Member Blogs

As the year wound down, Boston Business Journal published a great list of the 10 worst social media mistakes brands made in 2012.

As I read them, I saw a huge difference between the implications (and lessons to be learned) from these mistakes. In my mind, the mistakes fell into two categories:

Bad Marketing: The first I would call bad marketing mistakes. 6 of the 10 fell into this category. They included things like:

• Chef Marc Orfaly, who unloaded an expletive-laced rant on an unhappy customer who posted her review of her Thanksgiving dinner at Orfaly’s Boston restaurant
• Gap tweeting "All impacted by #Sandy, stay safe! We'll be doing lots of Gap.com shopping today. How about you?"

These bad marketing mistakes can be attributed to an ill-considered statement by one person. These can usually be prevented just by making sure that you have good marketing people and a culture and a process to think before you hit send.

Bad Management: This second category are the really scary ones. These are mistakes that are caused by systemic problems happening far away from the marketing department. Here are the four mistakes highlighted in the BBJ article that fall into this category:

• The tweet that went viral: "My sister paid Progressive Insurance to defend her killer in court"
• Starbucks' #spreadthecheer hashtag campaign backfiring in the United Kingdom, where users hijacked the hashtag and tweeted out negative, sometimes expletive-laced tweets about the chain's workplace practices
• #McDStories hashtag. People were supposed to share positive stories about McDonald's. Unfortunately for the burger chain, people began sharing some very unappetizing stories
• Boloco CEO John Pepper alerting 50,000 email subscribers that the chain planned to keep its restaurants open for business during Hurricane Sandy. Angry tweets and emails immediately started pouring in, criticizing Boloco for potentially putting employees in harm's way.

These aren’t social media marketing mistakes. They are Social Era management failures. These are the kind of failures that should keep every leader up at night. And they are a clear harbinger of the dramatic changes to come.

Social technologies empower your customers, your stakeholders and your employees. They move the conversation away from branding where you get to say who you are to a conversation about what you do. Social means (among other things) that your actions can become part of a public conversation. And actions, as my mother always said, speak louder than words. Scary right?

So what’s the answer? The last chapter of our book Intangible Capital is entitled Reputation is the New Bottom Line. In it, we make the case that reputation is the metric that determines your ability to make profits. Starting a new year as we are this week, I submit that your reputation will be much more important to your performance in the coming year than your earnings last year.

What drives reputation? Your intangible assets. Your people, your culture, your shared knowledge, your partnerships, your business model. It’s what you do and how you do it. These intangibles are very real economic assets. And they’re actually easy to inventory and measure. And, if you want to avoid the second category of “social media” mistakes, you better start paying attention to the intangibles.

The Intellectual Property Business Congress 2013 is kicking off tonight in Boston. I’m excited to have it in my home town. I’m also excited and honored to be on a panel on Tuesday discussing how to use intangible capital to enhance the value of IC.

In preparation for that discussion, I thought I would share the tool that I co-developed awhile back with the IPR Plaza folks in Europe to help IP professionals create a quick scan of IC for IP, that is, the supporting infrastructure their companies have in place to commercialize specific pieces of IP.

The tool fills in a gap in the field of IP management, which in my experience carries four connotations and fields of study:

• Managing IP : managing the legal aspects of IP
• Transfer Pricing: financial management of IP sharing
• Commercializing IP: external transactions such as licensing, sale
• IP Business Model: creation and management of a business based on IP

A lot of attention in the IP world is given to licensing and sales. This is because it’s sexy and it can be an immediate source of cash. But the truth is that whether you are a buyer or a seller, the highest value for IP comes when it is put to work inside a viable business model with all the necessary supporting IC.

The work we do with consultants, CEO’s and business leaders helps them think about how to exploit their IC. The 20 questions below are the basis of the IPR Plaza tool and are the themes we will be discussing on Tuesday. They are designed as a checklist for IP professionals when they are focused on maximizing the value of a specific piece of IP:

Human Capital

1. How would you rate the management team’s understanding of what it will take to commercialize this technology?
2. How would you rate the management team’s knowledge of the industry related to this technology?
3. How would you rate the employees’ competencies related to production/delivery of this technology?
4. How would you rate the employees’ competencies necessary to renew and continue to build this technology?
5. How would you rate the employees’ competencies necessary to support customers of this technology?

Structural Capital

1. How would you rate the company’s ability to create an effective process for producing the technology?
2. How would you rate the company’s ability to create marketing processes appropriate for creating demand for this technology?
3. How would you rate the company’s ability to create sales processes appropriate for selling this technology?
4. How would you rate the company’s knowledge base related to this technology?
5. How would you rate the company’s access to related technologies that it will need to commercialize this technology?

Relationship Capital

1. How would you rate the company’s understanding of the target market for the technology?
2. How would you rate the fit between this technology and the company’s existing customers?
3. How would you rate the company’s access to the right prospect group for this technology?
4. How would you rate the company’s access to the right partners to produce and deliver this technology?
5. How would you rate the company’s brand as consistent with this technology?

Strategic Capital

1. How would you rate the fit between this technology and the company’s existing business model?
2. How would you rate the company’s ability to create an appropriate business model for this technology?
3. How would you rate the opportunity in the marketplace (strong opportunity usually means fewer incumbent competitors)?
4. How would you rate the outlook for the market need that this technology is addressing?
5. How would you rate the level of freedom from regulation in the market for this technology?

We suggest rating each question on a 5-point scale. At IPR Plaza, you'll get suggestions based on your score. (Please note, IPR Plaza is in the process of updating their website and to keep access to the tool up in the meantime, you have to click through several screens but the scoring info is still there).

If you’re at IPCB this week, stop by to join the conversation. If not, join the conversation on line or take the quick scan at IPR Plaza. Either way, I look forward to hearing from you!

The new changes to GDP calculations to include intangibles have been prompting lots of discussion in the mainstream press. That's great news to all of us in the IC community. So it feels like the right time to pull out the basic principles of Intangible Capitalism that I first wrote a few years ago......

Our economy now runs on intangible capital. 80% of the value of the average business in the U.S. is intangible. This is very exciting because the knowledge intangibles we already have hold the seeds of the solutions to many of the biggest challenges faced by our society--and the path to greater profits and prosperity. 

But intangibles are different. They require new approaches to measurement, management and monetization. Industrial models won't yield the results you want or need. How to become an intangible capitalist? Build an organization where:

• Employees are valued for their knowledge, not just viewed as an expense
• Information flows from the bottom to the top of an organization as freely as it flows from the top down
• Employees are trained and empowered to make improvements and innovations in their work processes every day
• Managers spend most of their time helping their subordinates solve problems rather than policing them
• Partners are valued for their competencies and efficiencies rather than just their price
• Systems support people and make their lives easier rather than harder
• Processes automate all the easy work and free employees to focus on the highest value problems and customers
• Most knowledge is shared collaboratively with partners to contribute to the growth of the industry
• Critical knowledge is protected to preserve corporate advantage.
• Decisions are made with the company’s welfare in mind—but also the environment and community
• Managers know how to explain all this to both internal and external stakeholders

Make your stakeholders your partners so that:

• Employees help you create the strongest company in your market
• Customers make you the revenue leader in your market
• Stakeholders award you the best reputation in your market
• Investors give you the best valuation in your market

This will sound like a pipe dream to many. But it’s deadly practical. We live in an era of digital/collaborative knowledge. If you want to grow, innovate and profit, you will need to learn to leverage knowledge. Your workers and your partners are the source and the sustaining force behind knowledge. But you can’t just buy their knowledge and then tell them to shut up and do as they are told. You need a different kind of management to profit from this knowledge. Our current stalled economy is directly related to our confusion over this fact. The old rules no longer apply. Innovation, growth, profits, corporate value and reputation all depend on intangible capital.

From today forward, you have two choices. A long, slow slide under the old rules. Or a new, smarter approach to creating value and both personal and shared prosperity.   I hope that you will choose to become an intangible capitalist.

(First published in September, 2010)

We are living in the middle of an historic revolution that is taking us from an industrial to a social, intangible capital-based economy. This revolution is visible everywhere but one place that I love to watch is in how the intangible capital economy is changing one of the oldest human activities: agriculture.  Here’s some context:

One of the turning points in human history came when men and women figured out how to control production of food. These practices of the Agricultural Revolution improved over the next 10,000 years but it was still largely a physical process using human and animal labor. Throughout this time, a large portion of the human population worked just to produce food.

What changed? The Industrial Revolution. This is when machines were put to use to replace human and animal labor. This mechanization made it possible for less and less labor to be required to do basic activities. And agriculture changed with it. This table from Wikipedia says it all:

• 3,000 years ago primitive agriculture fed 60 million people
• 300 years ago intensive agriculture fed 600 million people
• Today industrial agriculture attempts to feed 6 billion people

This also meant that labor requirements for agriculture continue to drop. This table shows the male workforce in the U.S. and shows food production jobs declining from 42% to 4% of the workforce during the last century. 

But the industrialization of agriculture brought many negative outcomes that present challenges for the future such as high energy use, chemical and waste pollution and overabundance of low-nutrient foods. In these opportunities and the latest revolution lie the seeds of the future.

Today we live at the birth of a new Revolution. Fueled by information and social technologies, we are automating our minds just as the industrial era automated our bodies. And, just as the Industrial Revolution dramatically changed agriculture so, too, will this new Revolution.

Automating our minds creates intangible capital. And IC is fueling radically different approaches to agriculture that use less energy, use fewer chemicals, lower waste and improve diets. Here are a few fun examples:

• Rooftop gardens run on an iPad that harvest only what’s needed by their customers each day
• Sysco’s program to connect small, local producers to the University of Michigan
• Local production creating local jobs
• Smaller scale production creating healthier communities

These new approaches are still tiny changes in a world-wide system. But they show us how intangible capital--people using information technology to build collaborative, innovative solutions to old problems--can radically change the thinking even in the oldest and most traditional of industries. How will your industry be revolutionized by intangible capital?

This is the first part of a series of posts leading up to our sessions in the Value Track in the Innotribe sessions at Sibos next week. Sibos is the annual conference of SWIFT (the Society for Worldwide Interbank Financial Transfers), an organization of more than 10,000 banks in 212 countries that facilitates secure, reliable intrabank transactions)

The conversations are going to be around the question of value. What creates value and what are the assets and capabilities that create value? The truth is that value is changing. And it provides both risks and opportunities to the investment management business.

I have to look no further than my own backyard here in Boston to see this happening. This was a center of industrialization that began over 150 years ago. In those days, companies required large amounts of capital to buy and build factories. The financial system provided that capital and companies were organized to reward capital. Investors, shareholders were put first. Externalities were not given much consideration. The model was extractive. Capital had the rights to all the excess value after the costs were covered. This is still the norm today but the dynamic is shifting.

Today in Boston, our economy continues to be quite vibrant but it’s different from the past. Today, companies don’t require the large amounts of tangible capital to get off the ground. The brick and mortar industrial buildings have largely been converted to creative spaces for cutting edge knowledge companies. To succeed, these companies need access to smart people, good partner networks and fresh knowledge. You can’t buy and control this kind of capital the way you can a machine. You have to attract this kind of capital and keep it connected to your company. Attraction versus extraction.

So thinking about management and ownership in classic ways has to change. You have to think more broadly about stakeholders. You can’t just put shareholders first or you can’t get the resources you need. The model is no longer extractive, it’s attractive. Can you attract the people and partners and resources you need? How do you keep them engaged and contributing to your organization?

The answer to these questions is relevant to investment managers (and all kinds of financial investors) in two ways: 1- How should you be analyzing your portfolio companies and also 2- How should you be managing your own businesses? We’ll look at both these questions in future posts over the coming week.

Most of what we do as managers and most of what is still taught in business schools is a toolset that was perfected in the industrial era for managing factories. It shows people how to manage from the top down and is built on the assumption that the boss has all the answers. Org charts are the prototypical view of the organization under this model.

We all know that the world has changed. That the industrial era is over. That top-down isn’t enough. There are lots of conversations about how to deal with this change. Companies doing network analyses. Looking for ways to create more inclusive management models. Working to understand the elusive phenomenon that is innovation.

But the mainstream is still ignoring one of the basic underlying shifts in the foundation of organizations. As we moved from the Industrial to the Social Economy, the core competitive (and collaborative assets) of organizations shifted from being mostly tangible to now being mostly intangible. Today 80% of the value and 100% of the competitive advantage of companies resides in intangible assets like people, knowledge, processes, networks, relationships, culture and business models.

It is a rare business person that has any tools beyond their own good instincts to deal with this shift. Accounting calls these things goodwill. Financiers call them “soft” assets. Business schools ignore the research that shows how absolute and final this shift is.

What business people and organizations need are a few of the same things that they have in their toolset if they were to manage an old-style factory: a way to identify intangibles, inventory them, model their operation, measure them and optimize their performance. It’s not that exotic. It’s common sense management. People need a similar toolset for intangibles.

It’s absolutely critical if individuals, organizations and economies are going to solve some of the exciting and potentially mind-bending opportunities out there: improving the health of our people, the quality of our environment and the strength of our economy. The solutions are all out there, inside our minds, waiting for the right environment to nurture the collaboration and innovation to find them.

That’s why I founded Smarter-Companies and created the ICounts Tools. To empower organizational leaders with tools to focus on what’s important: intangible capital. Join us on our mission to change management and empower people and organizations to build a better future.

It's true and very easy to see in this calculation from Ocean Tomo.

I use the figure a lot. The fact that 80% of the value of the average business is intangible. It’s an astounding factoid that I use in the hope of awakening a realization in people how fundamentally our economy and our businesses have changed.

The 80% is significant because it is a complete flip from the past. Until the launch of the first PC’s in the early 1980’s, 80% of corporate value was tangible (and 20% was intangible). And, even though that seems like a long time ago, the financial markets and management practices are still tied to the tangible point of view.

Think about it. Most of the value created using computers, the internet and social media are invisible in today’s accounting and management information practices. How did this happen and why the 80% gap?

Basically, businesses have been investing in intangibles like people, software, processes, data, intellectual property, brands, culture and business models for decades. But most of that investment is considered a cost in current accounting standards. So these investments get booked as current year costs.

Year after year, these investment have built a new kind of infrastructure, an intangible value-creation factory, that is invisible and unmeasured. If you asked the average business person what they would think about a company that failed to document 80% of the value of a factory, they would be horrified. But that’s essentially what’s going on in today’s economy.

This leads to inaccurate corporate valuations, suboptimal performance, blocked learning, stifled innovation and stagnant growth.

Is 80% really intangible? Yes. But it doesn’t have to be invisible and unknowable. That’s our mission at Smarter-Companies. To help companies see, measure, manage, optimize and monetize their intangible capital. Find a better future with intangible capital.

There was a great article in the Financial Times entitled The strategy consultants in search of a strategy.

This article comes on the heels of the very vigorous discussions going on at Relationship Economy and here at Smarter-Companies about the future of consulting which make it clear that consultants themselves see change coming.

And it’s a continuation of the discussions we have had since the publication of Intangible Capital where we talk about the implications of the rise of the digital economy. One of the big implications we wrote about was the shift from strategy to innovation as a management focus (the others include the shift from org charts to networks, the shift from command and control to orchestration and the shift from accounting to ICounting).

Strategy is at its roots a largely top-down exercise that assumes the people at the top have and know how to use all the knowledge necessary for a company to succeed. But one of the basic changes in the digital economy is that knowledge and collaboration reside throughout a company’s network. This means that emergent strategy, or innovation, is growing in importance. This view says that information and learning need to come from the bottom up and outside in rather than just the top down.

It’s in this context that I see the disruption of strategy consulting. You’re not helping much if you facilitate management teams sitting in ivory towers to develop their views of what needs to be done and then implement “change management” programs to essentially “sell” the strategy to all the underlings. Consultants in this case are caught in their own industrial, top-down mode of thinking.

The alternative is consulting that helps companies listen, engage and learn from their stakeholders. What do the company’s stakeholders need? How do they experience the company? What are the drivers of growth and profitability? This alternative is what leads consultants to the study of intangible capital. Today, 80% of the value of the average U.S. company and 100% of its competitive advantage is intangible.

Strategic consulting is being disrupted because the nature of strategic advantage is being disrupted. Today it’s about intangibles like people, process, partners and purpose. To be a “strategic” consultant, you have to help companies see, measure and optimize these intangibles. It’s not about formulating a plan and driving execution (although there will always be a place for this). It’s much more about understanding the intangibles driving the future success of your clients’ businesses and incorporating stakeholders in the conversation about how to maximize the potential of these intangibles through innovation and growth.

This essay was written for a book to be published later this year in Italy by Smarter-Companies member Andrea Gasperini. We'll share a link to the book when it comes out!

I write this essay as we enter the year 2013. A new year is a popular time for predictions. There’s always risk in trying to make predictions but I welcome the opportunity to sketch out some of my ideas as a way to add to the collective conversation about the field of IC.  To do this, I’ll use the basic journalism questions we were taught in school:

Who is going to drive the future adoption of IC ideas? I believe consultants are the key.

The basic definition of IC includes many categories of knowledge—human, relationship, structural and strategic capital. This definition suggests a holistic vision of organizations. Today, only the CEO takes charge of such a holistic vision. Yet, the CEO cannot do the work of developing and implementing IC concepts. The same goes for the COO and CFO, two other managers who have a broad vision of the organization.

Consultants, on the other hand, get paid to bring new ideas to companies. They have the flexibility, time and ability to organize projects aimed at driving change and improvements (assuming they are hired to do so). So consultants will be key change agents 

In the long run, however, I do not believe that any one person will be responsible for IC. That's because IC will be everyone's job.  Everyone in business will have to have some basic skills in what I like to call ICounting. ICounting will be a skillset, not a job.  And at the beginning, consultants will be important in introducing this skillset to the market.

What will be the character of the IC ideas that are adopted? Simple and specific.

The IC community has done amazing work to develop concepts and frameworks for the knowledge intangibles that have become the core asset class in organizations today. But intangibles are not an easy subject and too many of the solutions are complex and theoretical.

Management teams don’t have time for a lot of theory. They need relevant and actionable information. To me, this suggests that most of the conversation with management teams needs to be about their own unique intangibles. This is why my company has offered two simple tools as open source methodologies:  The first is the ICounts Index which helps business people determine the relative importance of tangible vs. intangible assets in their own companies.  The second is the ICounts Inventory which helps business people create a list of the core intangibles of their company.  This inventory can be the foundation for all kinds of strategic measurement and management projects. But the right next steps depend on the company and the situation. There’s no one right answer except to keep it simple and specific to the unique intangibles of each organization.

Over time, the uses of IC information will grow more prevalent, more complex and more detailed. But it will start out simply.

Where will this happen? – From the bottom up

One of the great lessons of the era in which we live is that top-down solutions don’t work well anymore. Knowledge and power don't flow from the top down today. We need to remember that. IC will never be adopted because someone tells companies they have to do it. The action will be with individuals, teams, divisions and, eventually, larger organizations.  Their inspiration will come from each other and from the internet, but not from the business schools or the government or the IASB.

This has been a tough lesson for the IC community. Even though we in this community are forward thinkers, we are like everyone in our generation, a product of our formation. A lot of the things we were taught about making things happen date back to the industrial era. Too often we default to looking for the top-down solution, for the set of rules or requirements that will require adoption of our ideas. Give up that dream now. Start thinking about how to foment change from the bottom up.

Why will business people finally pay attention to IC? – Social is the tipping point

When you see the data, the shift away from the industrial economy has happened gradually over decades (albeit with two spikes with the introduction of the PC and the internet). IC is already the currency of our current era. But the ideas have not taken hold because most people have been able to cope with the new economy using the old core of tools (GAAP accounting, organization charts, and command and control management) with just small adjustments at the margins. Until now, using old tools might have slowed you down but they haven’t been viewed as a liability.

But now we are at the point where old management concepts are actually doing harm to companies. They block the movement of knowledge and learning. They prevent innovation. They motivate employees to guard rather than share knowledge. They encourage competition rather than collaboration.

The introduction of social technologies is turbo-charging this trend. Social technologies (beginning but not ending with social media) empower employees, customers, partners, stakeholders and the general public to comment and critique everything an organization does. They also create the opportunity for individuals to share their knowledge—but only if they want to. This shifts the balance of power. If you don’t have engaged stakeholders who trust you, you don’t have a license to do business. Mainstream managers are sensing this and scrambling to find an alternative set of tools for their toolkit. IC is at the core of this nee toolkit.

When will IC cross the chasm?  In 2015

OK. This one is a shot in the dark. But I feel that the shift is already beginning  and we will move from early innovators to the mainstream business community in a couple years or so. Why? Economic stagnation and the need for innovation make the need for change more urgent all the time. And, as explained above, social technologies are making it clear that change is necessary. But the real reason that I believe that it will happen is because these new social technologies will make it easy to change (more on this below)

How – By building a collaborative ecosystem

One of the great opportunities of the moment in which we live is the ability to create collaborative ecosystems. John Dumay calls this the shift from competitive advantage to collaborative advantage. A community that bands together to collaborate in building a market has the potential to disrupt the status quo and compete with even the largest company or the most entrenched ideas.

To spread IC thinking, we need to adopt 2.0 collaborative thinking and change the world from the bottom up. At Smarter-Companies we are creating a prototype of such an ecosystem.  We are offering our own tools and training side by side with the tools developed by other companies.  None of us has all the answers but together we can come close.  And by collaborating and sharing what we learn, we will get better and faster answers than we could on our own.

What's the future of IC? Let's create it together!

As 2013 has opened, the merger business has, as theNY Times reported, “roared back to life” with more activity than has been seen since 2007, the year before the Great Recession began.

Corporations have $1 trillion in cash on their balance sheets and buyout firms have literally billions of dollars of money to put to work. Cash, a stronger stock market, a rebounding lending market and enough confidence in the future all will help fuel a new boom of takeovers.

But will this M&A activity be more successful than in the past? Because the track record of mergers in general is not very strong. For those of us in the intangible capital community, this is no surprise. Why? Well, it’s because there is little structured diligence around intangibles even though 70% of the average deal ends up being booked to intangibles.

Intangible capital includes people, processes, knowledge, relationships, culture and strategies—all the things that everyone knows to be important but never get the attention they should. One of the biggest reasons is that intangible capital exists largely outside the current accounting model. (There are good reasons for this but it doesn’t mean that intangibles are not financial assets. To the contrary, billions are spent developing and buying intangibles every year)

Can a deal that works on paper and in the projections really work if the intangibles are wrong? No way.

I lived through my first financial cycle as a young business student in the 1980’s. I’ve seen a lot of them. And it makes me sad that a lot (but not all) businesspeople are going to go through this one without a good ICounting toolset.

Don’t be left out. Don’t screw up your mergers. Use an ICountant to plan it out.

It happens all the time. I’ll meet someone new and I’ll tell them that I’m interested (OK, some would say obsessed:) with intangible assets. Most people immediately nod their head and agree how important they are. But then, we quickly get into blind man territory.

I’m talking about the poem about the Blind Men and the Elephant adapted from the Indian parable (this depiction of the blind men was prepared by Collective Next at an OECD intangible conference last year).

In the poem, each blind man feels a different part of the elephant (legs, tail, ears, etc) and draws very different conclusions about what the whole elephant would look like.

That’s what happens to all of us when we discuss intangibles. There are lots of different aspects of intangibles. And many experts on some or all of these aspects. While we need all these experts and points of view to build successful smarter companies, we get into trouble if experts can’t also see the big picture.

The graphic we have been using on our site lately gives you a sense of this variety (and this just names a few of the areas of expertise necessary to build smarter companies):

What I am trying to say that if we see intangibles as just people or just intellectual property or just customers or just goodwill, then we are missing the point. IC can and must be understood as a dynamic system characterized by constant learning, adaptation and innovation. No one in business today can afford to think in silos.

This perspective also helps us make sense of how the Social Era is so dramatically different from the Industrial Era. When you are managing machines, you need a hierarchical, siloed organization that optimizes its own piece. When you are managing minds, you need a networked, interactive organization that optimizes the system.

Without this holistic view of an organization, we are all blind men working at cross purposes to each other. That’s the message of our new community at smarter-companies: Together we are smarter. Together we can unleash the enormous untapped potential hidden inside every organization.  Join us on our mission to build smarter companies!