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Great story over on Bloomberg about how Josiah Wedgwood created the modern accounting system for the factory era: "How a Potter Took Accounting Into the Industrial Age".

Wedgwood’s products became so popular that he could charge high prices and the profits rolled in. But during an economic downturn in 1772, demand for the vases slackened. With serious cash-flow problems and an accumulation of stock, Wedgwood turned to his accounting books to solve this dilemma: Should he cut production or reduce prices?

And so he made a “price book of workmanship,” which included “every expence of Vase making” from the crude materials to the cost of the retail counter in London. This led him to discover the distinction between fixed and variable costs. The greatest manufacturing costs were modelling and molds, rent, fuel, bookkeepers, and wages. “Consider that these expences move like clockwork, & are much the same whether the quantity of goods made be large or small,” he told [his business partner Thomas] Bentley. “You will see the vast consequence in most manufactures of making the greatest quantity possible in a given time.”

Wedgwood used the findings of his cost analysis to make management decisions. He revised his policy of soliciting special commissions and made-to-order sales; lengthened his production runs for certain products; varied his usual high- price policy; reduced his stock in market downturns; and kept a careful eye on sales and marketing costs.

Many successful businesses failed during the financial crisis of 1772 -- but Wedgwood’s survived, thanks to his innovation.

Now we have to create a new accounting system that differentiates between tangible and intangible assets - and, more importantly, among the various types of intangibles. Each industry and company has its own set of drivers. The accounting system needs to help management understand and manage those specific set of value drivers.

Cross posted from The Intangible Economy

Just received David Gurteen's latest Knowledge Lletter and was struck by his opener:

Some sound advice here from David Ogilivy. We send an email when we would do better to walk around to the person we wish to engage and have a conversation with them or failing that pick up the phone.

In reading this, I made a connection with a statement by Peter Block that struck me when I read it at the time.

Connection -- We must establish a personal connection with each other.

Connection before content. Without relatedness, no work can occur.

Credit: Civic Engagement and the Restoration of Community: Changing the Nature of the Conversation by Peter Block

I've had a number of conversations along the same lines recently. It's not enough to say that we live in a "knowledge" economy. Because the value of knowledge is very small unless it is put to work (then it can be infinite).

How do you put knowledge to work? It happens collaboratively.

Knowledge put to work is intangible capital. IC is a dynamic system including all the elements pictured above. It's impossible to talk about work today without talking about each of these elements, how they interact and how the system creates value. This concept of work as a dynamic collaborative system is very different from the linear processes that characterized work in the industrial era. 

Connection before collaboration, before work is done? It makes a lot of sense. But it speaks to a very different view of the organization, one that demands new approaches to measurement, new approaches to management. one that truly values the intangibles held in human, relationship, structural and strategic capital. What to get work done? Start thinking differently.

For the past 6 months or so, I have been serving as an advisor to the International Integrated Reporting Council (IIRC). The goal of the IIRC is "to create the globally accepted International <IR> Framework that elicits from organizations material information about their strategy, governance, performance and prospects in a clear, concise and comparable format." The Consultation Draft on the International Integrated Reporting Framework now available. The framework utilizes a model of six forms of capital: financial capital, natural capital, manufactured capital, intellectual capital, human capital and social & relationship capital.  While this is somewhat different that the Intangibles Capital framework that I use, it is a useful construct to move to move toward greater acceptance of an expanded and integrated form of corporate reporting.  The IIRC is now soliciting comments on the Framework.  The comment period runs to July 15.  I urge everyone to take a careful look at the framework and submit their comments.

Cross posted from the Intangible Economy

Today we continue with our look at the President's budget proposal (see earlier postings). One of the budget's themes is "educating a competitive workforce." Within this overall framework are a number of programs to improve human capital, including a focus on science, technology, engineering, and mathematics (STEM) education. Part of this focus is a proposal for consolidating the federal government's programs.

The Budget proposes a comprehensive reorganization of Federal STEM education programs to enable more strategic investment in STEM and more critical evaluation of outcomes, reflecting an Administration priority on using Government resources more effectively to meet national goals. This reorganization is designed to increase the impact of Federal investments in four areas: K-12 instruction; undergraduate education; graduate fellowships; and education activities that typically take place outside the classroom, all with a focus on increasing participation and opportunities for individuals from groups historically underrepresented in these fields.

In the "Cuts, Consolidations and Savings" section of the budget document they propose eliminated 78 programs: 6 in Agriculture; 6 in Commerce; 6 in Defense; 8 in Energy, 10 in HHS; 1 in Homeland Security; 2 in EPA; 38 in NASA and in the Nuclear Regulatory Commission [Note: the number does not add up to 78 but to 77]. They also propose reorganizing 11 programs in NSF and one in NASA. Unfortunately there is no narrative summary describing what programs are begin eliminated and what programs they are being folding into. It appears they will be all moved to the Department of Education.

The proposal appears to come out of the work of the Committee on STEM Education of the National Science and Technology Council (part of the White House Office of Science and Technology Policy). Back in December 2011, the Committee published a report on the Federal STEM Education Portfolio which inventoried all the programs. That was followed in February 2012 with an progress report to Congress on Coordinating Federal STEM Education Investments. The Committee's promised 5 year strategic plan does not yet appear to be published.

Bringing the numerous STEM programs into a coherent strategic plan is an important initiative. But there is a need to move beyond STEM to embrace other knowledge-based areas as well. We are moving to a post-scientific economy where, to quote Dr. Christopher Hill, former Vice Provost for Research at George Mason University:

the creation of wealth and jobs based on innovation and new ideas will tend to draw less on the natural sciences and engineering and more on the organizational and social sciences, on the arts, on new business processes, and on meeting consumer needs based on niche production of specialized products and services in which interesting design and appeal to individual tastes matter more than low cost or radical new technologies.

To thrive in this new environment, education needs to move from the classroom to the living room. Life-long learning should not be a slogan but an ingrained part of everyday life. And as important as STEM is, our economic future is not solely in the hands of our scientists and engineers. Our future prosperity rest on raising the skills and knowledge level of everyone. Productivity no longer comes just from new machines, but from new ways of organizing work. And as I've noted in an earlier posting, Professor Jamie Galbraith said it well when he said "American competitiveness depends at least as much on style, design, creativity and art - and especially on the liaison between technology and art."

So it is my hope, therefore, that the STEM strategic plan will go beyond just coordinating STEM programs. It should also include the role of other area, such as design and social sciences, and the tie in between STEM and these other fields. That would be a major step forward.

Cross posted from The Intangible Economy

As part of last year's budget request (for FY2013), President Obama included a provision to create a Community College to Career Fund (see early posting). The Fact Sheet on the programs published last year notes:

The Community College to Career Fund will support pathways to entrepreneurship for 5 million small business owners over three years through the nation's workforce system and its partners, including: a six-week online training course on entrepreneurship that could reach up to 500,000 new entrepreneurs and an intensive six-month entrepreneurship training program resulting in entrepreneurship certification for 100,000 small business owners.

Unfortunately, this program was never funded. But the Administration keeps pushing for the program. It was including in the manufacturing initiative announced in February and is included in President's budget for FY2014 released yesterday (an $8 billion request in the Departments of Labor and Education budgets).

I strongly support this initiative. However, I would suggest one addition: the training courses needs to include intangible asset management. As Mary Adams and I noted in our paper Intellectual Capital Management and Entrepreneurial Mentoring and Education, entrepreneurship mentoring and training needs to move beyond technical assistance:

Many such technical assistance resources already exist: legal, accounting, financial etc. In fact, an important part of the mentoring process is connecting the struggling entrepreneur with the appropriate technical resources. However, there is one set of technical assistance resources that are yet to be fully developed and deployed to help entrepreneurs: intellectual or intangible capital (IC) management. Economy-wide, IC comprises a large part of corporate value. In some high-growth companies this percentage can often approach 100% and successful management of IC is often the key to their success.
. . .
While large companies can afford the consulting expertise required to undertake IC management, such assistance is not available in an accessible, cost-effective form to high-growth start-ups. Intangible assets are basically all most start-ups have. It is critical therefore that entrepreneurs are able to visualize and articulate what are the start-up's intangible assets and how they work as a system. This is especially important for investors but also for recruitment and strategy. Start-ups need to thinking carefully about their business models: how to get paid for what they know-including navigating between free and paid aspects of a value proposition. Keeping track of intangible investments is an important way of backing up the story of the company's development. Finally, entrepreneurs need to understand that the ultimate reputation of their organization will be earned as a result of good intangibles management.

Adding an intangibles management module to the course would be a huge step forward.

Cross posted from The Intangible Economy

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.

Right now, every policy wonk in Washington is focused on this morning's release of President Obama's FY 2014 budget. I will have more on the budget and investments in intangible assets later. But right now I would draw your attention to an often overlooked accompanying document from the Department of the Treasury: the General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals. [For an overview of the tax provisions, see the WSJ story "Obama Seeks Overhaul of Corporate, Personal Taxes."]

In what has become an annual ritual, the Administration once again proposes to tight up the regulations on the transfer of intangibles. This year's proposal (below) is identical to last year's proposal, which was a slightly modified version from the previous year's proposal and the proposal from the year before that and the year before that.

As I've described before, the proposals go to the issue of companies transferring their intellectual property to subsidiaries located in countries where the royalty income is tax at a low rate or not taxed at all. The parent company "sells" the IP to the subsidiary and then pays royalties to that subsidiary for the use of the IP. The key question is the fair market value of that transfer. US law requires that the transfer be valued at the same level as if it was an arms-length transaction between two independent entities. The parent would then pay US taxes on that income. There is concern that companies are low balling the value of the IP, "selling" it cheaply so as to minimize the amount of US taxes they have to pay on the income from those sales. The US loses in two ways, the tax on the income from the sale and the tax on the income from the royalties.

The proposals go after a couple of issues with transfer pricing. The first proposal deals with imposing a tax on excess income from intangibles transferred to low-taxed affiliates. The second proposal goes to the enforcement powers of the IRS Commissioner under Section 482 to place his/her own value on a transfer whenever "necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses." The proposal would allow the Commissioner to value the intangible on an aggregate basis. This appears to go after the well-know issue that portfolios on intangibles are more valuable than the individual items taken separately. The second issue is that of the definition of intangibles. The proposal would expand the definition to include workforce in place, goodwill and going concern value. Those three intangibles are essentially "whole-enterprise" assets. They cannot be split off from the enterprise. As such, they are generally not transferred from entity to another as individual components like a patent or a trademark could be. The proposal also goes after the issue of valuation by setting the standard as "taking into consideration the prices or profits that the controlled taxpayer could have realized by choosing a realistic alternative."

TAX CURRENTLY EXCESS RETURNS ASSOCIATED WITH TRANSFERS OF INTANGIBLES OFFSHORE

Current Law

Section 482 authorizes the Secretary to distribute, apportion, or allocate gross income, deductions, credits, and other allowances between or among two or more organizations, trades, or businesses under common ownership or control whenever "necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses." The regulations under section 482 provide that the standard to be applied is that of unrelated persons dealing at arm's length. In the case of transfers of intangible assets, section 482 further provides that the income with respect to the transaction must be commensurate with the income attributable to the transferred intangible assets.

In general, the subpart F rules (sections 951-964) require U.S. shareholders with a 10- percent or greater interest in a controlled foreign corporation (CFC) to include currently in income for U.S. tax purposes their pro rata share of certain income of the CFC (referred to as "subpart F income"), without regard to whether the income is actually distributed to the shareholders. A CFC generally is defined as any foreign corporation if U.S. persons own (directly, indirectly, or constructively) more than 50 percent of the corporation's stock (measured by vote or value), taking into account only those U.S. persons that own at least 10 percent of the corporation's voting stock.

Subpart F income consists of foreign base company income, insurance income, and certain income relating to international boycotts and other proscribed activities. Foreign base company income consists of foreign personal holding company income (which includes passive income such as dividends, interest, rents, royalties, and annuities) and other categories of income from business operations, including foreign base company sales income, foreign base company services income, and foreign base company oil-related income.

A foreign tax credit is generally available for foreign income taxes paid by a CFC to the extent that the CFC's income is taxed to a U.S. shareholder under subpart F, subject to the limitations set forth in section 904.

Reasons for Change

The potential tax savings from transactions between related parties, especially with regard to transfers of intangible assets to low-taxed affiliates, puts significant pressure on the enforcement and effective application of transfer pricing rules. There is evidence indicating that income shifting through transfers of intangibles to low-taxed affiliates has resulted in a significant erosion of the U.S. tax base. Expanding subpart F to include excess income from intangibles transferred to low-taxed affiliates will reduce the incentive for taxpayers to engage in these transactions.

Proposal

The proposal would provide that if a U.S. person transfers (directly or indirectly) an intangible asset from the United States to a related CFC (a "covered intangible"), then certain excess income from transactions connected with or benefitting from the covered intangible would be treated as subpart F income if the income is subject to a low foreign effective tax rate. In the case of an effective tax rate of 10 percent or less, the proposal would treat all excess income as subpart F income, and would then phase out ratably for effective tax rates of 10 to 15 percent. For this purpose, excess intangible income would be defined as the excess of gross income from transactions connected with or benefitting from such covered intangible over the costs (excluding interest and taxes) properly allocated and apportioned to this income increased by a percentage mark-up. For purposes of this proposal, the transfer of an intangible includes by sale, lease, license, or through any shared risk or development agreement (including any cost sharing arrangement)). This subpart F income will be a separate category of income for purposes of determining the taxpayer's foreign tax credit limitation under section 904.

The proposal would be effective for transactions in taxable years beginning after December 31, 2013.

- - -

LIMIT SHIFTING OF INCOME THROUGH INTANGIBLE PROPERTY TRANSFERS

Current Law

Section 482 authorizes the Secretary to distribute, apportion, or allocate gross income, deductions, credits, and other allowances between or among two or more organizations, trades, or businesses under common ownership or control whenever "necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses." Section 482 also provides that in the case of transfers of intangible assets, the income with respect to the transaction must be commensurate with the income attributable to the transferred intangible assets. Further, under section 367(d), if a U.S. person transfers intangible property (as defined in section 936(h)(3)(B)) to a foreign corporation in certain nonrecognition transactions, the U.S. person is treated as selling the intangible property for a series of payments contingent on the productivity, use, or disposition of the property that are commensurate with the transferee's income from the property. The payments generally continue annually over the useful life of the property.

Reasons for Change

Controversy often arises concerning the value of intangible property transferred between related persons and the scope of the intangible property subject to sections 482 and 367(d). This lack of clarity may result in the inappropriate avoidance of U.S. tax and misuse of the rules applicable to transfers of intangible property to foreign persons.

Proposal

The proposal would clarify the definition of intangible property for purposes of sections 367(d) and 482 to include workforce in place, goodwill and going concern value. The proposal also would clarify that where multiple intangible properties are transferred, the Commissioner may value the intangible properties on an aggregate basis where that achieves a more reliable result. In addition, the proposal would clarify that the Commissioner may value intangible property taking into consideration the prices or profits that the controlled taxpayer could have realized by choosing a realistic alternative to the controlled transaction undertaken.

The proposal would be effective for taxable years beginning after December 31, 2013.

The first provision would raise $24 billion over 10 years and the second would raise $2.1 billion over 10 years.

There is also a provision included this year to simplify the treatment of intangibles by repealing certain anti-churning provisions.

REPEAL ANTI-CHURNING RULES OF SECTION 197 OF THE INTERNAL REVENUE CODE

Current Law

In 1993, Congress enacted section 197 of the Internal Revenue Code to allow the amortization of certain intangibles (such as goodwill and going concern value). Prior to the enactment of section 197, such intangibles were not amortizable. To "prevent taxpayers from converting existing goodwill, going concern value, or any other section 197 intangible for which a depreciation or amortization deduction would not have been allowable under [prior] law into amortizable property," Congress enacted section 197(f)(9), which excludes an intangible from the definition of amortizable section 197 intangible if (1) the intangible was held or used at any time on or after July 25, 1991, and on or before August 10, 1993 (the "transition period"), by the taxpayer or related person; (2) the taxpayer acquired the intangible from a person who held it at any time during the transition period, and, as part of the transaction, the user of the intangible does not change; or (3) the taxpayer grants the right to use the intangible to a person (or a person related to that person) who held or used the intangible at any time during the transition period.

Reasons for Change

The rules under section 197(f)(9) are complex. Because it has been almost 20 years since the enactment of section 197, most of the intangibles that exist today did not exist during the transition period and, thus, would not be subject to section 197(f)(9). Even though the number of intangibles subject to section 197(f)(9) may be minor, taxpayers must nevertheless engage in due diligence to determine whether such intangibles exist and then navigate the complex rules of section 197(f)(9). Accordingly, the complexity and administrative burden associated with section 197(f)(9) outweighs the current need for the provision.

Proposal

The proposal would repeal section 197(f)(9) effective for acquisitions after December 31, 2013.

This provision would cost $2.3 billion over 10 years.

Our previous report, Intangible Asset Monetization: The Promise and the Reality, pointed out that taxation is an important policy tool that has not yet fully come to grips with the rise of importance of intangibles assets. For example, we have long advocated the expansion of the R&D tax credit into a knowledge tax credit by incorporating tax incentives for investments human capital as well as research. As part of a review of the intangibles and taxation, we suggest that it might be time to "explore lowering the tax rate on intangible asset royalties, in conjunction with stricter regulations on international transfer-pricing mechanisms and cost-sharing arrangements and on passive investment companies." The report goes on to say:

Providing a more direct tax incentive to the licensing of intangibles by lowering the rate on intangible asset royalties, such as to the capital gains rate, is a more controversial proposal. This lower rate could be crafted to apply only to royalties for new licenses for a limited time, such as a sliding scale for three years. In crafting such an incentive, safeguards would need to be established to prevent the incentive from being used for simply transferring existing licenses to SPEs [special purpose entities] and to ensure that the incentive went to new licensing activities only.

We have yet to have that discussion in any of the previous years when the Administration made its proposals. Maybe we can this time around. A good starting point would be some of the more recent suggestions for a "patent-box" tied to tightening of the transfer pricing rules (see earlier posting).

Crossposted from The Intangible Economy

Words matter.

They shape our thinking and shape our conversations.

Here are some really common conversations I have with new business acquaintances:

I ask what they do. They ask what I do. I say (of course!) that I work with intangible capital. Some people ask what I mean by that. Most immediately add their own mental interpretation of what I mean by “intangible capital:”

…If they work mostly with the law (and sometime technology), they say, “Oh, like intellectual property!”

…If they are accountants or financial types, they say skeptically, “Oh, like Goodwill…”

…If they are bankers, they might say, “Oh, like intangible assets? We don’t lend on them.”

…If they are in marketing, they say, “Oh, you mean brand and reputation!”

…Many business people say, “Oh intellectual capital, that’s tied closely to people…”

And so on. The point is that it can be hard to talk about intangible capital when people bring so many preconceptions to the conversation. That’s why we often use the Blind Men and the Elephant example. In this poem, each blind man feels a part of the elephant and makes an assumption about what the whole elephant looks like. That’s what happens with intangibles. Most people are trained to just look at one part and they miss the significant of the whole.

And the whole is really important. 80% of the value of the average business today is intangible and yet mainstream business continues to dismiss intangibles as soft and/or unknowable. I guess I really don’t care what word people use but I do hope that people will develop a holistic understanding of intangible capital.

...It’s not just IP. It’s not just people. It’s not just knowledge or data. It’s not just brands or relationships. It’s not just culture.

...It’s all these things working together in a dynamic, social system. Intangible capital requires holistic thinking and holistic management. And it works best when there is a shared understanding of collaborative advantage.

Good intangible capital management fuels growth, innovation and performance. Don’t be a blind man (or woman). Start looking at the big picture before the elephant stomps all over you.

This drawing was done by Collective Next in Boston.

By deploying Intangibles, The Ingenesist Project offers a simple Value Game worth upwards of 100 billion dollars.  This value is currently underwritten by the insurance industry as water damage risk that can be reassessed at pennies on the dollar and transformed to liquidity in the real estate market.   

***

The Problem: 

The condominium maintenance and reconstruction industry is enormous.  Condominium associations are challenged to manage modern maintenance and construction practices. The insurance industry covers perils such as water damage through the roof, building envelope, ground water, or plumbing system.  Many of these critical systems are coming of terminal age. 

Magnitude of the problem:

In 1990, there were about 4.5 million condominium units in the US.  41% were built before 1980.  The US has added approximately 1,000,000 condominium units per decade.  Water intrusion failures can cost up to $10.00 per square foot per exposure.  The insurance industry covers over 10 billion square feet - a $100 billion risk pool.   

Innovation:

The vast majority of water failures can be avoided with minimal and timely engineering interaction for a wise and engaged community.   Unfortunately, this is not the natural course of events in shared asset communities.

The Value Game can help the condominium community to self-manage as a collaborative social network instead of a collection of competing interests.  This may eliminate negligence, substandard maintenance, construction defects and associated litigation. Arguably, these are the most significant cause of water intrusion failures.

Technology:

The Value Game, in essence, creates a social network for the building.  The Game creates a system of incentives where stakeholders are rewarded for acting in the best interest of the shared asset.  Players include residents, engineers, maintenance personnel, insurance carriers, bankers, real estate market, as well as the larger neighborhood community.  All collaborate to preserve the asset.  The Value Game is infinitely scalable using existing Internet technologies. 

***

100 billion dollars is the amount of money on the game table being adjusted, pooled, and diversified against risk exposures.  The value game causes the "plays" to be modified by any of the players.  When hedged with Real Estate valuation, liquidity can be substantial for all of the players changing incentives strongly in favor of collaboration rather than competition.

David Chacko's newest mystery novel, The God App, is a story about a detective tracking down the killer of the professor who invented a computer program that anticipates major moves in the financial markets. Whoever holds The God App is far above the law as the people who rule the world come calling for their guaranteed returns. It would seem that the only problem with The God App is for those who don't have one...sound familiar?

***

If everyone had The God App then no one would have a God App. Today we are at a point where the only way to beat the disease is to lose the patient. As long we are competing with each other, we'll never figure out how to predict the future, let alone fix it.

First, we seriously need to reorganize ourselves:

Instead of ranking, rating, and organizing each other as winners and losers of things, we need to organize ourselves as students and teachers of things.  This would allow us to exchange value with each other in a pre-dollar proto-economy without necessarily competing with each other.  Teachers would represent supply and students represent demand in a collaboration market.  Here is what the teacher/student scale may look like:

Second, we need to create an inventory

In order to build anything useful or meaningful, we need to have an large inventory of parts that can be easily combined, assembled, exchanged, and inter related.

Today, Wikipedia has grown to become the most comprehensive collection of definitive information about the world around us.  Everyone should rewrite their résumé as a set of Wikipedia URLs that most closely represent their talents, interests, experiences, skills, and abilities.  People will locate their selves on a knowledge graph.

A Wikipedia Cluster Ball -courtesy of Chris Harrison (click to enlarge)

The dimensional résumé:

When we combine Wikipedia Tag with the teacher/student scale, it forms a 2-dimensional array.  This new form of résumé/CV allows communities to store and exchange value among each other.  The CV array may look something like this (etc):

The Personal API

In this 2-dimensional form, everyone would own and control a string of code that represents their willingness and ability to build and collaborate economically in their community.

[tag1](-3), [tag2](+2), [tag3](1), [tag4](-2), [tag5](3),….,etc.  

This string can be processed computationally more like an API than a résumé. Most importantly,  anonymity can be preserved until the point when a transaction will actually take place.

Additionally, people can represent themselves by partial strings to create separate personas. Individual APIs can be combined among many people, and their personas, to create productive teams, communities, and corporations.

Adding dimensions to your API: Attributes such as location, schedule, context, and equipment can be attached in real time or travel dynamically wherever the persona is traveling.

The API Economy

With anonymous source data; everyone can conduct surveys of communities that would likely resemble the proverbial "Bell Curve" or, a normal distribution.  This is important because it would allow everyone the same ability to predict the likelihood that a collection of knowledge assets can execute a particular business plan.  People could see exactly what they need to do next in order to achieve a reliable probability of success in an economy.

Sounds Like Big Brother?

If this scares you, then consider this:  The God App is already here. Everything you do is captured electronically in a very similar form in order to create a predictive profile of you; what you will buy, who you will associate with, who you will vote for, etc.

Political campaigns, advertising agencies, Facebook, Google, Linkedin, corporations, government, Wall Street, and even organized crime (not to be redundant) use big data to gerrymander their way into your productivity potential.  The difference is that 99% are excluded from the predictive process, shackled behind the curtain, detached from their hopes, dreams, and intensions...mindlessly posting résumés, guessing, reacting, etc.

And the Good Lord said unto thee....

Hey dumb ass, wake up.  You can cut them all off at the nub with a simple app that a bunch of hackers could probably code-up during detention hall. Get this sucker viral and build the better FB already. The only way THEY can cut you down would be to cut themselves down.

Now THAT's a God App.

*** 

(The implications of this app are vast - everything changes without changing anything. Follow-on articles will discuss these various nuances.  Any builders out there?)

Digital Asset Management is a standard of practice that belongs within the management of intangible capital. I can't attend but recommend this webinar from a reliable analyst and consulting practice firm. Lynda Moulton

>>>>>>>>>>>>>>>>>>

Please join Real Story Group Principal Theresa Regli and Optimity Advisors Principal David Lipsey, in partnership with Henry Stewart DAM NY for our next webinar, "Measuring Your DAM Capabilities."

Date: Tuesday 9 April, 2013
Time: 11:00 am - 12:00 pm EDT (15:00 pm - 17:00 pm UTC)
Register for the webinar

About the Topic
How do you benchmark your own DAM capabilities? Last year, Regli, Lipsey, and a group of DAM industry experts developed a Maturity / Capability Model to enable you to measure where you stand in a spectrum of capabilities across 4 categories and 15 dimensions of criteria.

In this webinar, David Lipsey and Theresa Regli will examine the different aspects of the Model, and discuss how you can assess your own DAM capabilities.

I’m a little obsessed about the untapped intangible capital inside organizations. This IC represents potential growth, innovation and the prosperity we crave for our communities. But it often lies fallow because management and even the employees themselves fail to understand their collective power.

That’s why I started a blog named Smarter Companies back in 2008 and why I chose the name for the new company I launched in January of 2013. Why Smarter Companies? Because I have seen first hand the power that is unleashed: When organizations see their knowledge and connections as assets. When organizations support sharing and learning and collaborating inside and outside the walls of their org.

There is a huge need for innovation and change inside companies today. If we are going to do something about it, the first step has to be really practical. That’s why we are offering a number of tools (most of them open source) to answer simple questions:

• How important are intangibles to the future of your organization?
• What are your unique intangibles?
• How do they combine to create value for your customers and stakeholders?
• How well does this system work? Where are the opportunities for improvement and monetization?

These are the basic questions that an organization needs to get started with the task of managing for maximum intangible value—and to become a smarter company.

Hope you will visit our site, check out the community, the tools, the marketplace and join our mission to make every company as smarter company.

What if the human species was SUPPOSED to evolve to a social organization system where everything that we now call 'intangibles', were in fact 'tangible'; and, everything that we now call 'tangible', were in fact, 'intangible'.  What would that world look like?

This not so far fetched actually because our species has already created an incentives based economy that rewards people who act in their own best interest.  We also created Calculus - one of the greatest achievements of the human mind - to keep track of all the moving bits of an integrated economy.  So, why is the world falling apart?

In the following video, I am interviewed by Jay Deragon for Smarter Companies Productions where we begin to unravel a new form of capitalism where everyone acting in their own best interest is acting in the best interest of everyone else in a community.  In effect, tangibles and intangibles are swapped.

Tangibles and Intangibles
Please feel free to contact me with any comments.

I was recently interviewed by Dr. Amy Vanderbilt for the TrendPOV show.  The question was "Is The Patent System Relevant".  While there are as many arguments in favor of thePatent System's relevance as against, this interview takes a different stand on the matter entirely.  Patents convert intangible assets into tangible assets - but what if this conversion could be performed directly without the friction of the Patent system?  What if it could happen faster, cheaper, better than the Patent System?  What if society protected your ideas for you instead of funding the judicial system?

Here is a link to that Interview with Dr. V 

I encourage you to watch this interview because we engage heavily on the idea of what roles tangible and intangible assets are playing in the next economy.  I also describe The Value Game and the way we can now introduce a new incentive structure to community development that simply was not possible as recent as a few years ago.  This calls into question all prior theories and practices in the the area of social organization.

Dr. Vanderbilt is an extraordinarily intelligent and engaging moderator and someone who simply brings out the best in everyone she works with...Patent that!

It happened again this week. It’s happening more and more. I call customer service or I buy something and I get the email asking me to fill out a quick survey.

Sometimes there are a number of questions with this one at the bottom. Sometimes it’s just the one question:

How likely are you to recommend our company to your friends and colleagues?

I know why the question is there. There was a Harvard Business Review article One Number You Need to Know and various books published about it.  Wikipedia does a good job of outlining the history of the approach.

It sounds so appealing. That one number predicts future growth. Focusing on this number will keep employees focused on the customer. Change the world with one number. Deep down, people have to know that one number is too simplistic. But companies are hungering for answers in our rapidly changing economy. Intangibles like customer relationships are growing in importance every day. And few have the background or tools to deal with this.

This criticism may sound funny coming from me. The last chapter of our book is “Reputation is the New Bottom Line.” I absolutely see the value of the ideas underlying the net promoter score. But after a decade of work in the intangibles world, I also know that the important thinking isn’t the end metric. The important thinking is in what’s driving the metric.

In fairness, the methodology is trying to use the one number to drive a change in thinking. But in these short surveys I'm getting, that isn't happening. What’s missing in these is a desire to understand what drives customer satisfaction and overall success of the organization. And in today’s intangible capital-based businesses (80% of the value of the average business today is intangible), that model has to include a holistic view of how intangibles drive value for your customers. A few of the surveys I’ve received do try to go deeper. They ask a whole array of questions about my experience that start to get to these intangibles.

What are the intangibles that drive value for your customers? Your people. The processes and data you use to deliver your product or service. Your designs. Your partnerships. Your culture. Your business model. Your stakeholders judge you based on all these things. Ask your stakeholders how they rate the full range of your intangibles. It will empower you to drive growth, not just sit and look at a simple number that tells you what people think today but tells you very little about how to change tomorrow.

Check out our tools (many of them open source) for identifying, modeling and measuring the intangible capital driving 80% of business value today. Don’t rely on a single metric, develop a holistic view of what’s driving your future success.

You don’t need to know Calculus to catch an Apple. Not surprisingly, when I tell people that The Value Game is a multi-agent algorithmic game derived from a 5-order differential equation – their eyes immediately glaze over ... as if I just hit them over the head with an apple.

In Practice, value games are extremely easy to create and once the observer sees how easy it is to envision value games, a whole landscape of opportunity opens up before their eyes in that proverbial Ah Ha! moment of the entrepreneurial spirit.  

In this post, I will try to explain The Value Game in the simplest words possible, but be forewarned; you can’t read a blog post about riding a bicycle and then hit the tracks on one.  The same is true for The Value Games – practice, iterate, start again, iterate, practice, etc.    

All value games must start by identifying a tangible asset that people share.  This could include a building, a road, a school, a teacher, energy production, food production, etc.  Or it can be a car, bicycle, lawnmower, civil service, or anything that can exist in a modern market.  A value game can also be build for a corporation or a department within a corporation.  If people share it – then it can become the object of The Value Game.

The next step is to identify all of the people for whom it is in the best interest that the asset is preserved rather than consumed.  For example; a fitness trainer could be an asset to a community in a value game.  Obviously, the people seeking fitness would benefit from the asset, however, so would health food markets, clothing stores, health insurance providers, sports equipment vendors, recreation purveyors, employers, and even extended family members. 

Driving Economic Incentives

The local Whole Foods Store spend 20% of their revenue on advertising and can realize a net gain on subsidize the Value Game.  Clothing Stores compete vigorously for customers, insurance companies profit from lowered risks, Ski Slopes, bowling alleys, and sports equipment manufacturers all benefit from the preservation of the healthy and active community.  Most players would be more willing to support the aerobics instructor than pay taxes or jump into bed with Facebook because their taxes would become more and their Facebook exposure would become free as a result of supporting one aerobics instructor.     

The next step is critical:

Today we build websites for people, products, “influencers”, and ideas. Media barons build social networks around advertising, and companies violate people’s privacy to steal their information for direct targeting.  This is oppressive and destroys social value - it does not create social value.  

Instead, we must now build the social network functionality around the shared asset – not the people who share the asset.  This is the critical  missing piece to the next level of value creation. 

Now, as all of these players interact with the shared asset, they will be interacting with each other to preserve and improve the asset because it is in everyone’s best interest to do so.  In this process, they create something called “social value”.  This is a broad term that includes all of the most desirable aspects of social media; influence, resilience, activism, trust, cohesion, co-creation, knowledge, innovation, and wisdom, etc.  These things cannot be bought at any price.  Yet, in The Value Game, social value converts back to financial value as more assets are pulled into the game or as various games begin to merge.  A virtual circle is formed creating “New and Abundant Value” as everyone seeks to maximize their benefit in relation to the shared asset. 

This is the new Capitalism.

There are literally infinite ways to play The Value Game - as there should be. Each person's unique knowledge inventory qualifies them for their own value game and subsequent prosperity. All of the social media tools exist today.  The art and science of social networks applies directly.  Existing financial and accounting systems can  articulate the Value Game profits at the bottom line.  The Value Games can be deployed by anyone and merged with other value games organically.  Value games can be iterated continuously. 

The Ingenesist Project is a pioneer in the development and creation of value games. We have deployed Value Games in industries as diverse as Aviation, Construction, and Education. Let us show you how to build Value Games in your community, institution, or corporation.  

Money is the medium by which people store and exchange the value of physical objects – we call them 'tangibles'.  Money does not articulate 'intangible' value very well, except as a proxy for the physical things that people make and exchange for money.   The intangibles community is quick to point out that there is no currency that directly represents intangibles (hence the term 'intangible')....and,  that there should be. 

Actually, there is a currency of intangibles – it’s called "everything that happens inside a corporation".  The corporation converts intangibles into tangibles, which are then interchanged with money.  As constraints in the global monetary system amplify - it is not surprising to see so much political reverence paid toward corporations for performing this essential conversion. 

What if so-called ‘intangibles’ could be articulated in their own currency, without the over-reaching construct of a corporation?  What if this new currency were fully convertible with the dollar, not unlike gold, oil, or Yen?  Could markets become more efficient?  How would such a currency impact financial institutions? Would this help or hurt corporations?

It’s a very simple idea, but with profound consequences.   The following white paper begins to form a construct for a social currency based on how all currencies are formed.  After reviewing this white paper, it is not a huge leap to argue that the next generations of Social Media tools may be forming the infrastructure upon which a fully convertible social currency could be established.

In addition, the reader may notice that it is not hard to see that fluctuations in the “tangibles” currency would have inversely proportional reaction in an “intangibles” social currency.  In other words, they hedge each other.  Whoever figures out how to introduce a fully convertible social currency to global production markets will undoubtedly release extraordinary wealth by any measure.  

White Paper:  Hacking the financial system with Intangibles

Before writing this blog, I would like to express my heartfelt gratitude to my nice supervisor, Prof.Eric Tsui. He took me to Intellectual capital world 1 years before, at that time , I am like a white paper. His encouragement and trust opened a new world for me. During the process of study, he always can use rich knowledge and working experience to help me test some unmature ideas, even some ideas are just imagined. In my journey of learning IC,  his patient and support give me great confidence to study on Intellectual Capital. His enthusiasm for research always make my journey full of surprise. Dr. John Dumay is also an excellent teacher who I should express my great gratitude. His "story" style of teaching and research on "story" make my journey of learning IC quite interesting. It is him let me know that research is something that can make me very happy.The "critical thinking" he recommended me took me enter into another sea of research.  Prof Benny Cheung is also very important person in my IC learning journey who I can't forget to say thank you. His rigorous attitude for IC research always make my mind sober. I think you must say "you are so lucky"in the heart, yes, I totally agree with you. :)

Now my story begins.

IC definition:

There is no  consensus on the definition of IC. This famous saying not just exits in the IC . When I was studying on the area of personal knowledge management, I also meet him. I don't hate him who actually sometimes are the barriers in our research work. On the contrary, I like this status very much. Because the definitions that come from different perspectives show the colorful aspects of this world.  

Since I began to learn IC 1 years before, it is my first time to touch the terms of "intellectual capital". From the classic definition "everyone and everything in the organization can create values Stewart (1997)", I am really confused what really IC. Are the chairs, computers ect. IC ? But these how can we link these things to "intellectual"?.

When I began to do my research formally, I need to read some IC reports about the banks in Europe, I found that  knowledge capital and knowledge-based capital are used in the practical world. But what I feel they just change another name. 

In my personal view, . I think IC should be "soul" of a company, a company can be seen as a "creature".  There are many ties that construct the soul, and every ties link together and also link to everyone and everything in the company. If someday, someone leaves, something is broken, the ties can help to recreate missing parts. Above are just my imagination based on my 1 year's research study. 

Recently, an precious opportunity let me discuss the definition with Prof Mary Adams, she use the "intangible assets". Especially, her view that involves in the social interaction and collaboration expands my horizons about IC.

So many papers I read, most of them just focus on how to create values for the organization, but not too much focus on society. 

Do the boss really care if your employee are happy to work for you? Do you ever concern his/her health? 

Do the boss consider that if his/her decision will impair the environment?

Do you try to like your competitors or try to collaborate with them by using your and their strengths?   

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Above are just ideas that I hope share with you, very grateful if you can give me some comments. This is my first step of my IC journey, I will try to continue my story in the future based on my own learning experience. Thank you for your reading. 

The Value Game is a powerful tool for deploying Intangible Capital to distorted, corrupt, or dysfunctional markets.  The following case study describes a current project that our team has won against substantial mainstream competition with a Value Game approach.  This case study is about real money, real projects, real people and real markets where the Value Game converts social capital directly into financial capital and converts financial capital into social capital - without the construct of an over reaching corporation.  

Application Of The Value Game to the Building Reconstruction industry

For many condominium associations, the maintenance, repair, and reconstruction industry has devolved into a minefield of distrust and dysfunction.  Countless lawsuits have taken the industry to the point where many contractors simply walk away from condominium projects for fear of litigation.  The worst form of “capitalism” ensues where everyone acting in their own best interest is in fact acting in the counter-interest of their community.  The Value Game promises to upset this negative incentives condition while enhancing community resilience.

Here’s How The Problems Start:

The board of directors of a homeowner’s association is entrusted by the residents to hire a contractor to perform a complicated reconstruction project.  Unfortunately, condominium board members are not very good at writing contracts or issuing requests for proposal or collecting bids.  When a contractor is selected, the scope of work is often poorly established.  The expectations between the community and the contractor begin to diverge.  Soon, a law firm is engaged by some residents to sue the contractor for damages.  After a long battle, a settlement is awarded, but it is not enough to fix the problem after paying the law firm. 

A chain reaction:

Fortunately, the contractor in the suit was insured, but this does not cover the personal, professional, and opportunity hardship of defending against the suit – “it’s just not worth the trouble”.  The insurance company then jacks up the premium for condo projects.  As the pool of available contractors dries up, and the price for reconstruction increases, many condos are forced into deferring maintenance in a distorted market. 

Cascading failures:

After a while, a condominium springs a few leaks in their piping system.  Each leak results in relatively small water damage claim.  When the insurance company notices several claims in the same building, they begin to fear that a mainline is about to rupture next and threaten the condominium with cancelation of their policy unless they replace the entire system immediately.  Now the insurance industry is in a double jeopardy: they force the contractor out of the market and they force the condo out of the market to basically avoid suing their self. 

The dysfunction deepens:

Banks will not make construction loans to condominiums that are not insured.  Likewise, they will not make mortgage loans to buildings that are not insured.  The property values plummet and the owners are sent under water.  Soon they begin to default on the mortgages that the banks already hold.  More maintenance is deferred as buildings fall apart and become unsafe.  Banks pull out of the market to avoid defaulting on their selves. The wider community suffers.

The Value Game   

The Ingenesist Project is currently deploying a Value Game to the condominium reconstruction market with remarkable success. The Value Game is a new class of business methods that alters the incentive structure of a distorted market such that everyone acting in their own best interest is, in fact, acting in the best interest of the community. We are currently at about 30% game time and about 50% implementation in the case study described below.  

Introducing a Value Game:

The first thing is to identify the shared asset.  This is the single thing in which it is everyone’s best interest to preserve.   In this case, the shared asset is the physical condominium building. 

Next, we identify the players and their game incentives. It is obviously in the best interest of the residents to have a safe and well-maintained home.  It is also in the best interest of the contractors to have a successful and profitable interaction with the building.  It is in the best interest for the Insurance industry to reduce the risks that they underwrite.  The banks also benefit from a viable, organized, and disciplined community with strong real estate valuation and complete insurability of assets.  Finally, the broader neighborhood benefits from the presence of a viable condominium community.   It is in everyone’s best interest that the others are successful. 

Understanding the Game Board:

The first rendition of the Internet was populated by static websites built for a person, or to sell a product, or to deliver entertainment, or to provide information.  The next level of the Internet included social media where users actually create the content that populates a website such as Facebook and Twitter, etc.  The third level of the Internet is a Value game where a social network is built ABOUT an asset that communities share.  For this project, we set up a website for the physical building with its own social network where all of different players interact with each other to preserve their best interests.         

Case Study; The Value Game. 

The current case study is a condominium re-piping project in the Pacific Northwestern US.  The community consists of about 200 units (400 residents) who occupy a single high-rise tower that must undergo a major reconstruction project that will impact everyone.  The total value of the project is about 3 million dollars.  This is real money in a real Value game.

The first thing is to reduce the likelihood of diverting incentives that can result in litigation. This may be accomplished by introducing strong community building management. In this particular case, a professional engineering firm was hired to represent the best interest of the asset. Together with The Ingenesist Project, they represent the needs of the HOA, they select construction technologies, define project scope, write the RFP, write the contracts, select the contractors, and manage the project.

The Intangibles Economy

The website used in this case study is a common open-source Word Press platform with a Buddy Press backend to provide “Facebook-like” features - except private.   The engineering firm submits all reports, surveys, test results, assessments, photographs, schedule, pipe products, accessories, and plans onto the website for all members to see equally (there are some exceptions to protect financial data).  Very few secrets are hidden from view and everyone is encouraged to discuss the project among each other.

Individual residents are invited to form “groups” and start “threads” in topics for which they have an interest or a concern.  People naturally migrate toward other people with similar interests and they build relationships. 

Contractors are able to see all of the assessments, conditions, and work scopes directly from the website instead of paper submittals.  They can ask questions and post ideas of their own for community review.

The engineering firm can monitor discussions and collect 'frequently asked questions', which are posted in an FAQ.  Everyone gets the same correct answer to their questions without rumors or speculation. 

When community meetings are held, there is no bickering or infighting because everyone is educated and prepared to ask unique and relevant questions of the presenters.  When a community is unified, they can easily come together to make important decisions that impact the quality, cost, and schedule of the project. 

The insurance company is given limited access to the website which demonstrates that the community is acting to mitigate the risks that the insurance company underwrites – this keeps the policy in force. 

With website access, the insurance industry can also see that licensed engineers professionally manage the project in a vibrant community.  This greatly reduces the likelihood of litigation.  The insurance industry can now classify this project among “commercial” insurance pool instead of the litigious condominium insurance pool. 

Contractors feel comfortable with this professional engineering management and insurability, which brings more contractors to market thereby increasing the talent pool and reducing costs.  At the end of the project they get 400 likes on Facebook, YELP!, and Angie’s List

The bankers will have access to the website to monitor progress.  With insurance policies fully enforced, banks will lend favorably to the HOA who needs to fund a major reconstruction project.  Banks will also lend favorably to mortgages in this structure because it is well maintained.   

It is in the best interest of the community to be civil and thoughtful in their discussions knowing that they are being observed by some of the other stakeholders.  This eliminates the incentive to be disruptive and increases the incentive to be engaged and productive in the project. 

Over time, the website becomes a forensic record of all matters associated with the project.  Everyone knows who said what, when, where, and why with an electronic time stamp.  There is little to be disputed. 

Interaction with the Wider Community:

Real estate agents always describe property in poetic hyperbole.  The RE market rarely tout the improvements that a community works so hard for.  The website could be a place where a real estate agent can advertise their services in exchange for a promise to mention the re-piping project and intangible values of the community.  The market will respond to a well-maintained building and an engaged community (ref: Jane Jacobs externality), which will drive real estate valuations up. 

Hotels, restaurants, theaters, art galleries, service groups and civic organizations all benefit from prosperity and resilience in their community.

In the end, the shared asset is preserved and everyone is profitable. 

The Ingenesist Project is currently in the middle of this above case study / scenario.  Real money is being exchanged in a real project with real players.  It is a significant fact that our team won this contract and is being well compensated.  We are deeply confident that The Value Game can be easily built and deployed throughout a 200 billion dollar condominium reconstruction and maintenance industry at great benefit to communities, insurers, bankers, contractors, and homeowners using existing technology and community sourced intangibles values.