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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

INTANGIBLES: COST AND BEYOND

by Mary Adams ~ August 26, 2008.
Permalink | Filed under: Hybrid Vigor.

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!

1 Response to INTANGIBLES: COST AND BEYOND

  1. Patrick Gauthier

    While there areas that cannot or should not be measured, one of the promising areas I like to explore is the value created in business process once it is properly identified, modeled and managed. BPM in service to intellectual capital and innovation yields tremendous insight into the value (including explicit customer value like satisfaction) if approached and handled appropriately. Creating and measuring value (both implicit and explicit) by eliminating waste in a process is a beautiful thing. I think Toyota’s experience with Lean (and by extension my experience with it) us a great example of surprising measures in very cool spaces.

    Thanks for your wonderful blog.

    Patrick

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