Intangible Capital Case Study: Beyond Intuition to Objective Measurement of Intangibles

Most people assume that you cannot measure intangible capital (IC). But it is very possible and also very powerful.

The starting point that we recommend in Intangible Capital is a high-level inventory of your unique intangibles.

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

Why are you creating your measurement management system? (And do you really need a balanced scorecard?)

A few years ago, I read an article by Ian Graham called, What’s Wrong with Targets? Graham made the case that setting targets or goals for employees creates the wrong kind of behavior. This is because it focuses the employee on the target rather than on the underlying processes that create value for customers and stakeholders. And once a goal is achieved, there is often no reason to reach further. He also asserts that targets can be gamed. The alternative he suggests is to focus on specific processes and measure everything you can with an eye to continuous learning. His perspective comes out of the quality movement and the concept of continuous improvement.

We thought of Graham recently when we read an article about the games that colleges play to ensure that they meet the thresholds for statistics used by US News and others to “rank” colleges. Areas that can be manipulated include soliciting alumni donations of as little as $1 to increase their alumni giving percentage, giving more weight to applicant GPA and SAT scores than in the past, and manipulating class size.  Anyone who has ever worked in a for-profit or not-for-profit organization knows that goals can drive behavior in good and bad ways. Read more

Getting Intangible Capital Into Your Performance Measurement System

Building a performance measurement system without the right foundation information would be like designing a dashboard when you have never looked under the hood of a car. Now, “wait a minute,” you will say, “I know my business inside and out.” And you probably do. But no matter how deep your personal familiarity with the business, it still makes sense to build systems that can ensure that provide the right kind of information and controls to keep it on track. This is true in every size company. Knowledge that is concentrated in the head of an individual is knowledge that is at risk. A good performance measurement system is an essential part of the structural capital supporting your organization.

Most performance measurement systems being built today are being built without a basic understanding of the underlying intangible capital of the organization. Since IC represents 80% of the value of the average organization, this means that the integrity and utility of these performance measurement systems should be questioned. It all starts with an inventory of your intangibles. Read more

Intangible Capital and Non-Financial Indicators

The lack of a clear operating story in today’s financials means that it is important to find non-financial indicators to enable an organization to track the progression of its work.

The use of non-financial measurement is not new. Factories in the industrial era were not managed using just financial data. There were other kinds of metrics that were used to monitor the functioning of each production line and the factory as a whole. Examples include the output of the production line each hour, the number of defects per thousand products, and the amount of scrap generated. This kind of measurement was facilitated by gauges and dials on production equipment, spot counts for quality control and measuring the scrap hauled away from the line. Over the course of the last century, industrial companies developed more and more sophisticated ways of measuring, managing and optimizing production of physical goods. Read more

Intangible Metrics

I had an inquiry over the weekend from a reader about setting metrics for intangibles. Here’s my first level response.

One of my favorite articles about metrics is by Ian Graham, What’s Wrong with Targets? (it’s on page 15 of this document). It sums up most of the problems that happen with metrics.

The way I see it, there are two types of metrics: Read more

Dangerous Metrics for Universities

This editorial in the New York Times by Brent Staples highlights a problem with the misuse of student test scores. It seems that student scores on the SAT and ACT are used with regularity by two influential constituencies: the college-rating guides and Read more