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his is the second of a series of post leading up to our upcoming sessions at Sibos. In the first post in this series I talked about how the basic model of value creation is shifting from extraction to attraction. This shift demands dramatically different ways of thinking about management in general and investment management in particular.
In the industrial era, the name of the game was productivity. If I am the head of the factory, I will find the most efficient way to do things and tell you how to do it. I use automation to minimize labor cost. To track how I’m doing and what excess goes to the shareholders, I use accounting.
Today, the name of the game is creativity. If I am the head of a company, I will create an environment where smart people tell me how to do things better. It’s about listening, supporting, engaging not only employees but also customers and partners. I use automation to make people smarter.
A simple example of this is Google: their capital is their people, the users of their search engine, their software, their famous culture and their advertising business model. Most of that exists because its employees, its partners, its users are engaged. They have to be getting value from Google to stick around. Value has to be created for all the stakeholders, not just the shareholders.
This doesn’t just apply to companies like Google. It also applies to any business that wants to innovate and grow. You can’t grow for long by just thinking about maximizing short-term profits. You have to think about how you’re creating value for all your stakeholders and keeping them engaged so your organization if constantly learning.
So to measure your success in this digital era, I can’t use accounting, I have to use ICounting. Basically it’s the same process: inventory, classify, measure. We’re just focusing on intangibles, not tangibles. And we measure these assets not by how much they cost but how much value they create for stakeholders. We measure this by asking the stakeholders. It’s the ultimate leading indicator. To generate future profits, you have to create value for your customers and employees. Track the value and the profits will follow.
What's the lesson for investment managers? Follow the value in your own company and in your portfolio companies.
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