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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

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.

INTANGIBLES: COST AND BEYOND

by Mary Adams ~ 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 Mike Neuenschwander ~ 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 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 II: INTRO TO INTANGIBLES

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 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 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 »

INTANGIBLES AT THE NATIONAL ACADEMIES

by Mary Adams ~ July 21, 2008

I recently attended the conference at the U.S. National Academies entitled Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth.

For those of us that have been working in the field, it was a gratifying moment to hear the keynote from Senator Jeff Bingaman (from my home state of New Mexico) challenging the audience to help the Congress and our nation in general understand this critical issue—and develop recommendations that can translate into good policy, where necessary, to support the intangible strength of our economy.

Many of the participants were economists from the U.S. government; a few academics and a small number of consultants and business people attended as well. You can scan all the presentations yourself, if you’d like.

In this and following posts, I thought that I would add my two cents on some of the content. Remember that my experience and interest is at the organizational level, so my comments reflect that bias. I’ve broken the notes into sections for each session of the day.