Reputation Is the New Bottom Line

In both the tangible and the intangible economy, the ultimate metric for all companies is and will be their ability to generate profits—a strong bottom line. Profits and the cash they provide ensure an organization’s survival.

But in the knowledge economy, it is no longer enough to just produce a strong bottom line. Read more

The Emperor Has No Clothes and why we still have not addressed the intangible information gap

One of the most graphic depictions of the shift from the industrial to the knowledge economy can be seen in this graph prepared by Ocean Tomo a number of years ago (here’s a larger version). The top line is total corporate value of the companies in the S&P 500. The gray band at the bottom is the tangible book value of those companies. The gold band is the value of booked intangibles (usually from an acquisition). And then there is the red band. You can see that it began to grow when the personal computer was introduced in the early 1980’s and then spiked with the rise of the internet. This graph ends a few years ago but Ocean Tomo recently updated their data to show that the intangible portion of corporate value hit 81% on 2009 (the depths of the Great Recession).

This red band is the reason we focus on “intangibles.” Read more

Triangulation – Getting a complete picture of your intangibles

Once you have a full set of data about your intangibles, how should you use it? We like to use the image of triangulation seen here as a way of explaining how you can use the three kinds of data that we have described to come up with a unified measurement of your intangibles.

Triangulation is an approach used in a number of disciplines (including surveying and astronomy) using known points to plot out an unknown distance or space. With intangibles, you can use these three kinds of data—investment, assessment and indicators—to plot out the landscape of your intangibles and get comfortable with the future earnings potential of your business. Read more

Intangible Capital Reading List on Twitter for 2011-01-26

• Ways of analyzing different kinds of work From Value Networks: All Work is Networked http://feedly.com/k/dVhcUa #

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Facebook and Goldman – Why Zuckerberg is putting his company’s reputation and value at risk

As the Goldman Sachs transaction with Facebook has progressed in recent weeks, I kept thinking about the quotes I read in the Time cover story about their Person of the Year, Facebook founder Mark Zuckerberg:

“The thing that I really care about is making the world more open and connected…Open means having access to more information, right? More transparency, being able to share things and have a voice in the world. And connected is helping people stay in touch and maintain empathy for each other, and bandwidth.” (this was in the hard copy magazine which doesn’t seem to be available on Time’s website)

How does this statement stand up against what Goldman’s deal with Facebook? Read more

KPI Fever: Beware Magic Metrics

Every company I visit these days is talking key performance indicators (KPI’s). This tells me that people understand that financial metrics aren’t (and never have been) enough to measure organizational success. But I worry about how using the shorthand KPI for all non-financial measurement could doom companies’ efforts from the start.

The problem is the word “key.” A lot of experts recommend finding a small number of key indicators that can be tracked easily so that you don’t get overwhelmed and spend all your time on measurement. I am sympathetic to this view but I am much more concerned about the danger of narrowing down your metrics too far. Part of the answer was in my last post about using some metrics for management and some for learning.

One thing is clear, however, it is never a good idea to rely exclusively on a small number of indicators. This warning is necessary because business publications are full of articles about what we call magic metrics. They offer an easy solution that will seemingly solve all your problems. Following are just a few examples. Read more

Why are you creating your measurement management system? (And do you really need a balanced scorecard?)

A few years ago, I read an article by Ian Graham called, What’s Wrong with Targets? Graham made the case that setting targets or goals for employees creates the wrong kind of behavior. This is because it focuses the employee on the target rather than on the underlying processes that create value for customers and stakeholders. And once a goal is achieved, there is often no reason to reach further. He also asserts that targets can be gamed. The alternative he suggests is to focus on specific processes and measure everything you can with an eye to continuous learning. His perspective comes out of the quality movement and the concept of continuous improvement.

We thought of Graham recently when we read an article about the games that colleges play to ensure that they meet the thresholds for statistics used by US News and others to “rank” colleges. Areas that can be manipulated include soliciting alumni donations of as little as $1 to increase their alumni giving percentage, giving more weight to applicant GPA and SAT scores than in the past, and manipulating class size.  Anyone who has ever worked in a for-profit or not-for-profit organization knows that goals can drive behavior in good and bad ways. Read more

Could Evergreen Solar keep its U.S. plants if it applied the new design constraints for American business?

A few days ago, I wrote about some new design constraints that I believe should shape corporate thinking about innovation. Today, my friend Ken Jarboe at the Athena Alliance sent me a link to this article about Evergreen Solar, a company located here in Massachusetts. This company built a manufacturing plant for solar panels in 2008, created 800 local jobs. Now, the company is closing down the plant and moving production to China. Ken asked me how this case fits into the standards I laid down. (It’s a hard question but I appreciate Ken asking it). So here goes.

First, I want to say that a big part of the story is the imbalance in the support that the Chinese government is willing to give to get the plant built there versus the support the government of Massachusetts and the U.S. is giving. I always get a kick out of this kind of argument because it demonstrates the hypocrisy we often see in American politics: taxes and government spending are bad. But if someone else’s government does it, we have no choice but to take the money. In this thinking, you get the short-term cost savings and worry about the long-term implications later.

In Evergreen’s defense, it is behaving consistent with the current mindset of the stock market and the still-dominant although highly discredited (see comments by Warren Buffett and Jack Welch) approach to maximizing shareholder value that we still accept as gospel–over the last thirty years, the concept of value somehow got to the point where short-term stock prices came to be a measure of how a company was husbanding its resources and building long-term value. Read more

First anniversary of the IC Knowledge Center!

We have close to 250 members who have had 150+ postings and discussions in in the past year. Where to now? Become a part of the conversation.

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Getting Intangible Capital Into Your Performance Measurement System

Building a performance measurement system without the right foundation information would be like designing a dashboard when you have never looked under the hood of a car. Now, “wait a minute,” you will say, “I know my business inside and out.” And you probably do. But no matter how deep your personal familiarity with the business, it still makes sense to build systems that can ensure that provide the right kind of information and controls to keep it on track. This is true in every size company. Knowledge that is concentrated in the head of an individual is knowledge that is at risk. A good performance measurement system is an essential part of the structural capital supporting your organization.

Most performance measurement systems being built today are being built without a basic understanding of the underlying intangible capital of the organization. Since IC represents 80% of the value of the average organization, this means that the integrity and utility of these performance measurement systems should be questioned. It all starts with an inventory of your intangibles. Read more

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