Reshaping business and the world by leveraging knowledge intangibles
What is the Relationship Between IC and Financial Results
IC concepts are so new that sometimes the meaning of all the work we do can get lost in the deluge of new ideas. In some research we did on early IC adopters in late 2008, we found that even management teams that had undertaken an IC assessment project struggled with the connection between IC and financial results.
This finding has haunted me over the last year. Because to me, the connection is absolutely clear. Knowledge intangibles drive the performance of every company today. But I know that most people don’t have a frame of reference to understand the implications of that statement.
So here’s what we have been doing to help management teams “see” the connection in their own organizations. We start with the question:
Then ask:
This list is really the foundation of the intangibles management information set. And since it is designed to cover the core revenue/value creation activities of the organization, there is less doubt about the link with the financials.
Does this make sense to you? How do you see the relationship between IC and the financials? What are some of the other models that work in practice?
This finding has haunted me over the last year. Because to me, the connection is absolutely clear. Knowledge intangibles drive the performance of every company today. But I know that most people don’t have a frame of reference to understand the implications of that statement.
So here’s what we have been doing to help management teams “see” the connection in their own organizations. We start with the question:
How do you get paid by your clients? What are you doing for them?
Then ask:
What are the intangibles that enable you to get paid: Processes (structural capital), IP (also
structural capital), Competencies (human capital), Relationships (relationship capital)
structural capital), Competencies (human capital), Relationships (relationship capital)
This list is really the foundation of the intangibles management information set. And since it is designed to cover the core revenue/value creation activities of the organization, there is less doubt about the link with the financials.
Does this make sense to you? How do you see the relationship between IC and the financials? What are some of the other models that work in practice?
Tags: IC, capital, financial, intangible, intangibles, intellectual, results
Views: 1
Replies to This Discussion
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Permalink Reply by John James O'Brien, CRM, MALT on -
Mary, this is something that plagues me, too. I go a bit farther perhaps, in saying that financials are actually a pretty poor indicator of anything real, being selectively aggregated and structured to present a picture (on the one hand) while being reflective of the past and a context that no longer exists (on the other).
IC is about the here and now with an eye to the future, informed by but not focused on the past. This resonates with my personal philosophy--and as I ponder that, I wonder if part of the challenge is that so many people separate personal philosophy from the reality of work. (Rambling thought...will ponder further.)
These days, it is relatively easy to make the point that past financials do not necessarily indicate, much less guarantee, tomorrow's performance. Individuals get this, but they operate within corporate and governmental systems that are predicated on old model thinking. This is an additional disconnect. And, these systems can become barriers in that internal incentive systems reinforce indicators that are sometimes easy to populate but are often not meaningful in terms of outcomes and sustainable success.
I like your set of questions. I feel that they ask people to risk trusting what they know inside rather than what is sanctioned externally.
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Permalink Reply by Mary Adams on
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I agree with John James that financials as they are constructed today do a poor job of explaining what is really going on. But they are the main shared tool we all have for discussing corporate performance. And companies do need to have sufficient profits for continued sustainability and growth.
Since we all know that intangibles drive that sustainability and growth, we cannot ignore this tool. I hope we can keep exploring how to help mainstream businesspeople see the connection with IC.
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Permalink Reply by Sedat Ozcelik on -
Hi Mary,
do you mean relationship capital
Employees -> Team -> organization = (relationship capital / relationship Assets)
Particular -> Superi
Sample: relationship capital Analysis from Employees
http://www.research-science.com/index.php?dir=Seneca/Screenshots/Re...
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In my original post, when I used the phrase "relationship capital," I was referring to external relationships as in customers, partners, external stakeholders. I usually include brand in here, following the lead of many in the IC community, although I see reputation as less of an intangible asset and more of a measure of success of intangibles management.
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Permalink Reply by Sedat Ozcelik on
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Hi Mary,
The knowledge market-based method with the entity relationship is simple daily acutal to determine the values.
© 2012 Created by Mary Adams.
