Late last week on Twitter, Harold Jarche commented on a post by Jay Deragon saying:
McKinsey gets intangible capital wrong http://t.co/P0CUdpCgbb I would follow the money to find out why ;)— Harold Jarche (@hjarche) August 8, 2013
Follow the money? It’s a line of thinking that I’m usually too polite to follow but I think Harold’s right, it's time to give it a try...
Following the money ends up showing how the momentum of the status quo yields considerable profits for many advisors but ends up holding back individual companies and our entire economy. The status quo is that intangibles are considered to be undefined and unknowable.
Yet nothing could be further from the truth. The data are very clear. Investment in intangibles. has outpaced investment in tangibles for over 20 years. You can’t get better data than hard dollars invested. But accounting doesn’t track the investment so competencies, data, processes, networks and new business models exist outside the balance sheet. All this has led to a situation where 80% of corporate value is now intangible. That means that most of the value created using computers, the internet and social technologies exists completely outside of traditional accounting and management information systems.
All your advisors and partners and colleagues are smart people. Yet they see these same facts and usually choose to ignore them. Why? Well, change is hard and if you follow the money, you’ll see that there is profit in the status quo:
- Accountants can charge for lots of analysis of “intangibles” that have to be re-valued every year
- Bankers can charge more for lending to “higher-risk” companies with fewer “assets”
- Investors can control the valuation of your company because value drivers are considered subjective and “intangible”
- Analysts can profit from information asymmetries caused by the 80% intangible information gap
- Consultants can charge for custom diagnoses of intangibles
- And a lot of managers feel that they earn their pay by making sense of all this for their companies
If you ask any of these advisors about the importance of intangible capital in your business, they’ll all nod their heads. But when it comes time to “get serious” about the discussion, they opt to return to the tried and true tools of business. Financial statements. Org charts. Valuations. Competitive strategy. The lip service to the “soft stuff” ends. Big boys focus on what they call the hard side of business.
What they don’t know or choose to ignore is that there is a whole body of work developed over the last 20 years about how to measure, manage and monetize intangibles. At Smarter-Companies we have open source tools to identify intangibles and a proprietary platform that uses stakeholder feedback to measure intangibles. Yes, stakeholder feedback. Rather than asking you to rely on their individual (albeit informed) judgment, our ICountants will help you open up the lines of communications with the people who know your organization best. There’s nothing soft about the data generated by an ICountant. And its use is threatening to traditional advisors who currently control the definition and measurement of your core strategic assets.
By the way, an ICountant charges $5 to $20,000 for a standard assessment of intangibles where McKinsey charges anywhere from $100,000 to $1 million for a custom assessment. If what we say is right, players like McKinsey are going to have to up their game. For now, though, they are going to protect what they have. What consultants and advisors like McKinsey have for now is control. They get paid to tell you what’s really going on in your company. And as long as what’s going on remains “intangible” and undefined, then they make more money.
So there’s your choice. Pay up to the big boys and their chosen set of hard data. Or get a new set of hard data about the intangibles driving your success. It’s up to you. To learn more about your own intangible capital and the value creation it offers your organization, visit us at www.smarter-companies.com . We’ll help you take control of your money and your information.
Thanks Shovik - I hope you will share your ideas with our community. We always welcome new offerings in our marketplace if you want to offer your tool to others. Mary
I think this is a breakthrough concept. I am also working on a similar idea of a new interpretation of the traditional income statement. Great resource !