The importance of managing our intangible capital is the key for today’s innovating business.

Today, we are valuing organizations in completely different ways than some years back. In the past we were valuing organizations purely on their tangible assets, the ‘hard’ (easier to) quantify assets, shown on the balance sheets as the basis for the value of the organization. Today that is not the case; it is more the off-balance sheet bound up in networks, relationships, connections and the ability to manage the fluidity that is occurring constantly around us, and the organizations ability to respond appropriately in seeking out improved, new value through better innovative offerings .

Intangibles are providing the new value system equation to focus upon

We are valuing the knowledge perspective far more and this is increasingly recognizing the importance of the intellectual capital that makes up the organization. The more intangible assets are being recognized as the valuable aspects of the potential future of a business. These are the more ‘dynamic’ parts that come under human capital (competency, sharing, collaborative, learning quickly, collective competence and enduring value for the future), the innovation capital (creativity, fast prototyping, risk taking, empowerment, replacement/ renewal), the relationship capital (responsiveness, retention, connections), and customer capital (the customer base, the potential and the ability to connect) and finally, the process capital (productivity, cycle time, process yield, on time delivery) is perhaps more traditional that has many intangibles that are becoming far  more tangible in outcomes today that are highly valued.

It is these five capitals that together are making up the intellectual, more dynamic, capitals that are valued far more today than traditional assets ‘seen’ on a balance sheet (buildings, machinery, the physical more static assets).

The real value creation capabilities of the five intangible capitals

It is the ability to combine these five capitals (human, innovation, relationship, customer and process) that offers the real value creation capabilities of organizations yet these are the very things ignored in existing current balance sheets, not valued in the assets of the organisation. Surely this is wrong and indicating we need our accounting systems to catch up and capture the real valuable picture within our organizations?

These ‘capitals’ are often well hidden yet they are the real, ongoing value creation capitals. How can we identify these both internally and externally in better ways to give us a clearer understanding of the investments that are going into developing these capitals to measure against the results?

How can we develop the right story of how the organization creates value? It is by bringing together these more intellectual capitals to reflect the shifts that have been taking place in knowing what is within the organizations actual asset base; the assets that create the wealth.

We need to re-think the old world value delivery systems to assess organizations

The value chain that is good for one day is often not good for another. It needs to be constantly challenged and changed, to meet the consistently ‘disruptive’ conditions being faced. We need to have an effective ‘innovation machine’, we need to have increasing reliance on open networks as the new key assets and a really clear understanding of the new dynamics of power, the difficult-to-replicate capabilities and competencies that are made up with the five capitals mentioned above. Within these five capitals lay the unique competitive edges that offer real advantage that cannot be duplicated or replicated or often matched easily. These need increased focus.

An organizations ability to flourish in today’s hyper competitive environment organizations will be totally dependent on their abilities to manage the five capitals that make up most of its intangibles. Often these are left as not as fully realized in their potential value. Unlocking these you unleash the true potential of organizations to be constantly ‘dynamic’ in their activities to adapt and respond, listen and learn and leverage their unique assets.

Finding the right solutions – moving intangibles to tangibles.

Are we focusing enough on these five capitals of human, innovation, relationship, customer and process? Perhaps until we learn how to capture and measure their true value they will remain hidden from plain sight and still constitute investment risk for many. This applies to both inside the organization and in external understanding. Internally if you are not consistently measuring your capitals you don’t leverage them fully and as these five capitals are often intangible, they are not well measured. Equally investors are very reluctant to invest without this necessary insight to judge the organization’s real value creation potential, and so they simply rely on historical data, old formats of accounts and balance sheets and then simply apply selective discounts to the investment premium.

We need to find better solutions to quantifying and qualifying the intangibles within organizations, by making them increasingly more tangible, so all can see and value them for their real wealth creating potentials.

We need to provide tangible outcomes from managing the intangibles, as these are making up the really important wealth creating capital of the organizations and this is where internal  investments need to be well positioned, clarified and defined. To create new value you need to innovate, to innnovate you need to invest in these five (more) intangible capitals but you need to know where, why and what you are getting for that investment. You need to understand these capitals and make them tangible for everyone involved, it is the key to unlock your latent wealth.

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10 thoughts on “The importance of managing our intangible capital is the key for today’s innovating business.

  1. Paul, I agree with you completely about the 5 intangible “capitals” that are essential for creating value in the contemporary world. However, I think the bigger challenge is the one created by the assumed imperative to cast organizations and their nature strictly in economic terms. A similar attempt was made to capture the value of intangible knowledge in the early days of knowledge management at least 15 years ago with relatively dismal (unuseful, to be more precise about it) results. Similar, more recent work on the so-called social economy attempts to do the same thing by quantifying and accounting for the value of volunteerism, for example, among many other things.

    I think that, fundamentally, a new conception of organization is required (which is the basis of my research and practice – “Valence Theory”) in which a new understanding and corresponding new measures of organization emerge. These, of course, include economic considerations, but do not favour them to the exclusion of any other. The model I developed from my research is consistent with your useful suggestions of augmenting economic considerations with human, innovation, relationship, customer, and process intangible “assets.”

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    • Mark
      Firstly thanks for your comments and your research sounds interesting. Let me know where and when you are sharing this so I can read it. It is hard to get all of us of ‘economic considerations’ as it is a huge driver of our present wealth creation and how ‘we’ measure it. Intangibles through the movement of intellectual capital some years back I felt held some promise but it never took a hold within business- a pity. Some countries in Europe particularly still report on IC and I feel it makes a good contribution. Within my five suggested intangible capitals holds the promise of innovation, my main area of my focus.

      Regards

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  2. I remember the reporting on IC fad around the time when Knowledge Management was becoming the “next big thing”; especially Karl Eric Sveiby’s work. I don’t disagree that intangibles are the key to innovation success in business, and that according to the MBA folk who seem to run the joint(s), “if you can’t measure it, it ain’t worth anything.” So measurement seems to be the key to convincing traditional management, and money-as-scorecard is quite strongly and broadly ingrained into the culture.

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