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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

NATIONAL ACADEMIES II: INTRO TO INTANGIBLES

by Mary Adams ~ July 21, 2008.
Permalink | Filed under: Hybrid Vigor.

More of my observations on the U.S. National Academies conference on Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth. and the presentations made that day.

The introduction to the day’s proceedings was made by Cynthia Glassman, Under Secretary for Economic Affairs at the U.S. Department of Commerce. Ms. Glassman’s remarks distilled lessons from the 2008 Report of the Secretary’s Advisory Committee on Measuring Innovation in the 21st Century Economy.

Irving Wladawsky-Berger, IBM and MIT, gave one of the best presentations of the day. He gave a thoughtful but entertaining view of the importance of intangibles, saying the “moment of shift” was in the mid-1990’s with the rise of the Internet. He also predicted that most innovation will be in market-facing technology, which reminded me again of Lean Solutions, the book which I discussed in my post on Manufacturing’s Intangible Future. This book is a great introduction on focusing on the enterprise from the consumption/market perspective.

Wladawsky-Berger pointed out that so much of the work in information technology done to date was in the back office, where you are dealing with machines and products. In market-facing solutions, you are dealing with people and services—a much more complex and intangible task. This is also an important reminder of why relationship capital—networks, relationships and brand—will continue to grow in importance.

For the economists in the audience, Wladawsky-Berger connected intangibles with three concepts from Adam Smith:

  • Division of Labor: The new frontier is the study of business processes, learning to break them down into components. This is the focus of IBM services. Wladawsky-Berger used an inverted pyramid to explain the size of this challenge. He put technology at the narrow bottom of the inverted pyramid—the wide part of the pyramid at the top represents the broad array of processes built on that foundation.
  • Invisible Hand: Increased integration and accelerated change will lead to increased convergence, unpredictability and long-tail events (made me think of Taleb’s The Black Swan)
  • Moral Sentiments: He pointed out that moral sentiments in a digital economy are embodied in social networks, collaborative innovation and corporate social responsibility.

Wladawsky-Berger concluded by emphasizing that the bottom line is that talent is more important than ever.

Another presenter, Charles Hulten, University of Maryland, asked the question, “What do companies really do?” His answer focused on design, technology, innovation and marketing. His talk was based on the paper he wrote with Janet Hao that was published by the Conference Board on Intangible Capital and the “Market to Book Value” Puzzle. Hulten took a different tack on taxonomy than that used in the intellectual capital community; i.e., human, structural and relationship capital. He identified:

  • Structural: related to innovation, human resources and organization
  • Value of Output: stock market, securitization (here he also referenced the recent BusinessWeek’s work on brands)
  • Value of Inputs: value at cost, Tobins Q and the cost-value link

Note that Hulten’s focus on cost is on macroeconomics—how much are we spending economy-wide? The question of cost at the enterprise level was discussed later in the day (and in my post on Intangibles and the Firm).

He identified some economic characteristics of intangibles (for all you economists out there) which are:

  • Not market transactions
  • Invisible, hard to count
  • Non-rival (use by one person does not prevent use by another)
  • Have value that is appropriable only if from a commercial investment (the rest of the value diffuses as reduced cost and increased total factor productivity)

These concepts are examined in Hulten’s paper with Corrado and Sichel in 2006 on Intangible Capital and Economic Growth. One of the interesting data points he cited was that in 2003, the total investment by businesses in fixed assets was $1,077 billion versus $1,226 billion in intangibles. Even though intangibles investment has already surpassed tangible investment, we are all still just figuring how to count it!

1 Response to NATIONAL ACADEMIES II: INTRO TO INTANGIBLES

  1. Intangibles at the National Academies : I-Capital Advisors

    [...] Introduction to Intangibles [...]

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