The NH Chapter of the Institute of Management Accountants is hosting Trek principals, Mary Adams and Michael Oleksak, at their February meeting.
From the event announcement:
Did you know that a balance sheet presented under U.S. generally accepted accounting principles can only explain 20% of the value of the average company? The rest is lumped together as “intangible.” Very little is known or understood about this hidden 80% of value, yet this information gap affects the ability of management teams everywhere to make the right decisions and drive growth performance, as well determine the true value of their company. Read more
January 19, 2012 by Mary Adams · Comments Off
Trek is very proud to announce that our principals, Mary Adams and Michael Oleksak, have been invited to deliver a webinar for The Conference Board called
The Future Drivers of Performance and Value: Understanding the intangible infrastructure of your business
The Conference Board has done great macroeconomic research on intangibles and we are excited to talk with their members about the huge opportunities in intangible capital management. More information
April 25, 2011 by Mary Adams · 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
March 18, 2011 by Mary Adams · Comments Off
How’s this for making intangibles tangible? This photo shows me sharing the summary graphs from two IC Value Driver Reports that we recently completed:
The photo was taken earlier this week at the Exit Planning Exchange Summit 2011. The twist was that the legend for the graphs was hidden by a red pattern that could be filtered out with special glasses. Read more
February 16, 2011 by Mary Adams · 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
February 15, 2011 by Mary Adams · 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.
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
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
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
January 28, 2011 by Mary Adams · Comments Off
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