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Intervention by Denise Caruso Read Intervention by Denise Caruso, Executive Director of the Hybrid Vigor Silver Award Winner, 2007 Independent Publisher Book Awards; Best Business Books 2007, Strategy+Business Magazine

archive for May, 2008

THE MISSING INTANGIBLES INFORMATION IN XBRL

by ~ May 28, 2008

Business Finance magazine recently reported that the Securities and Exchange Commission (SEC) will require that the largest 500 or so companies (by market capitalization) begin to use XBRL by the end of the year with full compliance by 2010.

Extensible Business Reporting Language (XBRL) is a new computer language for the electronic communication of business and financial data. It was developed by an international consortium for open source use for global financial reporting. The hope is to be able to easily access and analyze the written commentary in public filings about the company and its finances. The unstated assumption is that current financial reporting ignores many of the important aspects of business so what a management team says is of growing importance.

But I question whether the information that XBRL and its builders assume is there, really is. That’s because companies are only required to report within the parameters of current accounting practices which were optimized to report on the results and strength of tangibles-heavy industrial companies. These practices do not help much when it comes to reporting on the results and strength of intangibles-heavy companies fueled by knowledge, people, processes, IT and networked business models where key parts of a business may be the responsibility of an external partner.

The importance of this kind of intangibles information was demonstrated by an experiment that was described recently on The PWC Corporate Reporting blog. The experiment involved creating two versions of an annual report Continue reading »

GE’S INTANGIBLES

by ~ May 17, 2008

When I read the report in the Wall Street Journal that GE is going to sell its appliance business, I immediately thought of the great piece in last month’s Strategy + Business entitled “Manufacturing’s ‘Make or Break’ Moment.”

GE has been in the appliance business since 1907 and was responsible for many firsts: the refrigerator, room air-conditioner and the toaster oven. This sale is happening now as part of the larger story of GE’s earnings troubles and sagging stock price. The idea is to appease investors’ concerns about short-term earnings by generating cash from the sale of this business.

The decision fits the pattern that Kaj Grichnik and Conrad Winkler discussed in S+B (and in their new book Make or Break), that companies see manufacturing as a cash cow and non-core to their business. They ask the question in this article, “How important is industrial capacity to a nation’s well-being?” and offer an alternative:

Old, fossilized plant footprints can become nimble networks; confrontational labor relationships can evolve into constellations of joint interest; outmoded supply chains can be transformed into clearly defined, mutually beneficial partnerships; and stolid aging factories can be retrofitted into showcases of lean manufacturing. Only those companies that appreciate manufacturing, invest in technology, and innovate in this field are likely to prosper.

Networks, labor, partnerships, lean manufacturing. These are all intangibles. Yes, the future of manufacturing lies in a company’s ability to manage its intangibles. Continue reading »

IT INTANGIBLES CAN BE MEASURED

by ~ May 6, 2008

I recently read two different blog posts on measuring intangible benefits of IT (information technology) projects. The first by Paul Ritchie More On Intangible Benefits and the other by Tabrez Khan A Case for IT’ s Non-financial ROI.

Both bloggers make the case that intangibles are important but very difficult to measure. I agree that they are important but think it is unfortunate that they are seen as so hard to measure. The field of intangibles and intellectual capital provide a number of important ideas that can be applied in IT business cases. Here are a few.

IT is Intangible: To start with, it is important to recognize that IT is itself a (mostly) intangible investment. I say this because much of IT spending is not capitalized on the balance sheet but, rather, expensed on the income statement. Any analysis of the costs of a project ends up happening outside the accounting system because so much of the spending simply gets expensed.

The only reason for mentioning this is to remind those in IT that intangibles are not something to be ignored or dismissed. They are actually at the heart of almost every business today. Roughly 80% of the value of companies today is intangible, that is, not on the balance sheet. IT is a big part of that. So IT should embrace the study of intangibles.

Intangibles Gain Value From a System: Another important point is that intangibles do not have much stand-alone value. Their value comes as part of a system. Most IT implementations cannot be picked up and moved to another company without a lot of work. This is because they exist in a larger context of the work patterns and skill of the workers that use them. Continue reading »