capital (18)

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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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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MIT's list of the top 50 smartest companies

MIT Technology Review just published their list of the smartest top 50 companies for 2014.

Here's the list.

The criteria for the list is not the typical nonsense used such as the number of patents or PhD's on staff but whether the innovation being done by the company is a game changer (a radical innovation) that will change an industry. The company at the top of the list is Illumina which is doing radical innovation to drive down the price of DNA sequencing to a level that will change the practice of medicine.

The interesting question is then - How does intangible capital fit in the criteria? My answer is that a special specific type of intangible capital is the essential part of the capability to  do radical innovation. For example, measurement and development of intangible capital that supports radical innovation are two of the twelve principles of the fourth generation (4G) of innovation management.

Integrated Reporting (IR) is the new international project to upgrade financial accounting to measure innovation and intangible capital. It would be great if IR could produce a list that was similar to the MIT top 50.

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The Drive for Integration


Today 100% of U.S. public companies provide accounting information publicly. It’s a requirement and an accepted practice. At the same time, over 80% of those companies are also disclosing some kind of sustainability data. This latter kind of disclosure is not yet a requirement in the U.S. and standards are still in development. But as the data show, the practice is already well underway.

These two kinds of presentations have traditionally been made in different reports offered on different sections of their websites with differing messages.

Now, however, the financial markets are awakening to the importance of Environmental, Social and Governance (ESG) issues as a source of risk and a driver of innovation and value. They are looking to connect the dots between these different messages. This creates a dilemma for companies. They have a business rationale for both their financial and their sustainability reporting. But they are not accustomed to telling a unified value creation story.

The International Integrated Reporting Council (IIRC) is leading the charge in creating a model that unites these differing perspectives (read an introduction here). Its Framework provides a way forward to creating holistic presentations that explain the multiple forms of capital that support a company’s value creation ecosystem. The IIRC model draws on the traditional accounting/financial reporting perspective, the sustainability/ESG movement and a third, less understood field of study, broadly referred to as intellectual or intangible capital (IC).

The IC field has been focusing for several decades on the rise of the knowledge economy. While IC practice is not as advanced as accounting and sustainability reporting, there is already significant research that suggests the size and importance of this class of capital to the success of companies in today’s economy.

Combining all three perspectives is powerful but challenging. Few people are trained in all three of the root disciplines. So we have to work together and learn from each other. But it's the right goal to support the kind of integrated thinking that empowers financially-sound decisions today that still preserve and build value for the future.


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I have been challenging myself to find ways to bring the richness of the intellectual/intangible capital field to the integrated thinking and reporting movement. 

The three papers shared here are the product of that thinking. We're on a journey together. I hope to hear your feedback and ideas on we all go from here.  

Part 1 reviews the data on the role of intangibles in corporate investments and valuation. Then it examines intangibles in the context of the multi-capital model from the IIRC. It ends up suggesting that all the capitals can and should be examined from three perspectives: accounting, internalities and externalities.  Read it now   

Part 2 builds on the data 10468398262?profile=originaland frameworks in Part 1, providing a four-step process to creating, managing and communicating using a multi-capital model. Examples are included from XPX, a network of business advisors, as well from as public company reporting. It ends with a review of the benefits beyond reporting of this kind of integrated approach. Read it now


This paper is i-capex _ intangible capital expenditurean excerpt from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization being re-released for readers from the integrated reporting movement. Read it now 
What do you think? I look forward to your comments!
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Foreign trade driven by offshoring has caused a large loss in manufacturing jobs. A change in trade policy can return many manufacturing jobs to the USA and stop many additional losses.

The right legal argument recognizes that trade policy and economics don’t account for THE THEFT OF PUBLIC INTANGIBLE CAPITAL (PIC) IN OFFSHORING where the PIC was financed with public investments. Failed trade policy is based on a paradigm of comparative advantage but doesn’t penalize offshoring that is advantaged by the theft of PIC. Economics currently ignores the theft of PIC by a company that does offshoring where the PIC is a product of public investments such as those in national defense, federal R&D, domestic security, healthcare, public (and non-profit) education and infrastructure.

Trade policy currently protects the theft of many types of private IC such as patents but ignores the theft of public IC (PIC). The theft of PIC occurs when business operations at a company with jobs and factories are first established in America with PIC created as a result of public investments in IC that get translated into business IC and then moved offshore as proven business capabilities (both tangible and intangible capital) consisting of knowledge, tools, technology and processes. Since 1992, IC has been a larger part of business investments as a part of GDP in America than tangible capital.

Theft of PIC in offshoring creates a negative externality in economics that is similar to pollution (and theft) of public resources penalized in environmental regulation. Trade imbalances don’t measure the flows of IC. Measuring the flows of IC created with public investments is a prerequisite for properly governing offshoring in globalization. The new international activity in Integrated Reporting is changing financial reporting in business to measure both tangible capital and IC.

The 21st Century hopefully will finally see the huge gap in economics filled so capitalism, financial accounting and government policy measures IC and defines laws and compensation protecting applications of IC including private and public IC. The stagnation in wages is a symptom of the failure to compensate workers for the applications of their IC.

Trade Policy should add regulations on offshoring that require repayment of the apportioned public investments that produced the PIC used to build manufacturing operations at a company with a tax of at least 20% on the value of traded goods sent back to America from offshored factories. But there should be no broad tax on imports.

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Intangible Capital (IC) is misunderstood by the federal government, universities, economists, think tanks in Washington, and other organizations such as The Conference Board. Here’s a new report by the Information Technology  and Innovation Foundation (ITIF) entitled “The Limits of the Knowledge-Based Capital (KBC) Framework” that is unaware of intangible capital frameworks such as described by SmarterCompanies .

The federal government and other organizations have been studying how IC is linked to the GDP and to innovation. The ITIF report correctly cites the work, research and prolific publications of Carol A. Corrado of the Conference Board and Charles R. Hulten of the University of Maryland and the NBER. Unfortunately, the ITIF report makes the mistake of assuming that the only KBC framework that describes intangible capital is the one defined by Corrado, Hulten and Daniel Sichel (CHS). The report is unaware of the framework for IC described by SmarterCompanies and other frameworks that integrate IC with innovation.

The link between innovation and IC has been established and described  in the fourth generation of innovation management (4G) to emerge as best practice since 2000. Since 1900, there have been four generations of best practice. 4G has been described in Wiley’s Encyclopedia of Technology and Innovation Management in Chapter 21.  In 4G, innovation is driven by capabilities which are combinations of tangible and intangible capital. 4G capabilities are people with knowledge, tools that are developed and bought with tangible capital, technology and processes.    

With architectural rules, capabilities in 4G are structured into “stacks” of services, applications, products, platforms, components and technologies combined with knowledge and processes. “Stacks” are linked together to form projects, organizations, business models, and industry structures such as value chains.  In 4G, capabilities evolve into dominant designs that govern new markets.  4G has twelve principles and one is that innovation hubs that typically have more than 50 partners such as the Department of Energy (DOE) innovation hubs and the Apple hub for their iPhone family that coordinates service providers and third party supplier of applications are required to create new dominant designs.

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Why Past Practices are Essential to Embrace in the New Economy
So much of the traditional conversation surrounding leadership in organizations today is really off base. Like so many other things in our modern society much of the discussion around leadership is very ego based and is focused upon self promotion and/or creating one’s professional brand. 
In fact, according to Dave Logan, best selling author of Tribal Leadership, approximately 85% of all leadership books are written from what he calls the Stage 3 leadership perspective. He defines Stage 3 leadership as being one that is ego based and ego driven. 
For instance, you will see many books on leadership promoting the individual who wrote them; promoting an industry tycoon or suggesting one acts as a fighter pilot or even as a ninja when leading others. The latter of which was clearly written by an individual who clearly never studied the ancient Japanese martial art of Ninjutsu. I spent four years studying that discipline and I can tell you he had no clue what he was talking about. But he is selling books.


But that is the nature of Stage 3 leaders and leadership models. They are based upon more fluff than substance and designed to get you to buy into to some “fantasy” instead of actually giving you tools that work under fire. And lets face it, real, in the trenches leadership, on a day to day, human to human and incident by incident basis is always a trial by fire. So these folks, while perhaps well intentioned, are actually doing you more harm than good and are taking your money in the process. 
Dave’s research also reveals that 49% of all organizations operate under a Stage 3 egocentric leadership model. Another 25% of organizations are being run by apathetic leaders and another 2% by “vindictive” leaders. 
This means that 76% of all organizations operate under leadership models that empower the wants and needs of a few and which enforce authority as opposed to ones that respect, mobilize and maximize the potential of everyone in the organization. 
This is not good news because the modern era of business demands we maximize our human capital resources. Just as machines and repetitive processes generated the most financial capital in the 20th century the human attributes of creativity, communication and collaboration are the dominant drivers of profits in this century. And egos restrict access to these critical resources.
Since the world has changed forever so too must our leadership models. To not adapt to the modern conditions will prove disastrous. Because study after study has proven, without a doubt, that people simply do not respond well to egotistical managers. And a company hemorrhages money when leadership is weak and the workforce is non-responsive.
The Return of the Elders
If you look up “elder” in the dictionary you get several bland and technical definitions. But if you ask yourself, or others around you, to define an elder I bet what comes out are words that have a sense of reverence about them. People naturally have positive associations with elders. And even if they don’t know how to describe one perfectly, they know one when they see one. 
I submit the reason for this is because the essence of what a true elder is touches upon our souls first, then the mind. And since dictionaries are written by and for brains they do a poor job of describing a word that actually connects to our anthropological tribal DNA. This speaks to the true power of, and the amount of influence, elders have on us, and by extension, our organizations.
One of the sources of their power is the fact that elders are not appointed by those in power. They are anointed by their peers. Elders are also not ego driven and therefore, are not viewed as a threat by anyone other than those who are ego driven. 
Elders are just comfortable being who they are; nothing more or nothing less. 
Who they are reflects wisdom, authenticity and integrity. How they act expresses inner strength and peace. Their words teach and heal. Their actions build and repair. They are in the tribe but are not controlled by it. They hear and listen to a higher power than typical human consciousness. And they help others to connect, or at least benefit from, that which benefits them.
People sense this and trust this. As a result they allow these special people to influence their thinking and to even enhance it. So far removed from any desire for power are elders that many don’t realize they are one. If they do realize it, they don’t allow it to affect them, other than to perhaps make them more committed to consistently acting responsibly.  
They don’t look for followers and as a result they have them. And they are loyal. 
The Importance of Engaging Elders in the Management Process 
By now it is clear why elders are so influential in the organization. They hold leadership positions whether management knows it or not. They are trusted and respected; their advice and insights are sought after and are listened to. Often people will ask elders whether or not to trust, or follow, management decrees. This means their influence often times exceeds management’s.
While this may unnerve some in management they have nothing to fear as long as they operate with the best interest of the tribe and the culture in mind. It is only if leadership becomes too self centered and begins abusing their authority or feeding themselves at the expense of the tribe that they might find themselves in a political conflict with the elders.
If that happens the elders will always win the hearts and minds of the tribe while those in authority will only get that labor which they can force from people. Since we are in a human capital driven economy this loss of employee engagement will result in losses of productivity, profits and possibly even people. 
So it is in the best interest of management not only to know identify the elders but to have healthy relationships with them as well.
To be effective a modern manager must have the tribe’s trust. This is where the elders can help. They must effectively communicate with the tribe. This is where the elders can help. And they must be able to motivate and mobilize the tribe. And once again, this is where the elders can help.
Simply put: Elders mobilize tribes. And it is through tribes that most work gets done. In fact recent research done by the McKinsey Group reveals that 67% of all work done in an organization is done through informal networks (tribes) that operate outside of the org chart. 
Since profitability is tied to accessing, mobilizing and leveraging the human capital of their tribes it is crucial that you find a way to include the input and insights of elders.
When you combine this additional leadership resource with a healthy management team you significantly increase your ability to maximize your profits. 
An Ethos that promotes Elders over Egos is a formula that simply cannot fail.
The following are traits of Tribal Elders.
  1. They are humble
  2. They seem to lack ego because they are comfortable with who and what they are.
  3. They have opinions but never push them on others
  4. They don’t care about titles or prestige but they don’t exhibit false or unnecessary modesty either
  5. They are committed to principles but are detached from outcomes 
  6. They live the “Serenity Prayer”
  7. You trust them, unless you are a troublemaker. Then they unnerve you
  8. They don’t insist upon being heard yet are willing to speak if you are willing to listen
  9. They support growth 
  10. They don’t sweat the small stuff. But they seem to see “everything” and understand most things.
  11. They are kind. But don’t mistake their kindness for weakness. Few are stronger in spirit or character.
  12. They listen more than they speak and understand more than they show.
  13. They are committed to creating the next generation of elders but do not seek followers.
  14. They have strong, steady moral compasses that are not affected by the “group consciousness”
  15. They are, at all times, students, teachers and learners about life.
  16. They believe in a power greater than themselves.
  17. They are wise enough to be forceful and powerful when it is in the best interest of the greater good
  18. If they had a motto it might read something like: I am what I am and I will be that with as much honor and grace as I can muster.

If your organization has the benefit of having one or more elders in it then consider yourself fortunate. If you are one, you probably don’t identify yourself as one but others do. So thank you for your service. 
Jeffrey Deckman is the founder of Capability Accelerators, a consulting firm that specializes in developing resilient leadership teams and organizations...One human at a time. If you have questions or comments he can be reached at   YouTube Channel Link
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Transforming Human Capital into Financial Capital.

Jeffrey S. Deckman, Founder, Capability Accelerators


   EE = EBITDA is an obscure but interesting formula that, once I came to understand, revealed an exciting new source of increased profits that any business can realize.

The “blow up” of this formula is:

Employee Engagement = Earnings Before Interest Taxes Depreciation Amortization

Before going any further I want to say that Employee Engagement (EE) is certainly not the only factor that impacts EBITDA but it does have a significant impact on your bottom line. It just also happens to be one of the easiest ways to increase profitability you will ever come across. 


Because, of all the ways to increase profits such as increasing prices; decreasing costs and generating more sales increasing your levels of EE is almost completely within your control. This is because EE is largely determined by the leadership culture of your organization. And you get to control that.

In fact, a recent Melcrum Employment Engagement Survey of over 1600 HR professionals found that “The actions of senior leaders and direct managers are the most important drivers of employee engagement by a factor of between 400% and 700%.


So not only is this “silent profit driver” largely in your control but the financial impact of increasing the levels of EE in your organization is undeniably real.

In fact, I doubt you could find a single CEO of a Fortune 500 company who even questions whether increasing EE increases EBITDA. 

The Numbers behind the Science: 

In an effort to be as informative as possible as quickly as possible let me get right to the math. 

A recent study done by the Gallup Group in October of 2011 involving thousands of participants revealed that, on average, 71% of people are “disengaged” from their work. Within this group 55% are considered “not engaged”. These people do their jobs but not much more. The other 16% are considered “actively disengaged”. These are people who are actually working against the best interests of the organization. 

This leaves only 29% of the workforce who are considered “highly engaged”. These are the ones who put in extra time; think about their jobs during off hours and are energized. They are the ones who generate the most per capita profit.

This means that 7 out of 10 people in organizations are not engaged in their work. Imagine the lost productivity and profits that represents! And in today’s economy this can spell death to an organization.

The High Cost of Low Employee Engagement

Lets look at how the level of EE in your organization affects your profitability.

The following EE vs Productivity numbers are generally accepted throughout the industry, give or take a few percentage points: 

• “Highly engaged” workers are 90% productive 

• “Not engaged” workers are 60% productive 

• “Actively disengaged” workers are 40% productive. 

When you combine the EE and the productivity numbers the impact on profits becomes clear:

• 29% are highly engaged and are 90% productive.

.29 * .90 * 100 = 26.1% productivity level

• 55% are not engaged and are 60% productive.

.55 * .60 * 100 = 33% productivity level

• 16% are actively disengaged and are 40% productive

.16 * 40 *100 = 6.4% productivity level

This means that your overall productivity levels are:

26.1% + 33% + 6.4% = 65.5%

To make this real lets assume a company spends $2 million on employee compensation. Under this scenario their ROI on that investment is: 

2,000,000.00 * 65.5% = 1,310,000.00. 

This represents a $690,000 “payment vs. performance” gap.

The Big Difference of a Small Adjustment



Now lets look at the impact to your bottom line that will occur if you simply increase the


highly engaged numbers by only 5% and decrease the actively disengaged numbers by the same amount. And if your company is like most, and if you decide to make EE a
priority in your organization, moving your EE numbers 5% in this fashion is not unrealistic at all. 

WARNING: These numbers are almost un-believable!

• 34% are now highly engaged @ 90% productivity.

.34 * .90 * 100 = 30.6% productivity level

• 55% are still not engaged and still 60% productive.

.55 * .60 * 100 = 33% productivity level

• 11% are now actively disengaged and are 40% productive

.11 * 40 *100 = 4.4% productivity level

New productivity levels = 30.6% + 33% + 4.4% = 68% 

New Profitability Calculations: 2,000,000.00 * 68% = $1,360,000.00

This represents a $50,000 improvement in the “payment vs. performance” gap in only one year!

What is also important to realize is that as long as you keep your management teams fine tuned and your culture healthy this $50,000.00 continues to flow to the bottom line year after year. Imagine the impact to your Retained Earnings and the vaule of your business that this will have in just a few short years.

All of a sudden investing in developing solid management teams with excellent leadership skills becomes one of the most important and easy ways to drive significant profits right to your bottom line.

In Closing

If you are like I was when I first started looking at these figures, your initial thinking may be that they can’t be right. But I can tell you that study after study from organizations ranging from the Harvard Business School to the McKinsey Group prove them out.

So while we have all been trained to increase profits by cutting costs; capturing more clients and negotiating for higher prices few of us have been taught how to activate one of the most significant profit drivers available to us: increased Employee Engagement.

And at a time when profits are very tight, competition is tough and the market is demanding it should be very comforting to realize that with just a few internal adjustments you can uncover a source of profits that will not only increase your bottom line but will also increase company morale.

During economic times such as these understanding the EE=EBITDA formula can be a real life saver.

Jeffrey Deckman is the founder of Capability Accelerators, a consulting firm that specializes in helping clients convert human capital into financial capital. If you have questions or comments he can be reached at


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Ideas Connect Us More Than Relationships

I was struck by this blog post today by Hutch Carpenter entitled Why Ideas are Core to Enterprise 2.0. He talks about all the hype about social media and asserts that it is really ideas that link communities together. He says:

Ideas have a unique quality in team and community forming, consistent with the emergent nature of Enterprise 2.0

One of the sources he quotes was Brian Solis and his post entitled Ideas Connect Us More Than Relationships.

I couldn't help but think of our ICKC community and what we are trying to do. IC is an important idea. I can't wait to see what we make of it here!

Cheers, Mary
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A Stock Exchange for NGO's

A practical potential for NGO's to make use of their intangibles in searching for new ways of funding their projects.Concept stock exchange NGO's verbeterde editie.doc

About AREOPAWe are a leading knowledge and practice provider in the fields of Change Management, Knowledge Management, Risk Assessment and Intellectual Capital Accounting.With our own models, methodologies and tools we create a turnaround in the valuation of intangible assets of organizations active in the knowledge economy.Our tools for IC accounting make us world leader in this field.Worldwide we work together with partners, large organizations, multinationals and governments.Working with AREOPA means working in the organization of the future, based on the following values:• We are all entrepreneurs and shareholders;• We are fully empowered within the Areopa network;• We are working in a customer driven organization;• We have no hierarchy, but we believe in leadership;• We have no fixed costs in our organization;• We use the Shamrock model for revenue distribution.Feel free to contact me for more informationJoris ClaeysVP Global OperationsJoris.Claeys@AREOPA.comAREOPA - Provoking Innovatieve Intelligence
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A new step in the development of our community

For many years I have had a great interest (some would say obsession!) about the role of intangible capital in the growth and competitiveness of companies. With the help of my colleagues, our clients and our broad network, we worked to develop  tools and methodologies to support this thinking. And we created this web community to share our learnings because we felt strongly that one person or one company could never have all the answers. Until now, the community was known as the IC Knowledge Center. Today, I am announcing a new future for our community with the re-launching of the site as smarter-companies

This new site will be designed around our existing community. To date, we have attracted an international audience. 60% of you are consultants. 20% are academics (many of whom also consult). The remainder includes attorneys, companies, non-profits, governments and solutions providers. Your areas of specialization include intellectual/intangible capital, knowledge management, human capital, innovation, finance, information technology, marketing, performance management and intellectual property.



In short, our community is like a map of the intangible capital of the organizations we serve. Yet the potential of our community’s IC, like that of many organizations, has not been fully developed. That’s why we’ve made the decision to re-name the community and create a business model around it.

Going forward, at smarter-companies, we will be offering the products and methodologies that we’ve developed over the last seven years (some as open source and some as paid products) under the ICounts name. But we hope that our products will be surrounded by products from other consultants and service providers. Our goal is for the smarter-companies site to become a place of continuous learning about how to create smarter companies—and also a marketplace of solutions that help consultants and companies apply that learning.

As we enter 2013, allow me to share my belief in a bright future. The ultimate message of intangible capital is that we share collective knowledge, much of it untapped, that has the potential to conquer the challenges facing the world and create profitable, sustainable businesses fueled by the power of people, communities and social technologies.

I hope you will join us on this journey,  Mary Adams


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I talk a lot about the knowledge era. I specialize in the measurement, management and monetization of knowledge intangibles. I wrote a book on intangible capital. So what I am about to say shouldn’t be that big a surprise to me but it kind of is….

Technology is not as important as it used to be.

If you think about it, technology and top-down industrial models still dominate our thinking. When we industrialized our economy, we industrialized everything from agriculture to education to government to manufacturing.

I have written before about how the shift from the industrial era is coming at a time when there are new constraints on our global economy. Externalities like energy use/mis-use, pollution, health are all represent (at the same time)nbsp; problems, opportunities and design constraints. The failure of the industrial model to address these new constraints and the potential of new models to address them is fueling the shift to the knowledge economy.

Of course, the shift has been driven by the rise of a new kind of technology: information technology and brain power.

In today’s Boston Globe, there is a great opinion piece that exemplifies what is going on.

World hunger is best treated with local growers and crops was written on the occasion of UN World Food Day on Sunday. It explains that the conversations about solutions to world hunger often go immediately to “ways to increase the food supply with purchased technologies”nbsp; that use chemicals and carbon-intensive solutions to food production.

This won’t be sustainable to improve the yields of the “half-billion small-farm families that still grow 70% of the world’s food.”

The alternative suggested is agro-ecological approaches that use local seeds, build healthy soil and conserve water. Finding the right approaches in individual communities solves the challenges of both hunger and greenhouse emissions (the article quotes GRAIN magazine’s estimate the agro-ecological approaches could offset as much as a third of global greenhouse gas emissions within 50 years).

Lest you think that this is only about the third world, read How the U.S. Curbs Farm Work. It's basically the same message.  That U.S. agricultural policies promote "industrialized and chemical intensive" production. And that

Ecologically based food systems should become the United State' overarching goal. Such a shift would invariably employ larger numbers of people while providing safer, more appealing jobs. It would also create safer, tastier, more nutritious food...

As with many knowledge-era solutions, these conversations are about bottom-up empowerment, not top-down control. It’s a way of solving problems using brainpower, training and teaching rather than large-scale production using expensive technologies and inputs brought in from outside a community. It’s just another set of examples of how our basic assumptions about the answers to our problems must be questioned.

This kind of thinking is very disruptive to existing economic and business models. Many businesses will fail in the face of this thinking. But many more will prosper. Which one will you be?

And when will you start treating knowledge intangibles as the key infrastructure of your own business?

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Street Smarts: Intangible Capital In Action

I stole this title from an article I read recently in Time. The article Street Smarts is about infrastructure. And why infrastructure changes need to be planned in a new way.

Just as we industrialized every corner of our economy in the industrial era, so too must we knowledgeize every corner in the knowledge era. Infrastructure is no exception.

What does that mean? It means that we have to re-think every challenge and find the most efficient solution. And remember that we have many new tools that we didn’t have before. Here are just a few of the examples cited in the Time article:

  • Don’t build billion-dollar lock expansions in the Mississippi River when better scheduling and peak-hour pricing can solve most of the problem
  • Don’t add new highways when telecommuting, carpools and mass transit can take cars off the road
  • Don’t rebuild the Philadelphia sewer system when you can keep storm water out of the sewers through permeable roads, green roofs and rain gardens
  • Don’t create an enormous national grid when you can add smart components to the existing grid
  • Don’t rebuild the 4,000 structurally-deficient dams in the U.S. when you can remove them and create recreational habitats that fuel the economy.
  • Here’s one that Time didn’t mention from here in Boston: Don’t disrupt the local economy for four years when you can rebuild the Fast14 bridges on eight summer weekends…

What’s different about these examples? Nothing and everything. The market usually opts for the smart solution. But many of our knee-jerk assumptions about solutions automatically default to the large-scale, top-down solutions so common in the industrial era.

Every one of the solutions above reflect new conditions, new thinking and new tools. They are all great illustrations of knowledgeization. And why we need to start paying attention to knowledge intangibles as the critical assets of this century.

Do you think the contractors for the Fast 14 were chosen because they have the right equipment? No, it’s because they have the right smarts.

The point we all keep making in the IC community is that we need the management tools and techniques to support the development of the right smarts.


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Intangible Capital: Looking Inside the Black Box - I often explain that the 70% of corporate value that is intangible in companies today is stuck inside a “black box.” This article I wrote for Strategy magazine tells the story of a company that looked inside the black box to let loose its potential for innovation and growth.

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Knowledge Balance Sheet

Knowledge Balance sheet 2.0
Knowledge Balance sheet 2.0

Knowledge Balance Sheet is a systematic inventory of knowledge and activities to its development, management and exploitation.

It covers

  • Human capital ... Qualities and qualifications of employees. eg skills, abilities, skills, motivation
  • Capital Structure ... Structures to carry out the business. for example, processes, infrastructure, R & D, knowledge, culture
  • Relational capital ... Relations processes, external groups and individuals. eg relationships with customers, suppliers, partners, share / stakeholder, external engagement, image

The knowledge balance sheet is the central tool for all executives

Knowledge balance sheets are

  • Universities in Austria for a statutory requirement
  • not yet standardized,
  • a tool for the future of society,
  • create transparency for the management and

Knowledge of accounting standards are

  • Human Resources Strategy,
  • Business development;
  • M & A,
  • Basel II
  • Employee and Organizational Development

The Knowledge Balance sheet 2.0

Business standards and a smooth interaction with Controlling require that the knowledge stock is a real balance sheet!

Knowledge Balance sheet (Sample)
Knowledge Balance sheet (Sample)

Knowledge Balance sheet differs from ...

  • Financial balance
  • Assets equivalent to the knowledge resources of the company
  • Capital does not correspond to the human capital
  • Investment in line with what the company has made to the knowledge resources to strengthen
  • Profitability is the benefits that by strengthening the knowledge resources has

  • Knowledgemanagement
  • Knowledge can only be managed if you know what you know and what we do not know about this condition is a Knowledge Balance Sheet. The Knowledge Balance Sheet is a management tool

  • In contrast to BSC
  • The knowledge balance sheet focuses on collecting and evaluating the intellectual capital, strategic development and external communications

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