Reshaping business and the world by leveraging knowledge intangibles
Intangibles value to come out of the systemic crisis
From over ten years an incrising number of academics and professionals points out that at least 70% of the corporate value, invisible in the traditional business reports, is connected with the intangible assets/resources (Human, Relational and Structural Capital).
I understand that has been more easy to sustain the existence of the greatest value in the times of economic prosperity and the market value was broadly superior to the book value and now is very difficult in this situation of systemic crisis (financial crisis, of a business model and a system of regulation and control).
To come out of the systemic crisis I have not yet found anybody that sustain that this is the right moment for the organizations mostly to invest in the identification, management and communication of the intangible assets to make to emerge this great value.
I think the principal answers that absolutly must be found concern the following questions:
• how is possible to set the intangible resources among the strategy priorities of the CEOs and
object of careful management activity ?
• how is possible to define standard sector non financial indicators ?
• how is possible to understand if the intangible assets are used in optimal way ?
• how could be measured/assessed their contribute to the corporate value ?
• what is the relation between intangible assets and corporate risks ?
• how can be managed, valorized and communicate to the market to extract the maximum value ?
• XBRL is a technical language that can be used to communicate also non financial indicators ?
• how is possible to communicate the Intangible assets, is more suitable the IASB Management
Commentary or a Intellectual Capital Statement ?
• trade off between transparent communication and reserved value drivers of competitive
advantage ?
Views: 5
Replies to This Discussion
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Permalink Reply by Joris g. Claeys on
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Hi Andrea,
The subject is spot on and so do the questions.
But these are too much questions to ask in one go.
Mary is looking into creating groups on the site and I believe we then have to pose these questions one by one and tickle the responses.
To give a generic response: I see more effort being taken by goverments then by the private sector. Mainly because the CEO's are focusing on how to get through the crisis from the perspective of: - unfortunately - cost cutting and downsizing, review of marketing strategies, process and service outsourcing, ... and a traditional accounting perspective.
The transitioning to IC valuation and accounting would have been much further if the global financial crisis would not have been there. We actually have come to a standstill since since 2008. However, I think times are changing and IC and IP are becoming not just more to the attention of the CEO/CFO, it is also more widespread being talked about - sometimes too academic and too little practice, but there is a movement that is bringing change. We have a lot of work in shop. IC has been around for 20 years and it is gaining momentum.
Best regards
Joris Claeys
VP Global Operations
AREOPA - Provoking Innovative Intelligence
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Permalink Reply by Andrea Gasperini on -
Hi Joris,
It is certainly true that is necessary an effort from the governments to realize the transitioning to IC valuation and accounting. In my opinion, nevertheless, the diffusion of the "culture" about the intellectual capital is still to a preliminary stadium. I believe that time should be given to this theme to mostly spread in the world of the enterprises, continuing the gradual process of harmonization currently in progress.
Only in a following stadium, when a great number of enterprises will have adopted methodology of measurement and management the intangibles, the problem will be set of "what" to communicate to the market and to that point the demand of a government intervention will emerge.
Imposing some standards now "top-down" more urgent, even type regulation, could be produce the opposite effect: to slow down a process that should developed instead "bottom-up", directly from the enterprises that became aware of the importance to measure, to manage and to communicate the own Intellectual Capital ?
Andrea Gasperini
Responsible of work team Aiaf "Mission Intangibles"
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Thanks for your insights Andrea,
And yes to a large extend I agree with you.
But then I hear Baruch Lev speaking in Beijing about his +20 years engagement in the IC arena.
Probably because he noticed new energy coming on board of the IC world is his best motivation left to continue spanning the horses in front of IC.
I agree, it is the approach we take - the how - with corporations and making sure that the entire field of IC is much better understood with a wider audience. That is all of our responsibility to make that happen - step by step.
Where we can speed up the process and work with standard organizations - who are also very keen on proceeding - we should take the lead and drive the progress.
Best regards
Joris Claeys.
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Permalink Reply by Galen McPherson on -
I am also encouraged by the increasing energy and efforts being directed into the IC arena, and I want us to continue "spanning the horses".
I am hesitant to advocate too strongly in favor of any established "standard" for the accounting of IC, believing as I usually do in the wisdom of the marketplace. I would prefer to see several models of such accounting emerge, and to have the utility of the various models drive their adoption or adaptation, much like the "battle" between Beta and VHS format, where the consumers spoke and the market adapted.
As with software applications, where the programmers offer products and the public adopts them or not, IC accounting methods should be developed and exposed [as in this forum], allowing knowledgeable practitioners to adopt them, adapt them or avoid them.
While some may long for "one true way" to account for IC, I think that this desire is unnecessary: the strong points of any system introduced will be combined with the strong points of others, and the most effective [read "pragmatic"] solution will emerge. In the meantime, let the experimentation begin- those activities which provide meaningful quantification will be adopted, worldwide due to the ubiquity of the Internet and interconnectedness, instead of having some "governing body" develop "the way" with no countervailing/improving options.
Best Regards,
Galen McPherson
www.galenmcpherson.com
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Permalink Reply by Andrea Gasperini on
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Creating a virtuous circle
By fostering the identification, measurement and disclosure companies’ intellectual capital, I think to trigger a virtuous circle:
• a company gets used to efficiently measuring and managing its intangible value drivers (thereby boosting the efficiency of internal resource allocation),
• by subsequently disclosing such drivers to the market, the company raises their external visibility,
• which yields a more adequate external recognition of its true potential for (future) value creation,
• if the company is rich in intellectual capital compared to its peers (and similarly positioned otherwise), this enhances the company’s overall external valuation and reduces its cost of capital relative to its competitors,
• this in turn
1. creates further incentives for the company to invest in the analysis and disclosure of its intellectual capital,
2. serves as a role model for other companies similarly well equipped with intellectual capital,
3. drives those companies less well positioned regarding intangibles and/or their management to catch up.
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Permalink Reply by Galen McPherson on
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Well put, sir, and thank you for the clarification. Your "virtuous circle" is an apt descriptor of the process I envisioned: "trial, success, retention" balanced by "trial, disappointment, learning"
Andrea Gasperini said:Creating a virtuous circle
By fostering the identification, measurement and disclosure companies’ intellectual capital, I think to trigger a virtuous circle:
• a company gets used to efficiently measuring and managing its intangible value drivers (thereby boosting the efficiency of internal resource allocation),
• by subsequently disclosing such drivers to the market, the company raises their external visibility,
• which yields a more adequate external recognition of its true potential for (future) value creation,
• if the company is rich in intellectual capital compared to its peers (and similarly positioned otherwise), this enhances the company’s overall external valuation and reduces its cost of capital relative to its competitors,
• this in turn
1. creates further incentives for the company to invest in the analysis and disclosure of its intellectual capital,
2. serves as a role model for other companies similarly well equipped with intellectual capital,
3. drives those companies less well positioned regarding intangibles and/or their management to catch up.
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Hi Andrea and Galen,
I just published a new presentation on IC Management "Measuring the Immeasurable", which gives an overview of the different IC Models around. There have been a couple other developed or in process. This should give the forum here and companies who are in the process of taking decisions on meauring their intangibles a clear view on how they like to proceed in doing so. The Sveiby Matrix is still the best reference table around for determining which type of IC model best fit your requirements or needs of your stakeholders.
Best regards,
Joris Claeys
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Permalink Reply by Galen McPherson on
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Joris:
Is this publication readily available? Where is it published? I would like to see it, if I may, as I respect and value your knowledge and awareness of this field.
Joris and Mary:
On another note, I have recently come across extensive work on Intellectual Capital Statements by an organization [InCaS-Europe] that seems to have some EU underwriting and recognized affiliates [Leif Edvinsson] as well as a Wiki source [InCapedia]. What have you heard of them, and should we be allying/interacting with them as well, so that we do not have to re-invent the wheel? And am I simply late, as you are already doing so?
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Hi Galen, It is published on my profile, but that is the bear slideshow which is not even a ppsX slideshow. It is also published on SlideSho.net and on my LinkedIn Profile but you will hit everywhere the same issue as I have to limit its distribution or use as lots in the presentation is part of AREOPA's IP.
Full release is only possible under MoU. I will approach you by email about this and other potentials as well.
Relative to InCaS-Europe, this is not that new - it was released first in 2008 and reflects the study research done by a EU program for IC useable at SME's. In fact this is a conitnuation of the Lisbon treaty objectives set around EU and the knowledge economy - Outcome or basis of that was the RICARDIS project. All projects since 2004 have been established to realize the goals set forth in the Lisbon target. This states to establish IC reaizations defined for a number of sectors by 2010 - so this year.
Many projects have been undertaken within the EU as part of the next steps of the RICARDIS project. The results of some of these initiatives are reflected in my presentation relative to history and the most relevant models which are put in practice. Most of them are representing a country geography. So the whole thing has been quite spread out as different models or different alterations to the initial thoughts of the Lisbon objectives (RICARDIS). As mentioned the Sveiby Matrix is the best reference table to understand the different IC models and know where they fit and what they actually deliver.
In this whole context, honestly, I have never understood why all these different initiatives went their own way. In many perspective a matter of personal engagement. Currently the best spread in-use IC model is the WissenBalanz in Germany. But also that has a number of different variations and different initiatives have amde different IC models even out of the WissenBalanz. INCaS is one of them that is managed and marketed by Fraunhofer. Some go all the way towards IC calculation of all areas but still not as thorough and mathematical as AREOPA's 77-phenomena related formulas does (choice from about 960). The nextdifferentiator is how IC is related to a company's requirements - this is: the stakeholder requirements and the corporate branding or image towards its customers and markets. So there is - as I have also noted from several stories here on ICKC an enormous guidance process required in adapting IC Management (= IC Calculation + IC Accounting). That brings us to the last part of the entire process: IC Accounting or reporting. To-date, AREOPA is still the only one that provides for an integrated traditional and IC accounting report in a traditional accounting format.
My apologies if I bring this all in relation to AREOPA's IC Model, but I think it is relavant to the readers to understand the implication of the different models and how they ae implemented by expert people (both industry and IC knowledge is required).
INCAPEDIA is a kind of open space wiki but it is mainly driven by projects established by Fraunhofen (germany - butthey do projects across Europe - for example: LSE). From what I know of it (limited) is that it focuses mainly on realized IP and that is only one facet of IC Management, though IP is an area which can return in any of the 3 (or 4) IC areas. So yes all IC practitioners should look at it but more important to make it a real open space modus operandi and outcome needs many more players to add value and contribution. INCaS claims that several indutries are involved, but I question that it should be the IC drivers (the different IC Models) who should be engaged. AREOPA is not at this stage.
Hope that clarifies a bit.
Best regards,
Joris Claeys.
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Permalink Reply by Nick Shepherd on -
Joris - very late reply but I think (in common with some others) that there are number of issues in your initial comments. First we need to work on the basis of understanding inatngibles as the drivers of organizational activity (even capital intenisve organziations need the creativity of individuals to optimize the performance of fixed assets). Second we need to develop a complementary set of standards to financial ones as IASB cannot - based on the criteria for developing accounting standards ever address the core types of intangibles as balance sheet assets. Third we need to educate investors as well as boards of directors that financial reporting does not provide them with what they need to know for effective oversight of their shareholders interests. Also know that there are standards developed by Dr. Ken Standfield of Australia that starts to deal with this. Finally watch the Institute of Management Accountants in the US who are soon to publish a document on this subject authored by Mary and I!!! Watch this space.
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Permalink Reply by Karin Grasenick on -
Hi Andrea, hi Joris, Galen & Nick,
In your first statement you summarized the systemic crisis as a combination of financial crisis, business model and a system of regulation and control. you also mentioned that one way out would be to invest in IC Management. The further discussion focused mostly on 'technical aspects' of IC Management. However even mafia-like organisation might be able to come up with an impressive IC report and is certainly able to develop and manage intangibles in an professional way (e.g. in attracting members and building trust amongst them, develop new businesses and reliable networks and so forth). Yet at the same time it's contribution and impact on the overall systemic crisis might be high.
in this respect another type if "intangible" might be needed - the ability to balance individual, organisational and common interests, which we do not yet include in our dicussions.
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Permalink Reply by Galen McPherson on
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Karin:
Welcome to the discussion. I always enjoy seeing new faces in these threads.
Speaking purely from MY personal point of view, allowing for [and expecting] some feedback from others, if I take your meaning correctly, I would propose that this "balance" you are seeking becomes part of the "relationship capital" type of IC. My own predisposition is that relationship capital applies not only to external relationships, but to internal as well: to our peer relationships, to our interdepartmental relationships, and to our thorough understanding of the needs of our internal customers as well as our external stakeholders.
Certainly relationship capital extends to our customers and to our suppliers, but I think that the internal application is on occasion overlooked. In some models of IC, this "balance" aspect might be accommodated in the "business model" or "business strategy" fourth column that I have seen published from time to time, but my preference is to adhere to the three column format, allowing "interactions" to be dealt with as part of relationship capital.
Contrasting opinions, anyone? Everyone?
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