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: 3
Replies to This Discussion
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Permalink Reply by Karin Grasenick on -
Hi Galen,
external and internal relational capital, including interactions are important factors. We're interpreting them, by taking e.g. into consideration a balance between stable relationships and the ability to build new ones. Referring to the business model we could also estimate their appropriate fit in terms of diversity vs. homogenity and thereby ascribing a higher or lower intangible value. When applying this analysis to mafia-like organisations or e.g. organisations/networks who have contributed to the economic crisis, one might find that such organisations are able to demonstrate a high proportion of relational capital: stable relationships, high loyalty, even trust within the organisation (e.g. by "internal insurance systems" - taking care for families as long as a member of the organisation has to serve a sentence), the ability to build stable relationships with other organisations of importance for their business, building networks which foster the identification and development of new branches of business.
Are we able to falsify a hypothesis like
* "an organisation contributing highly to a 'sytemic crisis' is capable of reporting high intangible value"? or answer a questions like
* "an IC report is an appropriate instrument to distinguish successful business harming vs. successful business contributing to a 'greater' social system"?
By doing so we might be able to answer Andrea's question why it has become difficult to progress with research and development in IC valuation in our current situation of "systemic crisis".
Galen McPherson said: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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Permalink Reply by Joris g. Claeys on
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Hi Nick,
You are making valid points and this time it is my turn to apologize for the delay in response. But I am starting to backtrack on all the great ideas and commentary published here on ICKC.
I definitely welcome the idea of identifying the drivers within an organization as you mention. I think they even go much further then you mention. In the process of involving a wider base (key people driving the creativity - we have 2 categories: knowledge drivers and process owners - sometimes they can be the same people, not always), in a similar way as Change is facilitated and managed, we have a series of activities or steps through which an organization has to run through as part of introducing and implementing IC in their organization. I explicitly did not want to mention "implement IC into their Accounting practice", as that is only a part of what we refer to as IC Accounting and is only at the back-end of the entire exercise. After all that there is also the continuity. IC reporting and its constant monitored, managed and improved drivers are repetitive in nature, so awareness amongst the organization is key and the reporting needs to enable comparison (in time - forward and backward - as well as benchmarking within an industry or market). That defines then also that there is a need to have some standardization in what is reported and how it was calculated.
Your second point is an important one in that perspective, however, I believe that intellectual capital items should be reported separately in the BS and P&L. AREOPA integrates the reporting, but does not mix the financial accounting reporting with IC reporting. It only reflects a similar view and consolidation of both statements. The question is then what to do with items already reported in the traditional financials reporting, such as "goodwill", which in our view is anyway a reported figure which tells nothing and can cover anything.
So, in conclusion: yes, I agree with you that CoPs like ICKC and initiatives such as yours in collaboration with FASB, IAS, etceteras... can establish the required standardization, ensuring that comparison across companies reporting their IC, across industries or for companies publically noted on an exchange, becomes a reality.
Your third point is certainly becoming active today, with forums like this and many others, KM forums and organizations opening the doors to IC, innovation groups starting to understand the impact of IC, the HR function in larger corporations that is being revisited / redefined to consider new concepts relative to human capital and measurement in monetary value, rather then the traditional performance measurement alone, the awareness to the IC and IC reporting potentials for shareholders in many initiatives - public and private/commercial advisors, the many forums, summits and conventions all over the world, etceteras... these all contribute to the awareness and better understanding of what IC is and the fact that more and more companies are starting to report their IC value. Some governments have put the IC reporting already in a legislation, but mostly not well defined. In general, for companies and analysts to understand the comparability, my presentation on IC Management gives hopefully a clearer view on the different models used in IC accounting. Maybe this should be referenced as well in the IC reports published.
Also - as you mention - Ken Standfield's work in this matter is very valuable. The question is in how far this is/ will be adopted in the different models and in the different accounting legislation.
Looking forward to see your book published on all of this.
regards,
Joris Claeys.
VP Global Operations
AREOPA - Provoking Innovative Intelligence
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Hi Karin,
It's a far fledged thought - "mafia-like organizations" - and I was happy to read your more elaborated definition in your second message on this thread. This clarifies a lot of your concern and I agree to a large extend to the fact that we need to be aware of the potential risks IC reporting can bring as well. Indeed, the type of organization and the practices you describe, typically have a strong and organized relationship model, which for the outsiders is in most cases not even visible or accessible.
But if IC reporting and analysis becomes a more common practiced and accepted addition to the traditional financials reporting, I believe IC actually will top off or bring these companies and their unfair practices much earlier to surface. Indeed, any reporting can be flattered or deflattered to suite its purpose. So will IC reporting as well. But IC looks more at the potentials - the future - of a company and its operations, market-ability, increasing knowledge/innovation curve etceteras...
"... distinguish successful business harming vs. successful business contributing to a 'greater' social system" - I really love the statement, but in how far is this realistic in monitoring companies that really don't care about the future of both the wider social impact of their actions as well as their own future potential or risk to collapse because of such actions! There will always be good and bad, trusted and dishonest in this world. If financial analysts and in a wider perspective financial journalism obtains and masters new tools such as what IC is bringing to the spectrum, we will get either a better and in some case an earlier alert towards such companies that only envision quick and excessive financial results rather then long term and social stability. If stakeholders and the general public is made aware of this with the new tools, I think we have gained in the battle against the rotten apples. Fully excluding the potential of "mafia-like practice" can never be avoided.
So IC actually - if well analyzed and reported on - should surface potential anomalities, even before they actually occur in the market. If a reported companies potential is flattered purposely it will backtrack on that companies performance, solvability and marketability in an open market situation and in a much tougher and earlier response/alert by the market then for companies which only report their past performance in the financials reporting. So IC gives all stakeholders another tool to evaluate a companies performance and capability towards the future, therefore enabling comparison to its promises and to the wider (social) market as well.
The point about internal relational capital is as Galen points out, already part of Relation Capital and a companies capability to build strong networks amongst all its stakeholders, that includes the internal networks and customers as well. In fact this comes also back in Human Capital, when a companies realization and potential is measured based on it's available knowledge and innovation capability.
Best regards,
Joris Claeys
VP Global Operations
AREOPA - Provoking Innovative Intelligence
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Permalink Reply by Geoff Turner on -
Hi everyone,
Better late than never they say but I still need to say sorry for coming on board this conversation so late. It's an interesting thread and at least everyone seems to understand the importance and difficulty of the task.
Galen, I agree with you completely about creating standards for IC accounting/reporting. I think the IASB is just starting to realise the magnitude of the problem with their convergence task. It is virtually impossible to accommodate all interests in standards of any type. The end result is the creation of rules that provide a "lowest common denominator" output. In the case of financial reporting the output is of limited use to everyone. I believe we need to develop a framework for IC accounting/reporting and that is all. As long as it is well structured, organisations should be more than capable of creating meaningful and useful output(s) that will identify their ability to conceive, nurture and grow their IC base.
Nick and Mary, let me have a heads-up please when the IMA have published this document of yours.
Thank to everyone for your input. Best wishes,
Geoff Turner
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