Reshaping business and the world by leveraging knowledge intangibles
SG&A as a proxy for IC?
Over the weekend, I found this interesting take on measuring intangible capital investment via SG&A from Natasha Chen.
The approach assumes that SG&A represents "inventory" of capability and that that SG&A-intensive companies have higher management scores.
I think this may indicate the fact that knowledge-intensive companies produce fewer tangible goods so their "operating" expenses are weighted to SG&A. In some ways, it is akin to my argument that we need to track investments in IC directly through management accounting.
I'm not sure it is the ultimate measure that we all should replace other forms of analysis but certainly a thread of research worth tracking. Love to hear other points of view on this!
The approach assumes that SG&A represents "inventory" of capability and that that SG&A-intensive companies have higher management scores.
I think this may indicate the fact that knowledge-intensive companies produce fewer tangible goods so their "operating" expenses are weighted to SG&A. In some ways, it is akin to my argument that we need to track investments in IC directly through management accounting.
I'm not sure it is the ultimate measure that we all should replace other forms of analysis but certainly a thread of research worth tracking. Love to hear other points of view on this!
Tags: Chen, Natashe, SG&A, capital, intangible
Views: 10
Replies to This Discussion
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Permalink Reply by Doug McDavid on -
Hi Mary -- Just the fact that the S in the acronym is "Selling" indicates there is a lot relationship capital in that number, I'd say.
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Permalink Reply by Mary Adams on
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You're right. And the idea of "capitalizing" (for analytical purposes) the whole section of the income statement is really interesting...
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Permalink Reply by Doug McDavid on
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Yes, and once anything is capitalized it can be "marketized", as a form of property that can be traded, leveraged, etc. Which is where I'm headed with my bloggage on this site (probably obvious).
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Permalink Reply by Abhijit Talukdar on -
I am strongly against looking for simple answers to a complicated situation. Natasha herself expresses reservations about this approach in her article. I think we are doing a disservice to the IC community by aligning our thinking in this direction.
I believe that trying to measure investments in intangibles is addressing the wrong end of the problem anyway. It will be much more productive to measure the output side, i.e. contributions to revenues by intangibles against those by tangibles. This is easier to do and it also gives a fresh perspective to the problem and therefore to the solution. Once the contributions of intangibles on the output side are found to be significant, the input investments that are required to achieve the same will automatically take care of themselves.
I will appreciate the point of view of other IC professionals on this forum on this important topic.
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Permalink Reply by Doug McDavid on
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@Abhijit -- I don't interpret Mary's comment to indicate that she thinks the whole answer is to measure the input side, or that even this would be simple. I hope you don't interpret my comments to say this either. There's nothing simple about creating effective Knowledge Factories, including the measurement regime for same.
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