Maybe it’s just a coincidence but I received two messages today. One from a contact here in the Boston area. And another from Europe. I thought I would share the questions and my answers as a way to start a conversation about intangibles, intangibles measurement and “hard” business results. I would love to hear your thoughts....
Question 1: Is there any evidence that evaluators consider seriously the findings of an intangibles assessment in acquisitions or buying of shares? Can a company expect to benefit from having an intangibles assessment when talking to investors?
My answer: The evidence comes from what moves markets. Changes in financials move markets. But so do changes in management, company partnerships, failures of process, performance problems, lack of innovation. If a company wants to be judged just on the basis of its financials, then it should let the financials speak for themselves.
If there is an interest in telling a richer story, then a team has two choices: talk about the company or provide data about how and why the financials turn out the way they do. Our ICounts products, for example, provide hard third-party data about the performance of the kinds of changes described above. It's about controlling the conversation.
Question 2: What are the best stats (and supporting source reference) to support the following:
- % impact that ‘employee engagement’ has on profitability
- % impact that ‘employee diversity’ has on profitability
- % impact that ‘employee absenteeism’ has on profitability
- % impact that 'customer satisfaction' has on profitability (or any impact on anything)
- % impact that ‘sustainable investment’ has on investment return
- % impact that 'best practice' as demo’d by public companies v private companies has on profit performance
- % impact that managing environmental and natural resource intensity has on profitability
- % impact that doing sustainability reports (CSR) has on profitability
Answer: We don't know the answers. But we also don't know that answer to questions like:
- % impact that "having a good CPA" has on profitability
- % impact of "accurate financials" has on profitability
- % impact of "well-run company" has on profitability
Companies are actually complex systems. Questions like this are hard to answer whether you are talking about any aspect of their operations. This is why I advocate an approach that starts with creating a map of the system the company has built to deliver on its value proposition and purpose. For me, the more important questions are:
- How does the company generate/drive revenues and profits?
- How strong are each of these drivers today?
- What's important to the stakeholders (customers, partners, employees) who control whether the company succeeds or not?
Ultimately, the answers to these questions will explain the impact of intangibles on the overall system driving profitability.
What do you think? Did I do the subject justice? What's missing? What’s your answer?