October 14, 2011 by Mary Adams · Comments Off
I talk a lot about the knowledge era. I specialize in the measurement, management and monetization of knowledge intangibles. I wrote a book on intangible capital. So what I am about to say shouldn’t be that big a surprise to me but it kind of is….
Technology is not as important as it used to be. Read more
June 26, 2011 by Mary Adams · Comments Off
Running a non-profit is tough in any economic environment but it’s a nightmare today. Donations are down. Budgets are tight. It’s hard to know where to turn. And, while the financial statements provide clues on managing the cost base, there is no balance sheet for the most important elements a non-profit: its resources, its reputation, its processes and its network.
Here’s how we broke down the intangibles of one non-profit, a regional museum: Read more
June 25, 2011 by Mary Adams · Comments Off
One of the great strengths of the intangible capital (IC) perspective is the lessons it gives around business model and organizational sustainability. The IC Value Drivers Report for this services company provides a great example of this.
By way of background, IC Value Drivers include ten categories of the intangibles that are create the unique competitive advantage of companies today. Read more
June 24, 2011 by Mary Adams · Comments Off
Most people assume that you cannot measure intangible capital (IC). But it is very possible and also very powerful.
Once you have an inventory, there are lots of ways to pursue measurement. We like to start with an IC Value Drivers Assessment. This gives an overview of the unique IC of the organization as well as those that are common in all companies. The areas of examination fall into 10 categories: Read more
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
Technology makes it easier than ever for you to connect and collaborate with your vendors. A great illustration of this potential is the Boeing 787. The design of this plane represented a new approach by Boeing. Using an electronic system, the company was on-line with the hundred or so key vendors that would manufacture components and parts for the jet.
More than ever before, Boeing pushed the design decisions out to the vendors, each of whom has specific expertise related to their part of the plane. Read more
September 22, 2010 by Mary Adams · Comments Off
As you probably know, I was thrilled to be invited to speak at the Rutgers symposium, “Intangibles Come of Age” organized by Miklos Vasarhelyi. The final title also called it a discussion about “comprehensive firm valuation.” And it was a wonderful discussion even though it showed us that we have a long way to go. Most of the presentations are on line—and there will be video later.
Dean Yaw Mensah opened up and said that intangibles were very much on his mind when he heard about UCLA’s Anderson business school considering a plan to go private. Would the taxpayers get their share of the value of the school’s IP that they helped build?
Baruch Lev, who never gives up on intangibles, opened the day with some fresh case studies about work he has done around specific aspects of intangibles including ROI on R&D, IT investment and IP. Also described an interesting study for a software company as to whether internal growth or acquisitions gave a better return (the answer was internal growth).
Lev insisted that “everyone recognizes the importance of intangibles.” This was a theme repeated over and over during the day. When I spoke I opened by saying that intangibles may be old news to people at this type of conference but that in general, the average businessperson doesn’t know what we are talking about, why intangibles are important or what to do about it.
For this reason, it was great to hear Amy Pawlicki’s summary of all the reasons that businesspeople are hesitant to improve their intangibles reporting—including good answers as to why each reason should not be a barrier to taking on this important challenge.
Feng Gu presented a paper that he wrote with Baruch Lev on goodwill and write-offs that makes the case that large goodwill often results from companies making acquisitions during periods when their stock is “over-valued.” Earlier in the day, Lev had said that he advocated capitalization of intangibles but that his accounting brethren have been so resistant to this that he no longer talks about it. I brought the subject back up as did Janet Hao.
Janet Hao works with Corrado, Hulten et al at The Conference Board who have done so much of the valuable macroeconomic research that has now shown that intangible investment now exceeds tangible investment in the U.S. She presented a pro forma set of J&J financials which were adjusted (based on public information) to capitalize spending on intangibles. It was very enlightening—showing that increased assets, profits and equity (by capitalizing intangibles) paint a very different picture of a company in common ratios such as return on assets return on equity and leverage. This set up a conversation about valuation and value.
Right after Janet spoke, Benedetto Bongiorno presented based on his long experience in valuation of intangibles in the real estate sector. A lot of his themes were reflected in the practitioner panel after lunch with Steve Rivera, Kevin Tom, and Shawn Suttmiller. The valuation and accounting professions are focusing very heavily on fair value and have sophisticated approaches to value intangibles acquired in mergers. Listening to these professionals, I was struck by the complexity of their valuation models. I’m not totally convinced that this is the way balance sheets should be constructed…
The panel actually got caught in the middle of an energetic discussion of goodwill. Current practitioners believe that they are identifying all the intangibles that they can and that goodwill truly is excess value, synergies and the good will of stakeholders. Others (I’m in this camp) believe that we are missing a big portion of intangibles investment and that we can and should be able to explain the origin of almost all goodwill, even though some of the elements may not end up on the balance sheet. This is the logic behind what we call i-capex. Discussant Tony Tinker urged us to look at history (apparently, full expensing of R&D in the U.S. is a legacy of a scandal in the pharma market–I can’t find anything on this, let me know if you know)
Marcus Spies presented a refreshing alternative to reporting, explaining a large project he worked on for the EU that extracted data of many kinds from corporate systems to create leading information on the performance of intangibles. This is very complex work—not surprising given the amount of data that exists within the average company. It is this kind of work that provides a clue how reporting and (assurance/auditing of that reporting) can become a continuous process.
Miklos Vasarhelyi also spoke on continuous assurance, doing a good job of showing how “the most interesting things have already happened by the time a transaction is booked” which made Spies work all the more relevant.
Stefano Zambon closed the day with a sweeping summary of work being done around the world in the field of intangibles. Stefano brought me back to some of the work I have been doing lately. As some of you know from the IC Knowledge Center, I have been developing a table that details the sometimes starkly different perspectives on intangibles held by various professions (accountants and lawyers among them).
It is increasingly clear to me that we have to face these differences head on if we are to advance the cause of filling in the enormous (80% and counting) intangibles information gap. I continue to believe that this gap holds back our thinking and our collective action, limiting innovation and growth in a time when we desperately need both.
Thanks to Miklos, all the folks at Rutgers and all the attendees for keeping this important conversation going.
August 26, 2010 by Mary Adams · Comments Off
In all the discussions in recent weeks here on the growth of networks and organizations, it is hard to say which came first—the human or the technological connection. The shift to a knowledge economy has made it more and more attractive to connect and automate using IT and networking technologies. The rise of new forms of networking such as social media is actually fueling the trend. Probably some of the most interesting trends are the situations where the concept of networking is changing the whole vision of the business. If you begin to see your organization as a network, then the world literally opens up to you. Read more
The internet television video company Hulu is reportedly considering an IPO. But, reports the NY Times, the company “evidently makes little in profit.”
I am not privy to their numbers but I can tell you from experience that their income statement is probably full of “expenses” that are actually investments in their intangible productive capacity (also called intangible capital). These include investments in some investments in processes, training, networks, and other forms of organizational knowledge. Read more
July 26, 2010 by Mary Adams · Comments Off
I did a quick project last week with a professional services firm that had been approached about an acquisition. I sat with the president of the company over the course of a couple days to create a powerful presentation for their initial meeting.
The reason I was asked to help is our expertise in intangible capital. A professional services firm consists almost completely of IC. But most professional service managers (like managers everywhere) don’t have the vocabulary or models to describe their organization’s IC effectively. Read more