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Investment in tangibles has been declining since 1995. Investment in intangibles has been climbing. What's interesting is that intangible investment boosts productivity in some industries, while in others, it boosts market power. See this interesting take at Brookings.

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Integrated reporting helps you act like a B-Corp


This great article on Triple Pundit has some practical suggestions on how to bring a holistic mindset to CSR, integrating it into your entire business. Tip #1 is to "Act Like a B Corp" explaining

"For starters, B Corps are clear about both their business and their social goals—and how the two work together. This means developing and articulating a high-level understanding of the company’s social aims, and thinking about how those goals fit with the larger business strategy. While CSR groups may not be positioned to unilaterally set their companies’ social impact goals, they are uniquely positioned to document firm-wide social impact activities, make sense of what’s happening, and help formulate how social and business goals can be integrated...."

Reading this, I couldn't help but think about a program I organized with Etsy for the Integrated Reporting U.S. Community (see this great post by Larry Yu together with video of a portion of the program). Etsy used to be a B-Corp but decided not to become a Benefit Corp (no public company has yet to make this transition). But that didn't mean Etsy had changed their culture and purpose. The solution? Develop a new Impact Update format that tells their story in an integrated way.

Etsy's Sustainability Manager Hillary Young explains how they advanced their integrated view of the company using the graphic shown on the cover of the video of a portion of the program:

It's a great example of what Triple Pundit was advocating: bringing a CSR mindset to the entire enterprise.

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51R35TnAawL._AC_US218_.jpgThis new book by Jonathan Haskel and Stian Westlake called Capitalism without Capital: The Rise of the Intangible Economy is a great contribution to the literature on intangibles.  

This book was greeted with reviews that I found initially discouraging as they described the novelty of the information. Amazon’s blurb calls it “The first comprehensive account of the growing dominance of the intangible economy” which is far from the truth. 

But it’s important to note that the authors open their acknowledgements by thanking (as they and we all should) Carol Corrado, Chuck Hulten and Dan Sichel who built the foundation of economic research on intangibles and what’s often called the CHS methodology of calculating intangibles investment using national accounts data and the great research by The Conference Board.  The basic data and arguments of the book are based in this economics perspective and use the definition of intangibles as:

  • Computerized information (investments in software and data)
  • Innovative property (investments in R&D, creative, art, design)
  • Economic competencies (investments in training, branding, business processes)

There are a couple concrete contributions of this book that I’d like to highlight.

First is their reinforcement of the fact that intangibles have been built through investment. Many business people continue to see intangibles as something so abstract that magically appear when in fact, they spend millions of dollars (most of it expensed on the balance sheet) to build these often long-lived assets. It’s an obvious truth but one still not internalized by many people (hence the surprise by many reviewers).

Second is their “4 S’s” of intangibles, that they are not always but generally more likely to have:

  1. Sunk Costs – The money spent on intangibles can be a sunk cost, that is, it is an investment without a guaranteed value.  Today, tangible assets tend to be more generic and interchangeable so it is easier to sell them if you no longer need them. Investments in intangibles tend to be custom-designed and unique so can be harder to liquidate them. There are many exceptions to this rule but the fact remains that there is risk in intangibles investment. Why do companies do it anyway? The other 3 S’s hold the key.
  2. Scalability – If you get it right, intangibles can be re-used and can grow in quality with use. This quality breaks the basic concepts of finite supply and demand in economics.  Software is a great example of this phenomenon—I don’t have less software if I license you mine. The authors use the example of a Starbucks operating manual that can be used over and over again with little marginal cost.
  3. Spill Over Benefits – While some intangibles can be protected as intellectual property, most cannot. So they get adapted and re-used by others in the market. The authors use the iPhone as an example. While Apple benefited greatly from its product, it also influenced other manufacturers and contributed to the growth of the smart phone market.
  4. Synergies with Other Intangibles – Intangibles can be combined with other seemingly unrelated intangibles to create new value. The authors cite the example of microwave technology that was developed by Raytheon for radar systems in World War II. While some tried, the microwave oven didn’t become a successful product until Raytheon bought Amana in 1960 and added their knowledge on appliances to the problem.

Third, their examination of the S’s lead them to make a set of really interesting arguments about the huge differences are emerging in our economies between producers and users of intangible capital, with the producers and the managers of those companies getting a higher return. They analyze these ideas in relation to secular stagnation, inequality, challenging to financial system and requirements for infrastructure. Yes, that’s an ambitious undertaking. Some of these chapters felt a little superficial but I was happy to see an analysis like this connecting the dots between intangibles and related economic trends. The arguments here are worth reading and developing.

The intangible capitals are important components of the integrated thinking and reporting movement. So it's important to get exposure to the good work being done with IC theory and practice to support truly integrated thinking. I’ve created a to-do item to create a list of the best books on IC for those who are interested. If you want to understand more about IC in business, check out this definition of intangible capital and the two papers below. 



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What is the multi-capital model?

Latest episode of the Building Smarter Companies video blog:

What are the most important resources driving the value and performance of your business? Learn about the seven kinds of capital that are critical to creating value--and how to use this model to develop integrated reporting for your shareholders and stakeholders.

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What is integrated reporting?

From the Building Smarter Companies Video Blog

In this episode, Mary Adams shares the mega-trends challenging traditional financial management and introduces the concept of integrated thinking and reporting. 

To learn more, subscribe to this channel or visit

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How Intangible Capital Saves Bookshops


Some of the most interesting intangible capital stories these days come from the intersection between businesses that seem to be heavily tangible but are actually succeeding based on their intangibles.  A recent post by Workbar talked about the intangibles in the co-working industry. And this recent article by the Boston Globe shared the fascinating story of the revival of the independent bookshop. After multiple threats from Amazon to megastores to e-readers, the industry seemed doomed: 

  • But then the saga of the independent bookstore underwent a major plot twist: The customers came back. Between 2009 and 2015, independent booksellers across America grew by an astounding 35 percent, from 1,651 stores to 2,227, ABA figures show. And the upsurge shows no sign of slowing.

The article quotes a recent report by Ryan Raffaelli, an assistant professor in the Organizational Behavior unit at Harvard Business School. He identified three key strategies that helped drive the change (and the intangible capitals behind them):

  1. Community - strong focus on local connections (relationship capital)
  2. Curation - emphasis on the value add of the staff choices and recommendations (human capital)
  3. Convening - building the capacity to promote and run events (as many as 500 per year) to bring together like-minded customers (structural capital)

The first two elements were always there. But they have been elevated and emphasized in a whole new way in this approach. There are lessons here for many industries. 

Want to figure out how to apply this thinking to your business? Download our free value creation worksheet.

Photo credit: Dolf Bakker at Free Images


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10468400088?profile=originalThe World Intellectual Property Organization (WIPO) recently released its World Intellectual Property Report 2017 under the title Intangible Capital in Global Value Chains.  The key finding of the report is that “one third of the value of the products you buy comes from intangibles such as technology and branding” with roughly 47% from labor and 20% coming from tangible capital.   

This is no surprise to those who study intangibles. But it’s great to see it documented in such detail by country and industry. The report is also strengthened by its deep examination of three industries: coffee, photovoltaics and smartphones.

I recommend this as another dataset [see other data here] that helps us understand the tectonic shifts in global and local economies in recent decades. For those in our community, I’d like to share some thoughts about how this data relates to the broader intangible capital and integrated reporting communities:  

The authors use a limited definition intangible capital – Traditional models of IC (like we used in our book Intangible Capital) include human, relationship and organizational capital.  This paper was produced by economists for whom labor is a known variable.  Thus,the authors do not include human capital/labor in their definition of intangible.

Intangibles are the undefined portion of the equation – The supply chain value calculations use data on wages, employment and tangible capital asset stocks to calculate labor and tangible assets. The remainder of a product’s value was then considered intangible. This essentially the approach taken in the Ocean Tomo stock market study which subtracts tangibles from corporate value to derive intangibles. (Their latest calculation shows tangibles now down to 16% of total corporate value).

By the way, these calculations of intangibles as the unknown in an equation will continue until spending on specific intangibles is measured more carefully (see my discussions on i-capex)

This is about income from capitals, not the capitals – This is an economic study that examines the income that accrues to the three kinds of capital (a flow) rather than the capital itself (a stock). Alternative measure of capitals use stock market data (like Ocean Tomo). Hopefully some day, we'll have accounting data that differentiates between investment and cost.


Value now comes less from the manufacturing process itself and more from pre- and post-production – In the industrial era, a big part of the value in manufactured goods came from production processes. This study affirms what is called the 21st Century smile, that is that more value in products now comes in pre-production such as R&D and design, as well as post-production activities such as branding and after-sale services.

There’s growing income from social and natural capital – For those of you interested in a fully-integrated model with six to seven capiitals, you’ll be wondering what happened to the externalities such as social and environmental footprints. You’ll be very excited to see how this approach identifies the growth in incomes for coffee industry segments where consumer demands for fairness and sustainability in supply chains is changing the ways of doing business.  And the value is showing up in these economic measurements!

The most important part of this study? It shows us a path to connecting the dots between the financial and non-financial aspects of the capitals. 


For more info on measurement of intangibles, please see Smarter-Companies Briefing Paper:

Accounting, ESG and the Intangible Information Gap

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You can find a paper in which we come to demonstrate the beneficial effect of intangibles in companies. There is an acceleration in the recovery after crisis. 

In the following link, you can access to the paper. It will be available for 50 days.

I hope that you enjoy. Any comments will be welcome.

The abstract of the paper is:

This study explores the recovery in the Market Value Added (MVA) of European companies after the recent global economic crisis in 2008–2009. It introduces empirical evidence that intangible-intensive strategy in human and relational capital reinforces speed of the after-crisis correction for companies. Based on a panel dataset of more than 1600 listed corporations this research aims to discover drivers of Market Value Added trends in 2011–2013. The established results contribute to the understanding of the advantages that companies can exploit for the recovery after systematic shocks of markets. Our study demonstrates that intangible-intensive strategy not always enabled faster recovery speed. Meanwhile, it provided year-to-year acceleration of MVA growth after crisis.

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Best Buy's Intangible Capital Secrets


I was reading a NY Times article this morning entitled, Best Buy’s Secrets for Surviving in the Amazon Age. Of course, I couldn’t help myself and I started tallying their intangible capitals in my head.  Thought I’d share my tally and the follow-up research I did about the company’s reporting to the marketplace.

In the article, author Kevin Roose identifies five secrets to the company’s success (quotes are from his list):

  1. “Price, price, price” – The decision to match Amazon’s prices was a foundational strategy (strategic capital)
  2. “Focus on humans” – The company realized that customer service was something that customers couldn’t get on line.  They focused on training and engaging their sales associates (human capital) and fixed the internal search system that gave them the most trouble in helping their customers (structural capital). The wisdom of this strategy is supported by the story of Circuit City’s disastrous firing of their associates ten years ago.
  3. “Turn brick-and-mortar into showcase-and-ship” – The on-line warehouse, distribution centers and stores’ inventory systems were integrated so that on-line orders are shipped from the closest, fastest source. This software is a great example of structural capital and shows how it helps leverage the return on manufactured capital (think GE’s digital industrial strategy)
  4. “Cut costs quietly” – The company found creative ways to lower costs (like re-engineering handling processes in the warehouse to decrease product damage) (strategic capital) and avoided large lay-offs. Roose quotes CEO Joly, “Taking people out is the last resource…Because you need to capture the hearts and minds of the employees” (human capital).
  5. “Get lucky, stay humble and don’t tempt fate” – Luck is luck.  None of us can take credit for that. Best Buy’s luck comes from their market segments (expensive electronics that people need help in buying) and the demise of their competitors. But this luck doesn’t guarantee success. The rest of this “secret” speaks to culture (strategic capital) quoted Joly again, “Once you’ve had a near- death experience, arrogance, if you had it in your bones, has disappeared forever.”

Clearly, this story has a lot to do with intangible capitals.  As I also like to do, I went to the company’s website and looked at how they tell their story to the markets. 

First destination: Investor relations site and the company’s annual report. This report is basically the 10-K with an eight-page cover letter from the CEO. In it, he talked about the success of their strategies and work to develop stronger relationships with customers (relationship capital).  As is traditional in this type of report, there is s strong focus on the financial results of the strategies.

The website has two more sections with a lot of rich information. Second destination: Sustainability. This is a very rich site with separate statements about human rights, carbon and energy, conflict minerals, chemical management, environmental and paper procurement. There’s also a full Corporate Responsibility and Sustainability Report and a report that the company was named to the Dow Jones Sustainability Index for the 7th Year.  This is all about natural and social/relationship capital.

Speaking of relationship capital, the company’s site also has a dedicated Community Relations section that includes right now articles on support for DACA and hurricane victims, among many others.

This separation of statements is the norm for U.S. companies so it’s hard to criticize. But the thesis of the integrated thinking and reporting movement is that investors, customers, employees, managers, stakeholders and the company itself would be better served if these separate messages (about internalities and externalities not reported in the financial view) were told as a holistic, coherent story about how the company is building value today in a way that ensures/enhances its ability to do so in the future.

Learn more about this kind of integrated model:

Integrated Value Creation

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A New Way of Looking at Intangible Capital

For many years, my work in the intellectual/intangible capital field focused on the kinds of capitals that are considered intangible from an accounting perspective: human, relationship and structural capital. But the integrated reporting movement has challenged me to see things more broadly. That movement combines three perspectives (click to view full size):


All three of these perspectives are critical if you want to understand how a company creates value in a sustainable way. To sustain the company itself. To sustain the social foundation and natural ecosystems it relies on. Of course, the big challenge to proving sustainability comes with measurement. The traditional way of talking about the capitals is in terms of financial and non-financial metrics. But understanding the different perspectives in the table above (financial, sustainability and intangible capital) led me to develop a more precise classification of metrics. As you can see below, the non-financial metrics should be seen from two perspectives. The first is externalities (aka sustainability or ESG-Environmental, Social and Governance), the effects of a company’s operations on society and the environment. The second is internalities (aka intangibles).

All three perspectives—financials, internalities and externalities—are focused on sustainability. That’s the beauty of the integrated model. It enables companies, their investors and their stakeholders to think holistically about how their interests are intertwined and co-dependent:

  • No company can build value without its customers, suppliers and employees (see the Market Basket story)
  • A company can’t succeed without access to key raw materials (see example of water sustainability and companies like PepsiCo)

This graphical summary shows how each of these three perspectives is valid for all the kinds of capital in the integrated model (click to view full size):


This graphic helped me think through the intersection of intangibles and the integrated model. When it was finished, I took a step back and decided that it is easier than ever before to explain how the non-financial/intangible value in companies has risen so dramatically in recent years. This summary identifies how each of the three disciplines can contribute to a holistic view of a business.  As always, feedback welcome!

Want to learn more about this chart and how to use it in your business?



(includes examples of how to apply this thinking in a business)

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It’s 2017, and finally the darkest days of the recession are over. However, while some customers are loosening up their wallets a little, it is clear purchasing habits have changed. People are undoubtedly more careful with their cash than they once were.


With this said, are people now less likely to start their own business? There are a number of thing you have to think about when you’re starting up, and if you want to be successful, you need to have a plan.


The market is becoming saturated with various different industries, but the first two years separate the strong from the weak and it’s during this period that a whopping 80% of new businesses fail.


There are hundreds of lists out there that will tell you what to do to take your business a success - but it’s things you’ve heard a thousand times before! This list features a few thing that maybe you haven’t heard about yet, but could be the difference between failure and success in the first 2 years…




Okay, so everyone tells you to make sure your business's property is in the perfect location - but that’s obvious! Yes, if your retailer, find a spot on a busy high street for your shop, and if somewhere with good transport links if you’re a distributor - it’s not rocket science.


What people fail to mention, it that you need to think about more than just the location. Offices for example, will need to be ideally in a city centre that people want to work in, but the building also needs to be a building that people want to sit in all day!

Remember - in the initial stages of starting a business your wallet is your life blood, so make sure that you stick within your budget, whether you decide to buy or rent office space. it's important to factor in all of the hidden costs, like a deposit and even business rates. Some companies do apply for a business rates appeal if they feel that they are being charged an unfair amount, but this can be a lengthy process and take a long time to come into affect.  


If you want to retain the best staff in your sector, you need to make sure the facilities at your workplace match or beat those of your competitors. Think of everything - this included aircon, and shower facilities, comfort factors etc. It’s not an issue everyone always thinks about, but it could be the difference between success or failure after a couple of years.


Good facilities are solely important for your staff either -your clients and customers will judge you based on the facilities you are based in. Spending more on good real estate now will potentially save you in the future.




Onto the people. What is your company if not the people that work for you? Attracting and retaining staff is one of the hardest tasks businesses face in the modern day. People ‘job hop’ significantly more than they did 50 years ago in the modern day - so you need to give your staff a reason to stay with you.


Find experts in your sector isn’t an easy task, but it’s a worthwhile one. Investing in hiring smart is priceless in the long run. Don’t be afraid to pay more for the right staff - and give them perks when you find them.



It is so important to complete risk assessments, regardless of what industry you’re. Be it an office environment to a bicycle shop, a restaurant to a construction site. You have to cover yourself and protect your business, your staff and your clients from any potential threats.

In 2017, we have sadly seen the rise of the cyber hacker. While they've always been there, they are becoming more and more prominent. Cyber crime is becoming one of the most dominant threats to businesses, so make sure that you protect your data and install all updates, and have firewalls in place.


With this said, physical threats are still just as prevalent. Robberies happen every day, so it’s important to also ensure that you are vigilant and invest in protection and prevention systems.




Almost every market in the modern day is saturated, and in the first two years a whopping 80% of new businesses fail. If your business plan isn’t working, take a step back and explore over options and avenues that you can go down - be persistent and take the peaks with the troughs. Take every day as a new learning opportunity and, most importantly, enjoy it! 

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The healthcare industry has already had a rocky start in the US and UK in 2017, with political uncertainties and conflicting ideologies about privatisation and national healthcare. On top of this, there is a shortage of health and social care professionals who are currently in training or on the market for different jobs. Because of these shortages, potential funding cuts and the ongoing political uncertainty, the advancement of healthcare technology is becoming increasingly important. There are certain degrees to which technology can assist people in their everyday medical requirements. This can vary from customer facing technology and assistance, to healthcare professional replacement services. Here are three of the biggest ways that technology is helping and changing the healthcare industry…


Better and more accessible treatment:


Recent healthcare research has shown that there has been an increased accessibility to treatments and help with the introduction of customer facing technology and online assistance. This is a great help to patients who are unable to travel to the doctors practice and need help – in lieu of home visits or doctors’ visits, web chats and online conversations are being had – meaning a quicker and more efficient access to medication and treatment. New technology has also given medical researchers the resources to explore new avenues and make healthcare more driven and effective than it ever has been before.


Improved care and efficiency:


Patient care needs to be one of the biggest priorities for healthcare professionals, but with the previously mentioned shortages of people who are studying and practicing health and social care, home visits and regular care is becoming more stretched across the US and the UK. In lieu of these home visits, technology and devices such as the Grandcare system have been introduced into the market, to monitor patients and to assist with medication consumption and monitoring everyday activity. This not only partially solves the crisis of the healthcare professional shortage, but also allows individuals and elderly patients to regain a level of independence.


Because of the advancements, there are different avenues of healthcare treatments, options and advantages to explore. New technology assists and in some cases can even be a replacement for a healthcare professional.

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As a business owner, the key to success is prioritising your employee's happiness. Your employees hold the power to make or break your business, and if they are happy, healthy and motivated, then this will certainly have a positive impact upon your business. Finding the right work-life balance will help with employee retention, will increase productivity within the workspace and will assist with the collaborative efforts. As a business owner, you have to understand that the people who work for you have other responsibilities, and that when they have children, this will come above anything else. Making their lives easier and helping them out in different situations will be massively appreciated and will help everything to become more salient and smooth running. Here are some of the simple ways that you can assist with your employees who have children...

Provide easier childcare access:

Many small companies are unable to provide childcare facilities, which is completely understandable. But there are several different ways that you can provide easier access to childcare for your employees. You could, for example, provide your employees who are parents with vouchers for childcare as part of your salary package - this will not only be appreciated, but it will also be attractive to potential employees. A lot of people consider the bonus package as well as the salary when accepting a job offer, so it is important to cater to the individual if you want to increase employee acquisition. 

Encourage Communication:

Communication is key in any situation, without communication, operations can become unorganised, disconnected and people can become unhappy relatively quickly. Discussing personal life in work can feel difficult, but it is important to provide your employees with the opportunity to talk about their feelings on work. Conducting regular reviews with all employees can have a really positive impact on your working environment. This will give you the opportunity to build a relationship with everybody individually and will help you to gain an understanding of what is impacting on their life. Whether they are struggling for childcare, with home life, are trying to conceive or are considering becoming a foster carer it's important to offer a level of support and try to assist in their work life balance.

Encourage flexible working:

Flexibly working can take a number of forms, from reducing the working hours of a parent (if requested), to allowing them to work from home or part time. As well as this, you could also allow them to start an hour earlier/ later and finish and hour earlier/ later. This will ensure that the work is still getting completed, but also showing that you are understanding of your employees situation and are willing to cater to them. 

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