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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

'Valuing Intangibles' Archive

HARVARD BUSINESS REVIEW CALLS FOR A FOCUS ON “REBUILDING TRUST”

by Mike Neuenschwander ~ June 3, 2009

The cover of this month’s issue of the Harvard Business Review (HBR) calls for sweeping changes in how to handle trust in business, government, and organizations. And to contribute to the discussion, HBR provides more than 20 pages of material covering important aspects of trust. I was so excited to see this, I actually paid the $16.95 cover price to get a copy. Well worth it!

The “From the Editor” section has this to say about trust:

The public’s trust in business leaders has never been weaker. According to the Edelman Trust Barometer, released in January, trust in U.S. business dropped from 58% to 38% in one year…. If companies can’t address this problem, an economic turnaround may be delayed indefinitely: Banks won’t lend money; innovation will slow to a crawl; trade across borders will fall even more rapidly; governments will overregulate the private sector; unemployment numbers will continue to rise; and consumers won’t open their wallets for anything they consider nonessential. A complex modern economy simply can’t function unless people believe that its institutions are fundamentally sound.

I highly recommend reading the article “Rethinking Trust” by Roderick M. Kramer. While other articles in this issue offer platitudinous suggestions (i.e., “organizations should be more transparent” and support a “culture of candor”), Mr. Kramer roots his analysis in the biological realities of brain chemistry and human instinct. This perspective makes the author’s subsequent rules for “tempering trust” more valuable and actionable. In fact, Mr. Kramer’s 7 rules bear a lot of (uncorroborated) similarity to my “Laws of Relation.” My only caution with Mr. Kramer’s rules of trust in this article is that they are meant for interpersonal forms of trust, and not always applicable to institutional trust.

I’m hoping the Harvard Business Review’s “Spotlight on Trust” can generate a lot more discussion on this important issue.

SCARE TACTICS ABOUT INTANGIBLES

by Denise Caruso ~ November 13, 2008

I recently a story about software patents so goofy (to me, anyhow — YMMV) that I had to share it.The story was from the IT Examiner, titled, “US throws out most software patents.”

The hook was a decision by the US Court of Appeals for the Federal Circuit in Washington DC. Instead of automatically granting a patent for a business practice, the court decided there would be a specific testing procedure to determine how patentable is the process in question.

As the story put it, this is “a nearly complete reversal” of a judgment of 1998, which started the stampede for patenting business practices.
All I can say is, About damn time! Here’s the link to my extremely cranky New York Times column on this very same subject, written in 1999.

So here’s the goofy bit: The reporter wrote,

The decision is great for open source advocates. But it could mean a permanent change in the value of intangible assets, which comprise approximately 70 per cent of the average high-tech company’s market capitalisation. With the world’s economy sliding downhill at an increasing pace each day, this decision could cost US companies billions of dollars.

Oh, please. First of all, patents comprise only a fraction of that “70 percent” value for intangibles, and business practice patents are only a fraction of those.

And second, those patents should never have been granted in the first place, and everybody knew it. Continue reading »

IT TAKES ‘T-SHAPED’ PEOPLE

by Denise Caruso ~ November 13, 2008

I’m a little embarrassed that it’s taken me almost two years to post this item — I saved a draft of it in January 2007, yikes — but even though I can’t find the link to the original story (The Korea Times, 21 Jan 2007), I thought it was worth posting anyway. It’s great food for thought, and relevant far beyond its immediate subject. Certainly it something to consider for companies who consider employees to be important intangible assets.

Back then, Lee Jeong-bae, a senior consultant at South Korea’s LG Economic Research Institute, said he thought he knew why Korean firms have failed to produce such iconic devices as Apple’s iPod and Motorola’s RAZR, despite their technological expertise: he said they lack “T-shaped” people — people who have an area of deep interest or expertise (the vertical part of the T), but also have empathy for and ability in other areas.

“To create innovative products, we have to secure insights not only into the products but also into their business opportunities by having an observant and empathetic view of the world. Only T-shaped people, who have well-rounded personalities and broad interests, can obtain such viewpoints. Sophisticated engineers who do not understand the market and customers will never devise [the products] which have a shot at becoming a grand slam.”

MONEY CAN’T BUY YOU TRUST:
WHAT WE WON’T BE GETTING FOR $1 TRILLION

by Mike Neuenschwander ~ October 12, 2008

Managing Risk is Not Enough
Late last year, I sat in a meeting in which several bankers were present. During the meeting, one of the bankers said something that in retrospect belongs in the highlight reel of “famous last words.” The comment went something like this: “We’re bankers! We understand risk, because it’s our business. We know how to manage risk. That’s why industry and government are looking to us to solve risk-related problems.”

As ridiculous as this statement now seems (especially to those of us whose retirement funds have been decimated) I’d argue that the statement holds true—even in a grizzly market. Yes, good bankers do know how to manage risk—their own risk. Which is why the best investment bankers view a recession more like a sabbatical, while the rest of us have to figure out how to keep food on the table. And even as the government is coming to the rescue, the Fed won’t be doing the risk management part: they’re paying bankers to figure out how to get out of the mess they’ve created. Talk about a win-win!

Not that these guys aren’t suffering. Here’s a bit of anecdotal evidence of how bad things have gotten: Continue reading »

MY STRATEGY+BUSINESS COLUMN ON INTANGIBLES

by Denise Caruso ~ 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.

ACCOUNT FOR INTANGIBLE COST, NOT VALUE

by Mary Adams ~ 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 Mary Adams ~ 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 »

NATIONAL ACADEMIES V: INTANGIBLES AND THE GOVERNMENT

by Mary Adams ~ July 21, 2008

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.

There were two panel discussions on the role of government around intangibles. Many of the presentations were rich with data, and I recommend them to those interested in the macroeconomic aspects of intangibles.

Douglas Lippoldt, Organization for Economic Cooperation and Development (OECD) made a clear case for governments and organizations like the OECD to focus on intellectual assets as:

  • They are central to value creation, economic growth and competitiveness in a modern economy.
  • Continued shortfalls in measurement and understanding of intangibles has implications for decision making
  • IA relationship to innovation, as inputs and outputs needs to be understood
  • There are significant possibilities to leverage these assets for acceleration in development

R&D was the focus of presentations by John Jankowski, Science Resources Statistics Division of the National Science Foundation, and Steve Landefeld, Bureau of Economic Analysis at the Department of Commerce. Continue reading »

NATIONAL ACADEMIES: IV: INTANGIBLES IN THE FIRM AND THE MARKETS

by Mary Adams ~ July 21, 2008

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.

This was the discussion of the day closest to my experience and practice so I was especially interested in these presentations.

I recommend the discussions by Laurie Bassi, McBassi & Company, and James Malackowski, Ocean Tomo, whose companies are encouraging market development for intangibles. McBassi offered data on the value of investment in human capital. Malackowski’s firm made its name by developing public auctions of patents and is now developing investment units tied to licensing rights. The work of companies like this will provide an important validation to markets and managers of the value of intangibles in business.

Baruch Lev of New York University’s Stern School, reported that “shares of intangibles-intensive companies are systematically undervalued, causing excessive cost of capital as well as suboptimal investment and growth.” Lev rejects the value of many intangibles indicators and advocates Continue reading »

NATIONAL ACADEMIES III: INTANGIBLES AND MACROECONOMICS

by Mary Adams ~ July 21, 2008

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 discussion of the challenges and approaches to macroeconomic measurement of intangibles was greatly strengthened by the presentations of perspectives from not only the U.S., from Carol Corrado, The Conference Board and Brent Moulton, Bureau of Economic Analysis, but also from Jonathan Haskel from Queen Mary College, University of London, and Kyoji Fukao of Hitotsuboshi University and RIETI. I recommend the individual presentations for more detail but thought I would highlight a couple points that struck me.

Corrado pointed out that many of the expenditures in intangibles are co-investments in IT. This emphasizes the role of technology as a catalyst for change in organizations as well as a tool for accomplishing that change. Process improvement, increased employee competencies, improved customer service, are all inter-related. This comment was also interesting in light of Wladawsky-Berger’s presentation based on his experience at IBM on the role of intangibles in business.

Using the approaches developed by Corrado, Hulten and Sichel in 2006 on Intangible Capital and Economic Growth, it appears the intangibles investment in the UK and Japan is much lower than in the U.S. But then Fukao dug into the numbers. Continue reading »