click on brochure and scroll to ‘what are intangible assets’.)
Intangible asset specialists readily concur that when management teams and boards avoid managing and measuring intangible assets, it’s akin, particularly in this knowledge-based economy, to ‘sticking a company’s entire head in the sand’. It puts companies at risk by not focusing on those factors (intangible assets) that have proven to be so essential and integral to profitability, growth, and sustainability.
Strict adherance to the ‘you can’t manage what you don’t measure’ adage, often gets translated as managing and measuring things that present the fewest challenges, thus the right things, or perhaps the more complicated things, or things which management teams and boards are less familiar and comfortable, are less likely to be managed or measured. And, in a knowledge-based economy, that usually means intangible assets!
So, what are the right things management teams and boards should be measuring? The answer again, are the intangible assets (performance indicators) that consistently produce benefits, i.e., add value to a company, facilitate revenue streams, create competitive advantages and foundations (building blocks) for growth, future wealth creation, and sustainability, etc.
When management teams and boards frame the question as noted above, a frequent result is that intangibles are much less likely to be dismissed, overlooked, or neglected. Instead, the assets’ contributory value will be recognized and exploited.
(This post was inspired by U.K.’s Department of Trade and Industry report titled ‘Creating Value From Your Intangible Assets: Unlocking Your True Potential’.)
The ‘Business IP and Intangible Asset Blog’ is researched and written to provide insights for companies, their management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets. It is in this context that I welcome and respect your comments and perspectives on these increasinly important matters at [email protected].