Four reasons why the old accounting models don’t work and won’t ever be enough to measure the intangible economy
December 17, 2010 by Mary Adams · Comments Off
Today’s accounting systems keep track of certain types of financial transactions. (and mis-reports intangible financial transactions). There is a need to get good financial information about intangibles. But knowledge intangibles are a different kind of asset. It is hard to imagine a time when financial metrics alone will be adequate on their own to measure the health and performance of intangibles. There are several reasons for this: Read more
We can say with great confidence that you are already spending a lot of money on intangibles. How do we know? Academics have been looking at the question for quite awhile. Here are places they have looked:
October 18, 2010 by Mary Adams · Comments Off
Emergent strategy and innovation are about opening up the flow of information and ideas. The farther we get into the knowledge economy, the more that knowledge gets spread across a company’s network, both internally (through human and structural capital) and externally (through relationship capital of all kinds). The fact that much of the important knowledge is spread out in this diverse ecosystem has significant implications on some of the most basic ways that we see an organization. Read more
If you understand human and relationship capital, you can start a business. If your business creates value for your customers, you can earn a good living. But you will never grow large or particularly rich with just these two kinds of knowledge assets. This is because the real promise of the knowledge economy comes in the creation of structural capital, that is, knowledge that gets captured and institutionalized in an organization.
When people say that “all our assets walk out the door at night” they are showing their ignorance of structural capital. Read more
June 21, 2010 by Mary Adams · Comments Off
Every human being is different. As employees, human beings bring unique talents and abilities to their employers. This diverse skills set brings a richness to an organization that can be difficult to capture. Do not let this richness keep you from trying to understand your human capital as a productive asset. There are actually some very clear ways of describing employee groups:
Knowledge in an organization begins and ends with people. The knowledge and experience that employees bring to their work is probably the greatest driver of an organization’s success. What employees know helps to build an organization as well as to preserve, maintain and improve it.
This importance is generally accepted. It is rare to meet a CEO who won’t tell you that his or her organization has the “best people” in the market. But this kind of statement is rarely challenged. Most businesspeople still don’t know how to see beyond the people and understand the employees and managers of an organization as knowledge assets—as human capital.
There are some that are critical of the label “human capital.” To them, it seems to smack of an attitude that people are just nameless cogs in an organization, exploited for their knowledge and experience. We don’t share that view. In fact, we like the term human capital because it is a graphic statement of the fact that people are indeed an asset of the organization. Assets require investment and maintenance. And they are a critical part of the productive capacity of the organization.
To us, this is the realization that matters—that your people are part of your productive capacity, now more so than ever. Because the future of your company depends on what you know rather than what you own. And what you know as an organization is intimately tied to the knowledge and experience of the people in your organization. In looking at human capital, it is helpful to distinguish between employees and managers. Both groups are employees but managers need a set of competencies that is distinct from those required for your value creation processes–I’ll look at each in the next couple posts.
In the tangible economy, raw materials are combined and sometimes transformed to make finished goods. It is often impossible to see the different raw materials in the finished product—together, they make something completely new. In fact, there is often a progression of processes that lead to a final product. Stalks of wheat, for example, are processed and ground to make flour which then goes into making bread. Grains of sand become silicon in computer chips and oil becomes a high tech plastic.
The raw materials of the knowledge era are knowledge-based intangibles. You may be nodding your head as you read this. But do you really know what it means? If not, you are not alone. Knowledge continues to be seen as an amorphous, misunderstood part of business. This widespread ignorance isn’t helped by the vocabulary. The word intangibles itself is troubling because its very definition implies that an intangible is invisible, untouchable, and unknowable. The word knowledge is also very general and lacks a specific connotation for business value creation. Yet knowledge is the core asset of this century. Read more
June 10, 2010 by Mary Adams · Comments Off
In recent days, I have focused on getting paid for what you know. But, of course, there is another big story in the knowledge economy—one that is still being written. Basically, one of the challenging truths of the knowledge economy is that you will end up giving away a lot of your knowledge.
Google’s search business is the simplest but most dramatic example of this. Their search business yields $20+ billion in advertising revenues each year. But the core product, the search itself, is free. This means that Google gives away huge amounts of value every day and still has managed to become one of the leading companies of the knowledge era thus far.
Another great example is the Grateful Dead. Read more
June 7, 2010 by Mary Adams · Comments Off
For all the attention that we have paid to this point to direct sales of knowledge, many companies still get paid just for providing physical products. No services. No knowledge product. But don’t be fooled. These companies (or at least the ones that survive) get paid for their knowledge as well.
This is very obvious in an iPod, which is a highly innovative delivery system of an on-line music service. Apple broke ground in many ways when they created the iPod including: Read more
We talk about intangible capital a lot. We even wrote a book on it. But we know that a lot of people think that IC is a very abstract concept. It’s not. It’s at the very heart of how you create value for your customers and get paid for it.
Your company already has extensive knowledge. The question is how you package this knowledge in a tangible form that has economic value. In order to understand your business as a knowledge business the best place to start is with your revenue line. What does it say there? What do the bills to your customers or clients say? Are you selling them a knowledge product, a physical product, a service, or the time of your employees? Read more