Intangible capital challenges some of our long-held assumptions about measurement. There is a confusing array of approaches to measurement of intangibles. We help our clients identify and use the right one for their needs, including:
No measurement can happen unless you first identify what must be measured. This seems self-evident, but how many companies today actually have an inventory of their intellectual capital? What are your organization’s key intangibles?
This is the most powerful and the most ignored means to measure intangible capital. Corporations spend billions each year on building their IC but most of this investment is mixed in with operating costs reported on the income statement. A separate management report can and should break out these critical investments in the future of your company. How much does your organization invest each year in intangibles?
Spending money does not guarantee success. That’s why cost analysis needs to be balanced with an assessment. Assessment evaluates whether the organization’s IC is as strong as it should be, whether it is will enable the organization to deliver on its strategy and where it is at risk. Assessment helps measure the effectiveness of existing strategies and guide new strategies. Assessment is usually an annual process. Do you have an objective assessment of the current state, future outlook and risk profile of your intellectual capital portfolio?
The growth of the discipline of performance measurement is a direct result of the growing importance of IC. Performance measurement is a complement to the annual assessment. It identifies key performance indicators (KPI’s) that will help track progress in meeting strategic goals. What are the key drivers of success of your strategy?
The ultimate goal of intangible investment is to yield a return to the business. Calculating intangible return is not as easy as it was when production took place on a manufacturing line. Assessment and performance measurement are important bridges between investment and return in the knowledge-intensive organization. Are your investments in intangibles paying off?
Some intangible capital assets have standalone value because they are identifiable and have some legal protection. These are commonly called intellectual property (IP) and include assets such as patents, trademarks and brands. Appraisals of this type of asset are performed by looking at the value of the potential future value of cash flows related to the asset. Secondary markets for this type of intellectual property are also beginning to emerge. Do you have IP that could/should be monetized?
Corporate value is a reflection of the market’s understanding of an organization’s current and future potential. The understanding of the market (and resulting value) of an intangible capital-intensive company, is limited by the quality of information available about the hidden intangible assets. Is the market compensating you for your true value?