About the Institute

The Hybrid Vigor Institute is dedicated to rigorous critical thinking and the establishment of better methods for understanding and solving society’s most difficult problems. Our particular emphasis is on cross-sector and collaborative approaches; we seek out experts and stakeholders from a range of fields for their perspectives or to work together toward common goals.
Principals | Advisors | What We Offer

 

hybridvigor.net

hybridvigor.net houses the work of critical thinkers, researchers and practitioners who conduct cross-sector and cross-disciplinary explorations and collaborations.
Blog | Contributors | Topics

  Subscribe to Hybrid Vigor’s RSS Feed

 

Disclosure

Privacy | Funding

 

Contact Us

 


 

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

MANUFACTURING’S INTANGIBLE FUTURE

by Mary Adams ~ July 1, 2008

Ken Jarboe at the Athena Alliance has had two great posts recently about manufacturing. In Reversing the Offshoring Trend,he makes the point that high energy costs and the knowledge intensity of manufacturing are important factors that can outweigh the low labor costs that have moved so much production out of the U.S. In Workforce as an Intangible Asset he describes how the experienced workforce of Danville, Virginia was a key factor that, along with energy prices, recently has lead to the decision by two companies to open two new furniture plants in Danville.

Jarboe’s arguments made me think of the wonderful cases laid out in Lean Solutions a few years ago by James P. Womack and Daniel T. Jones. The book looks at value from the customer’s point of view—one that is getting increasing attention in today’s Web 2.0 world. Although the analysis of the management of doctors’ offices is also memorable, I call your attention to the case of shoe manufacturing. This type of manufacturing was moved off shore long ago and certainly yields a lower cost per shoe.

But the authors point out potential limits to the total cost and earnings related to offshoring. The distances and complexities of offshoring usually imply long lead times so product mix and quantities have to be decided as much as a year in advance. Long lead times mean that new product cannot be produced if a shoe turns out to be a bestseller or if one size sells out before others. Shoes that don’t turn out well end up being sold off through discounting channels. This leads to an overall profit that is lower than that which might be obtained with more flexible, shorter-run production were available. I don’t remember energy costs being part of this argument but they would certainly tip the balance in favor of looking at more creative production that is closer to home.

This is yet another illustration of the power of intangibles to turn business models on their head. Cost of production was paramount in the industrial economy. Although factors like flexibility, quality and customer service are intangible, they can have real bottom line impact. The faster we learn to evaluate intangibles, the better off our economy will be.

INTANGIBLES IN ANNUAL REPORTS

by Mary Adams ~ June 16, 2008

Thanks to a Mumblr blog posting by an Indian management consultant, I recently read the Infosys annual report. Most of the report looks like the average annual report. But tucked in the back, they include what they call an “intangible assets score sheet.”

The score sheet (found on page 135) uses numerical proxies to try to get to the core of the three major categories of intangibles, including:

  1. External structure – They focus exclusively on clients, using metrics such as growth in revenue, numbers of clients and revenue from repeat business.
  2. Internal Structure – They focus on R&D, technology investment and efficiency. Efficiency is measures through sales and G&A expenses compared against staff and revenue levels
  3. Competencies – They focus on staff levels, age of employees, attrition and value added for different kinds of employees.

This is an amazing start that begins to show make intangibles more tangible to the average analyst. Given the power of intangible information shown in the contest I described in a recent post on XBRL, companies need to learn how to “show” their intangible value to their stakeholders.

Some additional things that I would like to see in this kind of report:

  • External – Metrics around key external relationships with suppliers and partners
  • Internal – Metrics around internal process strength
  • Competencies – Metrics around training expenses and recruiting costs

Infosys is not the first to do this. I will profile others in the future. Do you know of other cases of intangibles reporting to shareholders? Post a comment or send me an email and I will add them to future posts.

INTANGIBLES AND STOCK PRICES

by Mary Adams ~ April 7, 2008

There was a great post last week on the Empirical Finance Research blog that asked the question: Does the Stock Market Value Intangibles? The post reviews a paper by Alex Edmans at the Wharton School of Business at University of Pennsylvania, which looked at the relationship between employee satisfaction and equity prices.

Edmans concluded that from 1998-2005, a stock portfolio of the companies listed on Fortune magazine’s “Best Companies to Work For in America” increased in value by an average of 13% per year-double the rate of the market as a whole. Empirical Finance outlines how to build an investment strategy based on this fact.

This looks like a fun blog. The post previous to this one gave rating of 5 (on a scale from 1 to 10) for a strategy that looks at CEO real estate purchases as an indicator of expected declines in stock prices. They gave a rating of 9 to strategy based on investing in Fortune’s Best Companies list as a simple way of targeting companies that create the most value in today’s “ideas-based service economy.”

Continue reading »

THE INTANGIBLE INNOVATION PROCESS

by Mary Adams ~ April 4, 2008

Innovation is the major strategic challenge for just about every organization today. But it is an elusive goal. This great post by Brad Kolar on his The Question of Leadership blog advises, “Want to innovate? Stop trying to be innovative and start solving problems.” He talks about the fact that successful innovation does not start intentionally. It starts by identifying hard problems and getting to work on them. Solving problems creates value.

This is a hard thing for organizations to swallow. They are accustomed to the command-and-control approach where making something a goal is the first step to getting it done. I’ve seen companies that have as a shared goal “to become more innovative.” This means that the personal goals of everyone in the organization include something about “being more innovative.”

But a manager cannot order someone to innovate! He or she has to create the environment where there is enough freedom and the right resources so that their employees can and will innovate. In this view, the manager’s role is to help frame the problem, convene the conversation and get the right people to the table. Continue reading »

GETTING PAID FOR INTANGIBLES

by Mary Adams ~ March 31, 2008

Larry Downes had a great blog post a couple weeks ago on The Writers Strike and the Battle for Virtual Value. Downes points out that the traditional media, with whom the writers were negotiating, have not figured out how to make money on the internet. Nevertheless, he asserts, they spent over $2 billion fighting about “revenues that do not yet exist from channels that have not yet been created.”

Contrast this with the recent New York Times editorial by songwriter and author Billy Bragg, The Royalty Scam. Bragg tells the story of Bebo, the social-networking site that grew to 40 million members in two years and, in Britain, apparently ranks with MySpace and Facebook in popularity.

A couple years ago, Bebo founder Michael Birch asked to meet Bragg after Bragg had lobbied MySpace on its proprietary rights clause. Birch assured him that Bebo would always put the interests of artists first—although this “support” never included any kind of royalty to the artists contributing content. Last week, when Bebo sold to AOL for $850 million, Bragg observed:

The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend. Continue reading »

THE INTANGIBLE IMPERATIVE

by Mary Adams ~ March 21, 2008

I resolved to start blogging about intangibles when I read a recent article in Fortune about soybeans called, “How Brazil Outfarmed the American Farmer.” The article explained how the Brazilians have used cutting-edge technology and well-designed market networks to become a dominant player in the soybean market. I saw this as just the latest proof that, as Thomas Friedman put it, “The World Is Flat.”

I believe that we have a lot of work to do to learn how to manage the intangibles that determine the winners and the losers in this “flat” world. And the American farmers are just the latest in the long line of businesspeople on the losing end of the intangibles game.

Fortunately, around the same time, I met Denise Caruso, who runs the Hybrid Vigor Institute and edits this blog. We became acquainted after she wrote a wonderful piece in the New York Times, “When Balance Sheets Collide With the New Economy” which highlighted the inadequacy of financial reporting to deal with the knowledge economy.

Denise explained how knowledge intangibles are invisible in financial and managerial reporting. They are also often passed over in decision making—in the assumption that “soft” issues cannot stand up to the rigor of traditional analysis.

But it is the soft issues that count. Continue reading »