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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 August, 2008

MY STRATEGY+BUSINESS COLUMN ON INTANGIBLES

by ~ August 28, 2008

Although the subject is mostly Mary Adams‘s purview at Hybrid Vigor, I wanted to post the link to my Strategy+Business column on intangibles in this quarter’s issue of the magazine.

Unfortunately I was not able to quote either Mary or Henrik Martin, the CEO of Intellectual Capital Sweden, in the article, despite the fact that they both gave me terrific interviews, in order to avoid the appearance of conflict of interest: I’ve been talking to both of them about becoming a licensee/practitioner of the IC Rating method, which I think is one of the most sensible intangibles rating systems I’ve seen so far.

INTANGIBLES: COST AND BEYOND

by ~ August 26, 2008

Jim Ludwig of Integral Input made a very thoughtful response to my posting Account for Intangible Cost, Not Value

I agree with Jim wholeheartedly that there are many aspects of intangibles that cannot be measured and an obsession with measurement can be counterproductive (like counting calls completed by a call center rather than customer satisfaction). The work of our IC Rating network is actually all about non-financial measures.

However, we should not ignore the measures that we do have-including intellectual capital investment. I think that we would accomplish a number of things if this kind of measurement would become popular. First, it would help managers and boards of directors to face up to the fact that they are already investing a lot in intangibles. This would force them to recognize the need to develop intangibles management capabilities. It would also help all of us learn more about the dynamics of intangibles management. Right now, no one can say what a “normal” level of investment is in systems or training or external relationships.

But Jim is right to ask about the next step: We can measure cost but can we measure return in a traditional, mathematical way? The short answer is no. Much of knowledge work occurs inside of people’s heads and, for the foreseeable future, our heads will not have gauges on them to show how effectively we are thinking. The path from cost to return goes from tangible to intangible and back to tangible, when the business process makes money or not.

I like to use the analogy of the fact that intellectual capital expenditure is like pouring money into a closed tank or a black box. You cannot see what is going on inside the box and you hope that money will come out the other side. It is our job as managers to learn how to discern what is going on inside the box, improve it and increase the flow of money out of the business.

We like to use stakeholder interviews (inside and outside the company) to determine whether the investments made are getting the desired results. Stakeholders are in a good position to, as Jim suggested, “evaluate” or assess the strength of the underlying intangibles. Some of the ways that they can be assessed include current performance, readiness for the future and risk. Thanks to Jim and Henrik Martin for their input-keep the conversation going!

SCIENCE: THE INTELLIGENT RELIGIOUS CHOICE

by ~ August 25, 2008

Karl Giberson wrote a piece for Salon a few weeks ago entitled “What’s wrong with science as religion?” The piece was largely in reaction to antics by PZ Myers, including his “great desecration” of a Communion wafer. But Giberson avoids being goaded into the “whose is bigger” contest of religionists and instead explores whether science can offer a suitable replacement for religion.

It’s a topic I’ve written on before (most recently in discussing Denise Caruso’s book, Intervention), but Giberson boldly goes where I didn’t dare in suggesting that “Science … has the raw material for a new religion.” But then he asks some hard questions of a scientifically rooted religion:

What would this new religion be like once it became institutionalized? After all, if religion fills a genuine human need, something has to fill the hole created by its passing — something that appeals to billions of people.

Could we be sure, for example, that this new scientific religion would not give rise to the extremism and aberrant behavior that plague conventional religions? Would concern for the diversity of life, for example, inspire vegetarians to blow up slaughterhouses, and run the local butcher through his or her own meat grinder? Would reverence for the cosmos reinvigorate astrology? Would appreciation for natural selection bring eugenics back out of the closet? In other words, if science dismantles the traditional religious content that people use to satisfy their impulses — many of which are quite passionate — will we really be better off?

Great questions. The questions remind the reader that religious exercise isn’t just about getting the facts. They suggest that those who insist on literalism in religion miss the point, as if strict literalism among a group of human beings is either possible or desirable.

So rather than attacking religions, I’d prefer to see biologists (such as PZ Myers) and other scientists approach religion as an evolutionary phenomenon. Clearly, religion is itself an important evolutionary adaptation for the survival of our species. The religions in the world today exist because they are the ones that enabled cultures to survive. Religions have been successful in coordinating activities and building foundations for trust for millions of people across the globe. And they have done this without requiring the laity to have Ph.D.’s or IQ’s over 150. Whether the stories today’s religions tell are “true” in the scientific sense is irrelevant; what can’t be disputed is that these religions have enabled cultures to survive and civilizations to thrive where others have failed.

Religions will continue to evolve, but they won’t follow a rational or scientific path. Religions are also unlikely to completely overpower the human propensity for “extremism and aberrant behavior.” So before rushing off to take scientific communion, consider this: if survival in nature depends on making rational, scientifically founded decisions, how did we ever come to be?

ACCOUNT FOR INTANGIBLE COST, NOT VALUE

by ~ August 19, 2008

At the recent conference on Intangible Assets at the National Academies, the discussion “Intangibles in the Firm” consisted of two presentations, one by Baruch Lev, Professor of Accounting and Finance at the Stern School at NYU, and the other by Ron Bossio, Senior Project Manager from the Financial Accounting Standards Board.

It is not surprising that the organizers of the conference turned to two accountants to explain the “state of the art” of intangibles in the firm. It was a natural decision. We rely on accountants to provide objective information about our organizations. Who better to help us understand this new “asset” class that makes up 80% of the valuation of the average company and fuels competitive advantage?

But the problem is that accountants have not been able to answer this question. Accounting was designed 500 years ago to track the movement of tangible goods. The system worked well throughout the industrial revolution because it provided a way to keep track of the full value chain of a tangible business—from construction of a factory to purchase of raw materials, creation and sale of finished goods, and collection of accounts receivable.

The value chain of an intangibles-intensive business, however, is much less visible in traditional financial statements. Continue reading »

MOBILIZING MINDS: CREATING WEALTH FROM TALENT IN THE 21ST CENTURY CORPORATION

by ~ August 15, 2008

I just finished this book by two consultants from McKinsey, Lowell L. Bryan and Claudia I. Joyce. Even if you haven’t read Mobilizing Minds, you may have been exposed to one of its key recommendations: that corporations use profit per employee as the “primary metric of profitability.” I disagree with this simplistic recommendation: it seems like a number that could be endlessly manipulated and it ignores the contribution of external partners who play an important role in more and more businesses.

However, it is worth reading the analysis that led them to this conclusion. Their examination of the largest 150 companies in the world showed that after growing at 3% from 1970 to 1994, their total market capitalization grew at 11% per year through 2004, even taking into account the bursting of the internet bubble in 2001. They then separate the companies into two groups: “labor-intensive” and “thinking intensive,” looking at net income per employee. It probably won’t surprise you that the thinking intensive companies had much higher income per employee. (Note that this data is in the Introduction to the book which is available as a free download)

The authors go on to state that “almost all of today’s companies…were built primarily to mobilize their labor and capital assets—not the intangible assets that enable profits per employee to rise to levels never seen before.” And further that this model leads to “massive, unnecessary, unproductive complexity.” They also imply that many of the companies that have succeeded at this game have done so more by intuition and luck than by deliberate strategies. Continue reading »