Most stock prices are composed nearly entirely of intangibles assets. Cisco Systems book value (tangibles), for example, is routinely cited as only 5% of its market capitalization. The rest, 95%, inhabits network intangibles.
Most 21st Century, knowledge-based companies are based on intangibles. Yet serious attention to intangible measurement have been woefully neglected, despite their impact on shareholder equity and stock prices. Companies do not invest in nurturing, measuring and leading the intangible assets that comprise 95% of their market cap. Firms often plod along using only the tangible based accounting methods and measurement that were invented more than 500 years ago in Venice.This is dangerous, unsustainable and unfair to investors and markets.
“If you aren’t measuring it, you aren’t doing it,” goes one popular corporate mantra. All firms execute transactions (which are always measured). The strategic capability to create value must be measured too. But because this largely goes unmeasured, many say value creation is very thin or non-existent. But it not - it is simply invisible. This can be easily remedied.
What is the cause of this grave situation?
The cause is a lack of fundamental comprehension of value and the role of intangibles in wealth creation. The problem is exacerbated by old fashioned, 20th century MBA doublespeak and techniques. Highly trained in reductionism, analytical thinking and process engineering, traditional management falls-down badly when attempting to understand and lead complex, system-level value-creating intangible ecosystems. Often, these hapless managers can’t ‘suspend disbelief’ long enough to embrace intangibles. Even rarer are companies that lead value measurement by focusing on the all-important network intangibles.
Why not master intangibles and release billions in trapped assets?
It is critical to master this linkage between intangibles, value networks and stakeholder value. The system-level measurement of intangibles and value network analysis is essential to leadership.
Increasingly, value network focused practices and strategic management of intangibles determines retained earnings and market capitalization. The key value network lens of roles, links and exchanges provides the direction for far more effective capital utilization. Complex, fluid arrays of network intangibles are central to performance improvement, productivity, competitiveness, growth and perpetual value creation.
People are at the center of the intangible equation. Always erroneously viewed as a cost, in the value network view of intangible assets, people are the active agents of value creation. Period.
Millions are routinely over-spent on structured information technology, ignoring the human interactions that really make things work. While the transaction backbone is critically important, the fact is the enterprise runs on unstructured information and complex value networks. Compound intangibles inhabit these value networks. They furnish the heuristics, idioms, techniques, narratives, parables, metaphors, illustrations, methods, relationships, dialogue, practices and allegories about the organization's core capabilities and ability to create, grow and sustain value. These, in turn, create wealth. Yet structured investment approaches to intangibles, visualization, analysis, optimization and conversion are absent. Overwhelmed executives routinely follow failed, oversold structured information technology architectures into oblivion, while leaving intangibles and billions in retained earnings to be discovered!
How do you adjust your view of performance, leadership and wealth creation behaviors in this new world of intangibles and value networks?
This is achieved through coherent and comprehensive value network analysis (VNA). The overwhelming importance of value networks and intangibles to leading enterprise performance and retained earnings is clear. VNA reveals enormous benefits in minutes. Over time, the maps, analytics, language and value network narratives equip and propel ever higher levels of performance, innovation and value.
The ValueNetworks.com worldwide network of practitioners is leading global efforts to elevate and link value network analysis to investor value. These practical techniques, metrics, methods and models will cut through complexity and lead the prosperous enterprise successfully into the future. |
