Member Blogs

Recognizing the value of our innovation-related assets is where the ‘smart money’ should go. To gain growth and to improve productivity is through innovation. We need to translate knowledge into new values.

When you pause and consider the make-up of Innovation Capital you realize it makes such an economic contribution and  in a report from McKinsey & Co, they have set about identifying this to produce the above summary visual. They surveyed 16 countries to understand the real value of this Innovation Capital.

In the report from McKinsey and Co, called “Innovation matters: Reviving the growth engine” and first presented at the G8 leaders Innovation Conference, in London on 14 June 2013, the report quantifies the importance of innovation in driving productivity growth and sets out the actions that governments and societies can take to build “Innovation Capital.”

These numbers are big and still don’t fully capture everything associated with innovation as much remains ‘hidden’ or ‘attached’ or 'accounted for' in other associated activities as well.

In this report they considered the broader aspects of Innovation Capital capturing software, design, market research, training and new business processes as well as spending by governments and through tertiary education in science, technology, engineering and mathematics (STEM) subjects.

My questions here in this community: Are you surprised by these numbers, think the approach taken has 'going forward' value and does this shift the capital debate?

It’s a fun and timely coincidence that a paper that I co-authored with John Dumay of Macquarie University in Sydney Australia has just come out—at the same time that John happens to be visiting in Boston.

The paper is called The Learning Journey of IC Missionaries has just been published by the Electronic Journal of Knowledge Management (note this is journal makes its articles available for free!).

In the paper, John and I each recount our personal journeys as IC practitioners and missionaries. We were prompted to write the paper by our discovery that we had independently progressed through several steps in the development of our thinking:

• Intuition – We both were interested in IC (the intersection between people, process, data, networks, culture and business models) long before we had vocabulary for or exposure to research on the subject.
• Control – Once we did get exposed to the concepts, our first impulse was to get our clients and collaborators to use the frameworks we had found in our research. But reality of today’s business is too complex to be captured in a one-size-fits-all framework. Neither of us had much success in imposing abstract frameworks.
• Value Creation – Eventually we each came to the realization that the only way to help people benefit from our ideas was to help them along their own learning journey and to use IC concepts as tools to help people, teams and organizations create value for themselves and their stakeholders.

The missionary analogy came to John as he was giving a talk to IC thought leaders held near the site of the famous Heidelberg Cathedral. The message was and is to stop preaching to the converted and to get out of the cathedral and into the field. To succeed as IC practitioners, therefore, we have to also be IC missionaries, spending time at the grass roots level and empowering people in a journey of self-discovery.

As we’ve caught up on each others’ work this week, we’ve been using the stages as shorthand for the attitudes and approaches we see in the market. And reminding each other that we have to keep focusing on the intersections between value creation and intangibles. Otherwise it’s all just a theoretical exercise.

Do the stages ring true to you? Where are you in your own journey? What kind of intangible capitalist are you?

I’ve just returned from an extremely exciting and stimulating trip to Chile hosted by Smarter-Companies partner firm Akloe including Arturo Alba, Rodrigo Leon, and Tomas Viveros. Besides getting to know a lovely city and its citizens, I was thrilled to have such a warm and interested reception for our message around intangible capital.

Here’s a short recap:

ICountant Training – Thanks to Akloe and Fernando Benavides and Caren Medina at In Motion, we trained a group of new ICountants from academic, business and consulting organizations.  Believe it or not, this was the first time I did this live. (We’ve always done these training through Webex or Skype which is good but face to face is even better!). I love that Akloe is taking such an open approach and creating a diverse network of ICountants in Chile (and maybe more places later?)

Talks and Networking – This ecosystem of intangible capitalists in Chile was further strengthened by our travels around the city. Our presentation at the Club de Innovacion Chile (thanks again to In Motion) was one of their highest-rated programs ever and was captured in fun photos on the Club's Facebook album. We also had great discussions at the national copper company Codelco and the Executive Training Center at the Universidad Aldolfo Ibanez.

Intangibles in Chile – We were very fortunate to have an advance copy of the new World Bank study about the explosive growth of Chilean wine exports  This study shows a clear and direct correlation between investment in intangibles and the 20-year pattern of 9% compound annual growth in wine exports. I sensed an ambition and capability to do this with other industries in the country. (As promised in my recent blog post, I’ll share the full study when it comes out)

World Cup and Spanish – Yes, I was there for Chile’s amazing victory over Spain. After the game, I had a great time walking down Aponquindo and joining the happy and noisy celebration! And or those of you who know that I used to live in Latin America, the answer is yes, I did brush off my Spanish and did pretty well even though I was pretty rusty. Thanks to my Chilean friends for their patience and encouragement. It’s always exciting to get past language and cultural barriers to share our passions and interest in making a better future for people and organizations.

In one of our many wonderful conversations that week, I said that I was hoping to come back in 5 years and see what incredible new intangibles my Chilean friends have built. They all quickly corrected me and said it shouldn’t take that long. Based on the energy and vision I saw on this trip, we will have more to report soon!

Thanks again to everyone. Let’s keep the ecosystem growing!

Itaú Unibanco's Integrated Report 2013 provides a clear insight into the company's capitals.

To guide readers, the report uses navigation icons, which represents the company's capitals throughout.

The report also provides its own interpretation of the six capitals, based on the International <IR> Framework, and the relation of those capitals to the organization's business model.

Each features a dedicated section offering contextual information, key statistics and a succinct explanatory narrative.  You can view this here

http://examples.theiirc.org/fragment/217

Well worth reviewing.

here.

In a report commissioned by the B20, the business forum that advises G20 governments, the six largest global accounting networks¹ have endorsed <IR> as a key innovation that will make corporate reporting more conducive to long-term investment.

The report highlights the urgency with which policymakers must tackle the structural gap in infrastructure investment, estimated to be US$500 billion annually, and says that corporate reporting has a vital role to play in refocusing investment horizons in favour of longer-term returns, reversing the current trend towards short-termism. The report will help to shape discussions prior to the B20 Summit in Sydney on 16-18 July, an event that will agree and prioritise policy recommendations to heads of government later in the year.

This is the latest significant endorsement of <IR> and is consistent with the IIRC’s approach to encourage the removal of barriers to corporate reporting innovations, and create a regulatory environment in which <IR> can flourish. 

The report says that <IR> has "the potential to support better investment evaluation models [...] and hence better investment decisions with a more forward-looking time horizon." It calls on G20 Finance Ministers to "assess and address any practical, legal or statutory barriers to improved corporate reporting [...] in order to make corporate reporting more conducive to infrastructure and other long-term investment." 

The accountancy firms are asking the B20 to call on G20 leaders to "Encourage corporate reporting innovations and initiatives that provide investors with a longer-term and broader perspective on shareholder value creation to complement the historical financial performance and current financial position perspective provided by financial statements."

Taken from the latest IIRC press release

http://us4.campaign-archive1.com/?u=b36f6aeef75cea67e62812844&id=39e250dc0a&e=a22a51d8a9#key

There’s a great new study of the Chilean wine industry funded by the World Bank that shows a direct connection between the level of investment in intangible capital by wine producers and the explosive growth in Chilean wine exports (they grew at an compound annual growth rate of 9% over 20 years reaching $1.2 billion in 2010).

Here are the basics. The study shows that the great majority of both large and small producers (by number of hectares under production) spent considerable amounts in training (human capital in SmarterCo language), software (structural capital) and reputation/branding (relationship capital). Large producers also invested in global collaboration (strategic capital).

It’s interesting to note that investments in R&D are less frequent. This is important because many people tend to equate intangibles with R&D and patents. Although the spending on/use of R&D would be higher in other industries, we cannot ignore the supporting knowledge ecosystem around intellectual property.

In this graph, the IC investments (shown separately in blue, red and green—and totaled in purple) mirror the growth trajectory of the exports. The two brown lines show tangible indicators: the number of wineries and hectares under production. These, too, grew. But not as fast and not along the same trajectory as the intangibles.

The conclusions of the study included:

• Spending on intangibles is a statistically significant and economically important correlate of growth as reflected in exports, both at industry and firm levels
• Spending on reputation and branding and on learning through global collaboration…are more important of all

This study is very exciting for a number of reasons.

First, I’m heading to Chile for a week of meetings and presentations next week with our partner AKLOE. I am really excited to discuss this case with the innovation, business and academic communities in Santiago. I promise to report back on what I learn.

Second, the methodology used by Mark Dutz and his co-authors lbuilt on great work by The Conference Board, OECD and a research team in the U.K. including Jonathan Haskell that did a primary research project on intangibles spending a few years ago. Connecting these dots is important. I expect that we have the start of a powerful approach.

Third, I’m especially excited about the work because it looks at the actual spending on intangibles, something I’ve been advocating for years (see Ch 7 about i-capex in Intangible Capital). Measuring i-capex a simple and powerful way to begin to measure intangibles in a reliable fashion. I strongly believe that this will someday be standard practice. It just makes too much sense to not end up in the standard financial package.

Finally, they worked to also incorporate concepts of risk. This is an important part of the intangibles story that we all need to spend more time on. Awareness of intangibles as assets is growing. How to express/measure the liabilities is still less studied. At SmarterCo, we’re doing this by focusing on the relative strength/weakness of individual intangibles. But we all have a lot more work to do.

In Chile, we’ll also be training a new crop of ICountants. With this great example in their own backyard, maybe our colleagues there will break new ground for our field!

Exciting news came to 9yahds last week! Providing our users with a 'community folder' of shared processes will take just 72 hours of development.  Hence, we are running full steam ahead to populate the folder for when it goes live!

What does that mean?  It means we are taking expertly authored business processes and placing them in a folder that all users of 9yahds can copy and use.  This gives users a chance to see what a process should look like, compare it to how they may do things internally, and alter as needed.   The benefit? It removes the blank white sheet syndrome of 'how do I get started?'.  It also gives experts a chance to share their strengths in a new format - through smart marketing.

Each process is submitted to the shared folder with a description and contact information of the author.  We will also feature each content provider on our website with link to their own site. Using our blogging feature, we will provide an overview of each content provider and, if they choose, a blurb on why their process(es) are important.

In the end, everyone wins.  Users get a head start documenting processes, which builds strength and value in their companies.  Content providers gain a new means of reaching potential clients, association members or future business partners through the shared community experience.

9yahds provides free content and 2 free users to get people started building processes for improved knowledge transfer, business continuity and profitability.  In the end, we hope all of this means many users of 9yahds doing great things together!

So what have we got so far?  Processes being authored include: Successful Recruitment and On-Boarding of New Employee, Develop an Orientation, Grievance Process, Training Reinforcement, Organizational Assessment Process, Emergency Mode Operations, HIC....

How do you share a process?  Provide it to us in any format you have.  We will build it into 9yahds and share the results with you.  As soon as the developers have tested and given us the okay, we will slide these processes into the shared folder and they will become available to users.  Sign up today at www.9yahds.com and await the day and you, too, will have access to everything we share.

Everyone on Smarter-Companies should be documenting processes, by nature of being smarter companies.  If you are not, it's time to start...with www.9yahds.com

It was fascinating to read the NYTimes story about the decision process behind the creation of Harvard Business School’s new on-line offering called Business School Disrupted. The offering, called HBX, teaches “pre-MBA” classes via an elaborate multi-screened platform and is the business school’s answer to education and the internet.

The article set up the decision as something of a choice between Porter and Christensen’s views of how strategy, innovation and disruption happen.

Christensen is famous for his works on disruptive innovation. He wrote a book on innovation in education called Disrupting Class. Education is also a focus of his Christensen Institute.  So it’s kind of interesting that he was not consulted in the development of the strategy. His view is summarized as seeing HBS as:

a potential Blockbuster Video: a high-cost incumbent — students put the total cost of the two-year M.B.A. at around $100,0000 — that would be upended by cheaper technology if it didn’t act quickly to make its own model obsolete.

Porter on the other hand is famous for his works on strategy and competitive advantage. He is close to HBS Dean Nitin Nohria and was reported to have played an important role in the development of the strategy. He was quoted as saying:

If Clay and I differ, it’s that Clay sees disruption everywhere, in every business, whereas I see it as something that happens every once in a while. And what looks like disruption is in fact an incumbent firm not embracing innovation.

If you’ve followed the writings of these thinkers over the course of your career (as have I), the debate is fun just to see them going head to head. But it’s also a really good example of the challenges of today’s intangible capital economy.
I’m left with two big questions that actually face most organizations today:

What is the organization’s mission? In this case, the internet is creating a huge tension today between the need to preserve and protect the exclusivity of educational brands—and the potential of the ideas of educators to reach beyond their (relatively) small communities. In this light, is HBS’s mission to run an excellent business school or to be an agent for excellence in management?

Who should be involved in a strategy process? In this case, the school developed and launched a strategy around education and technology without consulting its community (especially a professor who is world famous on the subject). Is it still appropriate to create strategy from the top downin an knowledge-intensive organization like HBS?

How could/should we scale what we do? In this case, the school literally built a virtual version of its classrooms. Is the essence of the process the professor and the wall of faces—or is it in staged discussions that can be replicated in some other way?

Not a lot of answers but lots of food for thought. What do you think?

A good morning or good evening to you all. My thought for today, well actually for all my days.

All the capitals ‘fire’ innovation. They make innovation combustible.

More often than not when we talk within business of capital we tend to default to the financial kind. Of course providing the financial capital into innovation is vital; it provides the potential ‘burn’ but what is often understated and certainly under-appreciated is the other capitals.

These capitals when combined ‘fire’ innovation, they make it combustible and change our thinking from the known into the preferred from this ‘set of reactions’ that form new and better innovation solutions

What we need is to recognize the real “nesting effect” of all our capitals.

Each of our capitals performs a particular function and the overhaul make-up of their understanding becomes our eventual code to perform innovation. Each organizations uses it mix of capitals to accomplish and generate innovation. It is in this mixture of combinations brought together constantly in different ways, then this ‘nested effect’ for innovation occurs. The capital you ‘bring to bare’ will generate the potential new innovation outcomes, or by recognizing certain capitals are missing, will highlight the gaps and gives real clues on where and why innovation is repeatedly falling down and that is the value of knowing the total makeup of all your intellectual capitals.They can make or break innovation.

Organizations miss the power to consistently tap into all the potential that ‘resides’ or could be added to make innovation happen. This comes from the unique set of capitals that offers the real potential to set each organization apart from others, it gives them the wealth-generating potential, their uniqueness and ‘chance’ to be seen as future valued.

We need to know where our value creation resides – it is nested in our organizations.

By recognizing our ‘stock’ and knowledge flows through exploring and investing in our group of capitals we have that greater chance of value-creation. We need to move away from the bias of one capital, financial, it is not the dominating one in today’s world, it is our knowledge generating capital, those that ‘capture’ the true story of appreciating if one organization has future investment value or not, by the outcomes they generate.

So how are you 'firing' up your capitals today?

As soon as the NCAA lacrosse tournament is over, my freshman at Trinity College, will return home to Western Ma. for a very short stay before heading to Boston for 2 months where she will become an unpaid intern for two different organizations.  The first will be a PR firm (2 days a week), and the remaining days, she will be working on a political campaign.  

As the PR firm asked her to participate in writing a curriculum, I became interested in the 'curriculum' aspects of unpaid internships, which led to my research, and most recent 9yahds blog.

To learn more about what I found interesting and how documenting process fits into managing your summer intern, click here.  I hope this helps, as I too had considered hiring an unpaid summer intern, and now know much more about my responsibilities as a business owner!

In the latest BVWire newsletter, there’s something of a bombshell (if you’re into this kind of thing):

Fair value is on hold at the FASB, observes Adam Smith (FASB), due to concerns over the BV profession. Up to now, the FASB has been a proponent of fair value in financial statements. This trend will not continue, according to Smith, because of the fragmented nature of the profession and lack of a unified set of standards. Why should the FASB spend all this time on fair value if investors have no faith in the numbers?

No faith in the numbers? That’s pretty strong language given that valuations are used all the time in business for accounting, purchase price allocation, tax and fund raising purposes.

Could it be that bad? Here’s a story I heard just last week at the IP Finance conference last week in NY. One of the panelists told the story about a portfolio of patents that his company needed to value for transfer pricing purposes. Because they were held in different countries around the world, the company decided to get two different valuations of the portfolio. One valuation came in at $100 million. The other came in at $266 million. One of the biggest differences in the two analyses was the discount rate used to calculate the net present value of the cash flows--which means that the two valuators saw very different levels of risk and opportunity in the portfolio. There appears to be qualitative analysis in the process but it’s not necessarily repeatable and verifiable.

Why is this happening? I think it’s part of the intangibles story. The shift away from a tangible, industrial economy to an intangible, knowledge economy is changing how value is created. Lots of people talk about the fact that intangibles have come to dominate corporate valuation (20% of corporate value is in tangible net worth, the remaining 80% is intangible). But there’s a lot less talk about what those intangibles are and how they should be analyzed. This leaves any financial analysis of a company open to a lot of subjectivity and variation. (By the way, the valuation community is not unique in this. Everyone is facing the challenge that the numbers don’t add up the way they used to)
What’s the answer? The first thing is to admit there’s a problem with the system. If valuations can have such a broad swing, then there’s work to do. Second, is to talk about how knowledge intangibles should be measured. How can the assumptions be handled in a more consistent way?

The answer isn’t just in the numbers. It’s hard to evaluate knowledge using dollars or quantitative indicators. What we really need is more disciplined qualitative analysis.

At Smarter-Companies we’re focusing on qualitative analysis based on stakeholder feedback. Our assumption is that those who are in the best position to judge the strength and sustainability of knowledge intangibles (like process, data, competencies, networks) are the stakeholders of the organization. They know better than anyone (including a valuator) if and how well the intangibles support the company’s value creation process.
Is there a way to incorporate stakeholder feedback in the valuation process? Yes. And I’m betting it will happen sooner than you think.

Ideas can be powerful but are often hidden. Case in point: the conceptual model of intangible capital as the driver of economic growth is becoming fixed in the public discourse. Whether people know it or not, they are implicitly using the concepts without explicitly referencing the model. An example is a recent speech by Chairman Jason Furman, Chairman of the President's Council of Economic Advisers ("Global Lessons for Inclusive Growth") that touches on the link between growth and inequality.

The standard argument on growth and inequality is a follows: inequality is an unavoidable and necessary ingredient for growth. Some people contribute more to economic growth. They need to be rewarded for the risks they take, otherwise they would not take those risks. The result is this group of risk takers are rewarded more -- i.e. unequally. The natural result is some level of inequality.

However, in recent years, an alternative description of the link between growth and inequality has emerged. This argues that inequality reduces growth in a number of ways by undercutting the factors that lead to economic growth. As Furman puts it:

The traditional theoretical macroeconomic literature also emphasized a tradeoff between greater equality and growth: One point often emphasized is that to the degree that high-income households save more, greater inequality would translate into more savings and investment, and in turn, a higher level of output. Also, linking to microeconomic foundations, the traditional macroeconomic literature assumed that greater inequality provides a greater incentive for education, investment and entrepreneurship to capture those income gains.

A newer theoretical literature has also identified a number of mechanisms by which greater equality could increase the level of output or growth. This literature starts from the observation that the traditional emphasis on the quantity of capital, even if true, is dwarfed by the importance of the quality of capital, technology, and entrepreneurship. Moreover, pervasive market failures and incomplete markets mean that the efficiency of outcomes may depend on the distribution of income. In particular, this approach emphasizes a number of channels by which inequality could harm growth: (1) by reducing access to the education necessary for the full population to reach its full potential; (2) by reducing entrepreneurship and risk taking; (3) by undermining the trust necessary for a decentralized market economy and increasing monitoring costs; and (4) by leading to increased political instability, growth-reducing policies and uncertainty.

Without realizing it, Furman's four points invoked the elements of intangible capital models. Let us do a quick review of intangible capital. One version of the model contains four types of capital:

 • Human Capital - This includes all the talent, competencies and experience of your employees and managers. This is the intangible capital that "goes home at night."
 • Relationship Capital - This includes all key external relationships that drive your business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called Network Capital.
 • Structural Capital - This includes all knowledge that stays behind when your employees go home at the end of the day. There is significant structural capital in today's organizations including recorded knowledge, processes, software and intellectual property.
 • Strategic Capital - This is a category that is not always included in academic definitions of IC. However, in our experience, this category of knowledge is the glue that holds the whole system together. It gives logic and purpose that attracts the right people, partners and knowledge to your organization--and puts it to work inside a business model that connects with a market need to generate the revenues and profits to sustain the organization. It includes culture, business model and external factors.

Another version embeds three forms of intangible capital in a larger model that also includes financial capital and tangible capital (both "manufactured" capital and natural resources). The three are:

 • Intellectual capital - Organizational, knowledge-based intangibles, including intellectual property and "organizational capital" such as tacit knowledge, systems, procedures and protocols;
 • Human capital - People's competencies, capabilities and experience, and their motivations to innovate.
 • Social and relationship capital - The institutions and the relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well-being.

While the terminology may be slightly different, the two models are talking about the same thing.

As Furman describes it, inequality undermines the development of various forms of intangible capital that are needed to sustain economic growth. Inequality undermines human capital development (education)--point one in Furman's argument is all about human capital. Inequality undercuts strategic capital (entrepreneurship)--point two. It destroys relationship capital (trust)--point three. Finally, inequality undercuts social capital (through political instability and uncertainly)--point four. In short, the entire new view of the linkage between inequality and economic growth is based implicitly on the idea that intangible capital is the driver of economic growth.

Thus has the concept of intangible capital seeped into the policy debate at the highest level. Our next task is to help policymakers and other use the concepts/models as an explicit and coherent tool of analysis.

(Cross posted from The Intangible Economy)

I wrote two blogposts in the last few days, partly in preparation for some discussions, partly to reaffirm some thinking

I'd like to share these within this community, if you have time to read them- wonderful, if you feel like commenting on them- even better.

Are we measuring what really matters?

http://paul4innovating.com/2014/05/08/are-we-measuring-what-really-matters/

So what drives value creation?

http://paul4innovating.com/2014/05/09/so-what-drives-value-creation/

Have good weekends, one and all

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? 

When I read this part of Paul Druckman's speech (the MD of IIRC) I felt a very distinct value proposition had been articulated at a forum in Singapore attended by around 120 representatives from Singapore’s leading business, investor, accounting and academic organisations.

Druckman said, “We are living in an age when Apple has a higher market capitalisation than the world’s seven largest car manufacturers combined.  That fact reveals how much our economy, and the concept of value, has changed over the last thirty years.  We need a system that supports a company’s ability to communicate how it is creating value in this new context, where knowledge and human resources are as powerful in driving value creation today as manufactured and physical assets were a generation ago.”

Singapore will soon have a roadmap for <IR> adoption, backed by a sound body of academic and empirical evidence, following the creation this month of a market-led <IR> steering committee.  “We are moving from concept to execution”, said Michael Lim, Chairman of the Singapore Accountancy Commission (SAC) at a specially convened <IR> Forum on 22 April co-hosted with the Institute of Singapore Chartered Accountants (ISCA).

The road to adoption with intangibles as critical is being travelled. The big concern still lies in the United States- stuck in compliance and not yet recognizing this integrated reporting momentum like other parts of the World- a real pity?

"Europe is sending a strong signal to the rest of the world, advancing the global move towards Integrated Reporting" Richard Howitt MEP

The European Commission, which this month passed legislation that will require around 6,000 European entities to disclose on non-financial and diversity information, has hailed <IR> as a "step ahead". In its mememo, the Commission went on to say, "The Commission is monitoring with great interest the evolution of the Integrated Reporting concept, and, in particular, the work of the International Integrated Reporting Council."

Again more positive momentum behind the IIRC initiative

Those of you interested in Integrated Reporting might like to view the three short You Tube interviews with the CEO made in the last weeks.

These are

The Challenges

https://www.youtube.com/watch?v=7cgmiS92CZ8&feature=youtube_gdata_player

The Priorities

https://www.youtube.com/watch?v=WQbHkNc9Alg&feature=youtube_gdata_player

The Future

https://www.youtube.com/watch?v=GMOw420IcA8&feature=youtube_gdata_player

The really interesting area is the lagging behind in the North America’s, largely put down to the heavier compliance focus through the SCC. The ‘early days’ indicate this ‘evolution’ of reporting is hard to gain the traction within the NA region. Wil a regulatory approach force this while the rest of the world continues to move into this type of reporting, partly as it is voluntary but because ONCE the CO ‘gets it’ he or she realizes it is about the “Articulation of the Company Strategy” and that has real value.

The challenges talk about the next 12 to 24 months as more gathering evidence, providing best or leading practice, less on the technical application and constantly tracking back to the question “Is it making a difference”.

Take a look, the three short video’s do provide a up to date view from the CEO of Integrated Reporting.

I like to say that performance measures should be “actionable,” in that they are useful for a decision that needs to be made. To be useful, the measures need to provide information useful to, fit the decision style of, and be easily understandable by a decision-maker. When I develop performance measures, I first work with the decision-makers to understand the decisions they face and what information will be useful for their decisions. Then, I try to develop measures that fit the needs of the decision-makers. This may seem obvious as desirable goals for performance measures, but this has not always been the case.

The history of performance measures does not reveal this obvious understanding of performance measures. First in the evolution of performance measures were data-driven measures where one looked for data and constructed measures from this data. Of course, just because data is available does not mean that the measures satisfy the needs of decision-makers. Next came model-driven measures where an established framework is used to link measures to company goals. Model-driven measures were a major advancement over data-drive measures since they related measures to where an organization wanted to go. The model-driven approach is often useful for formulating and implementing strategy. However, when applied to the broad range of an organization’s activities, the models may not fit the decision-making styles of all managers. Also, the models have a tendency to give equal emphasis to all measures, and linkages among measures in different parts of the models are not always clear. I call what I develop decision-driven measures. Decision-driven measures focus on understanding the decisions needs of an organization and then on providing actionable performance measures and a measure framework customized to fit the decision needs of the particular organization.

„e-mentor” (polish scientific journal) just published interesting article entitled as this post. Here is its english summary:

„In the last decade the development of the discipline of knowledge management has slowed compared to the previous successful period. Currently, this development can be accelerated again, because a new branch of post-industrial financial accounting adopted the concept of intellectual capital. The purpose of this article is to present the innovatory foundations of second generation knowledge management, which includes the latest developments in accounting theory and post-industrial financial analysis. Deductive thinking (drawing conclusions from previously accepted premises) was used as a research method. The basic premise was the traditional balance sheets extended with the categories of ‘competence assets’ and ‘intellectual capital’, which led to the introduction of the so-called ‘knowledge-based balance sheets’. In calculation example there were presented new quantitative tools designed for the intellectual capital manager, such as: an analysis of the knowledge-based balance sheets, the rate of return on knowledge, the degree of intellectual leverage. All they help to answer fundamental questions: what is the value and the growth of controlled intellectual capital resources and what is the effectiveness of their use in the enterprise. In the knowledge economy effective management of intellectual capital is a crucial factor of competitiveness. The research shows that top management equipped with the instruments
of post-industrial financial analysis are able to make more effective decisions on usage of intellectual capital. In addition, studies seem to open a new area of scientific inquiry in the field of quantitative recognition of intellectual capital resources for the purposes of management of the knowledge-based enterprise.” 

 Recent comments released from IIRC in their February 2014 Newsletter

 Managing Director of the International Monetary Fund, Christine Lagarde, has spoken of, "the breakneck pattern of integration and interconnectedness that defines our time”, bringing with it tensions in economic sustainability and global interconnections. <IR> is an important mechanism for driving the new way of thinking and behaviour needed in the ‘hyper-connected’ world that Lagarde has described. It focuses businesses on communicating the environment they work in, and its strategy for the future.

<IR> is here to stay. As we reported last month, it has already been embedded into the education syllabus of a global accountancy institute, and this month the Chartered Institute of Management Accountants has also announced its decision to ensure students are examined on <IR>.
 
This move, combined with the evidence and analysis emerging, demonstrates the durability of <IR>’s underlying concepts.
 
The era of isolated capitals, disconnected from strategic risks, business performance and financial stability, is over. All of the capitals are strategic to the long-term performance of businesses and economies, and it is critical to account for them in a cohesive, interconnected way to better manage risks, and strengthen the prospects of long-term improvements in performance.
 
As Christine Lagarde has stated, this is an interconnected global economy, and that means new thinking and new mechanisms to address challenges that can no longer be addressed in the isolation of one institution or jurisdiction. The power exercised by coalitions, such as the IIRC, that are embedded in the market is as valid as that of established institutions. Regulation is insufficient in itself to bring about meaningful change to the quality of corporate reporting, but it can encourage innovation in the market and should not be ignored as a catalyst for <IR> over the long-term.

Selected comments taken from the recent release of the IIRC Newsletter for February 2014