Delivering on Bernanke’s call to measure intangible capital

May 31, 2011 by · Comments Off 

In my last post, I shared Fed Chairman Ben Bernanke’s call for “better ways to measure innovation, R&D activity, and intangible capital.” What better way than this statement to kick off the next two half-day discussions at the New Building Blocks for Jobs and Economic Growth conference?

So, after the opening plenary, the group did get down to the work of identifying next steps for business and policy. On the Steering Committee, we spent a lot of time trying to design a conference that engaged and tapped into the amazing wisdom of the attendees—experts from all over the world in intangibles and innovation. We were helped by great facilitators (and artists) from Collective Next from Boston.

I introduced and helped moderate one of the four discussion areas: Emerging Measures. I introduced a paper by Ken Jarboe that I had contributed to. Here’s how we framed the discussion Read more

CSR without IC is an empty promise

May 11, 2011 by · Comments Off 

There is a great discussion going on at the IC Knowledge Center about a new EU report on non-financial reporting. Here’s my take:

I think it’s interesting that there were 259 respondents to the public consultation. That shows that there are a lot of people out there thinking about the many facets of non-financial reporting.

But I share both Anne Marie and Abhijit’s concerns that there is no mention of IC. In fact, the report actually makes an explicit definition on page 2 of non-financial reporting as CSR (Corporate Social Responsibility). While CSR is an important external focus for companies, there also needs to be an internal view of sustainability around knowledge intangibles–the human, relationship, strategic and structural knowledge that together drive corporate success. Read more

The Coloplast Experiment

April 25, 2011 by · Comments Off 

Here is one of my favorite examples of the value of greater transparency around intangibles.

This experiment was performed by PriceWaterhouseCoopers’ (PwC) Corporate Reporting practice a number of years ago. It used involved creating two versions of an annual report of Coloplast, a Danish company recognized as a  leader in corporate reporting.

  • The first was an original version of the Coloplast annual report. In addition to the normal information in an average annual report (financial statements, narrative, and a few key metrics), this report included extensive  quantified non-financial indicators to make a clear link between its strategy and its financial performance.
  • The second version of the annual report stripped out the quantified non-financial data. The stripped-down report was still richer in detail than the annual reports provided by most companies in the market. But the  critical non-financial metrics were missing.

Two groups of analysts reviewed the different reports. The conclusions were striking.  Read more

The doughnut hole in the corporate info universe

March 21, 2011 by · Comments Off 

The CEO of a spin off from D&B, Dun & Bradstreet Credibility Corp, spoke recently to Bloomberg Businessweek about his company’s new business model:

“What we’re trying to do now is show a holistic picture” of what makes a business appear trustworthy, he says. “Credit is just one component…. D&B’s largest competitors these days are Google, Facebook, and Twitter.”…[the company] compiles credit files on private companies from public records, payment information supplied by vendors, and self-reported data such as financial performance. The company sells that data to corporations that use it for marketing and to evaluate credit risk.

I like their thinking and, of course, see more and more traditional businesses rethinking their business models for a social media world.

But there is something really important missing here. Read more

The future of money is not just about money

March 3, 2011 by · Comments Off 

I really enjoyed the energy and ideas at the Future of Money & Technology Summit in San Francisco on Monday (kudos to organizer Brian Zisk!). The energy level in the room was very high. You can get a good sense of the day by reading the Twitter stream for #futureofmoney. One of my favorite Tweets, from Mickki Langston, said

@mickki There are 2 groups present: those who want to expand their financial empire, and those who want to change finance completely

This dynamic made for some wide ranging conversations and stimulating discussions.  But even the ones wanting to profit from the system are going to do so by breaking the old systems. Read more

Manage Reputation by Managing Intangibles

February 16, 2011 by · Comments Off 

It is actually interesting and somewhat perplexing to us that sustainability reporting has received more attention to date than intangibles reporting. The reason this book has a chapter on reputation is that we feel that intangibles management is a key determinant of corporate reputation. The current lack of information available to stakeholders about intangibles puts corporate reputation at increasing risk.

When there is incomplete information about the details of business, reputation becomes a proxy for its overall success. That’s how small problems can have much greater effect than perhaps they should. If stakeholders do not have a clear picture of what’s going on, they will assume the worst. In the long run, we believe that good intangibles management and transparent communication will diminish the wild swings of reputation that many companies experience today. In the short run, you can make this happen yourself. Read more

Reputation and Intangibles – Connecting the dots

February 15, 2011 by · Comments Off 

My last few posts have been about reputation. There are some out there that would ask what the big deal is. What’s different now? Companies have always had employees and customers. Why do they have more influence now?” Why do I need to think about reputation more than before? There are actually several forces driving this change.

The first driver is the shift in the control of the means of production. In the industrial era, a company’s profits were driven by what it owned. Workers had to come to the employer to get access to the means of production. It gave companies a greater level of control over its workers. With the rise of the knowledge economy, however, the knowledge held by employees and, indeed, external stakeholders have become an important part of a corporation’s “means of production.” The knowledge factory relies on the unique contribution of human and relationship capital elements. This shift in the balance of power means that companies have to pay more attention to the interests and priorities of their stakeholders as “partners” in the success of the knowledge factory.

The second driver of the increased focus on reputation is the acceleration of communications. If you didn’t understand this before, you certainly do now given the events of wikileaks, Tunisia, and Egypt. Blogs, Twitter, Facebook and other social networks are just the latest developments in a society that had already developed 24-hour news. It is easier than ever before for anyone to get a message out. Sometimes all it takes is a blog post or a YouTube video by one disgruntled customer to go viral and threaten your reputation in an instant.

The third driver is an increased interest in sustainability and corporate social responsibility. Sustainability is an umbrella term for a number of related trends including corporate social responsibility and triple bottom line. CFO magazine defines sustainability as “the practice of publicizing a company’s environmental and social risks, responsibilities and opportunities…it can be thought of as an environmental-impact statement for the entire corporation, with ‘environment’ defined not only in terms of natural resources and climatological effects but also the economic and social impacts of labor practices, charitable endeavors and governance structures.”

The fourth and final driver is the lack of transparency of intangibles. There is a shocking lack of information available to internal and external stakeholders about the knowledge side of business. So when news does get out about a problem or a failure, then the reaction is swift and often very negative. If your stakeholders don’t understand how your business works and don’t receive periodic information beyond just the financials, then bad news is a warning to get out. The less your stakeholders understand about your business and the less you share about non-financial aspects of it, the more vulnerable you are to severe reactions to bad financial news.

You need to consider all four drivers as you think about managing your reputation. But we ask you to pay special attention to the last driver—intangibles reporting. You have a lot of control over your reputation—if you are getting the kind and quality of information to your stakeholders. And very few companies have developed good reporting on intangibles. That means that the 80% of corporate value that is driven by intangibles is invisible. Stakeholders can only guess at it unless you give them the information they need. This is really the goal of Intangible Capital. Helping you see, leverage and communicate about your intangibles. Because it will help you perform better AND because it will help you get the reputation you deserve.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

Reputation: beyond shareholder thinking to stakeholder thinking and back again

February 7, 2011 by · 5 Comments 

When we talk about the core intangible capital of an organization, we spend most of our time focusing on the intangibles that drive customer value creation and revenue generation. This is a helpful perspective for operational performance and strategies. In this view, relationship capital focuses on the partners that help support your business model: your customers, partners and vendors.

In thinking about reputation, however, it is important to flip the perspective and see your company through the eyes of your people and your partners. As contributors to the knowledge factory, they are also stakeholders in its success. What do they think of the organization? Does it seem sustainable? Is it a place they want to be or to do business with? Read more

Intangibles, the Bottom Line and Shareholder Value

February 3, 2011 by · 1 Comment 

U.S. business culture is very much about results. Two of the ideas that best capture this perspective are the concepts of the “bottom line” and “shareholder value.” The bottom line is a financial calculation. As we have made clear throughout this book, the integrity of financial statements that are used to calculate the profit or loss of an enterprise is seriously compromised by their failure to address knowledge intangibles. Profit and cash flow are still important to the day-to-day survival of a business. But focusing on today’s bottom line without regard to tomorrow’s bottom line can lead you to make bad decisions: To outsource a function that should be a core competency. To fail to invest in an intangible that will preserve and protect a competitive advantage. Peter Drucker put it this way Read more

Reputation Is the New Bottom Line

January 31, 2011 by · 2 Comments 

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

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