F2- Intangibles: More Essential for Value Creation

Let us “connect the dots”:

  • Starting in the 1980’s book values of corporations around the world constitute an increasingly smaller percentage of market values.
  • Corporations which excel in managing their intellectual capital (MAKE winners) grow twice faster than Fortune 500 corporations (Teleos).
  • The world economy is now creating more wealth from services than from industry or agriculture; global service trade has been growing faster than global commodity trade.
  • Human capital of a knowledge worker is what generates his regular income.
  • Remittances from overseas workers now constitute more and more of wealth creation in many developing countries.
  • Most successful anti-poverty projects are those which leverage on existing intangible assets of communities (Knowledge for Poverty Alleviation model).
  • Fukuyama observed a pattern, namely, that high-income economies are often also high-social trust societies.
  • Sustainability of CBRM projects hinges on intangible factors: sense of ownership, transparent and accountable managers, cohesiveness of the community, self-confidence and hope.
  • High trust (Covey) and low/managed ego (Marcum and Smith) reduce business costs.
  • High social capital was found (U.K. Office for National Statistics) to be correlated with better health, improved longevity, better educational achievement, lower rates of child abuse and less corruption in government.

What do we see here?

It seems to be happening across many sectors: intangibles have become more essential in creating value!

Do you agree? Is the inference correct? Or is it correctly worded?

We saw from my previous post (“KM is Not Enough!”) that intangibles largely overlap with knowledge assets. Managing intangibles has become the “the name of the game”. In fact, knowledge has become the prime creator and repository of wealth (see first six bullet points above).

We can now assert that the proper goal of KM should be to create value. The causal model or KM framework is:

From the previous post, we saw that “knowledge” is capacity for effective action, which includes information for effective action. The model defines what is “effective”: a decision or action is effective if it produces the result desired or valued by the actor. Knowledge is “what works” for a user.

The next issue is more knotty: what precisely is “creating value”? See you in my next blog post.

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4 Responses to “F2- Intangibles: More Essential for Value Creation”

  1. 4- Unconscious KM and Conscious KM « The giraffe Says:

    […] Posted on October 10, 2008 by apintalisayon We have seen from two previous posts that (a) intangible assets generally contribute more than tangible assets in producing the results that organizations value, and (b) knowledge assets […]

  2. 5- A Proposed M&E Framework « The giraffe Says:

    […] model I showed earlier (where, following the previous post, I expanded “knowledge assets” to “intangibles including […]

  3. Peter Spence Says:

    Hello Apin,

    Re your observation ‘intangibles have become more essential in creating value!’ – I totally agree. An organisation’s relational competency is perhaps the key to developing, managing and maintaining intangible capital/value. Knowledge flows through, is created, managed, maintained and leveraged through relationships/connections – I would expect the same applies to other elements of intangible capital (i.e. reputation, branding, trust, customer/employee/partner loyalty etc) and they are extinsinctly linked. This is perhaps why knowledge of IC (and how we manage that knowledge and hence IC) is essential to future organisational success.

    When the ‘relational value’ of a organisation is not sufficiently recognised and maintained as an ‘assett’ it is perhaps more likely to depreciate at a higher rate than tangible/physical assetts – this may go toward explaining the high failure rate of mergers and strategic alliances worldwide. This ‘flight of intangible capital’ perhaps highlights the fleeting nature of IC and also its importance to an organisation. The rapid fluctuations in the stock market appear to be another good indicator of the values placed on IC (i.e. price movements based upon trust, customer loyalty, etc).

    Your observations re book value of organisations is consistent with the views expressed b Mary Adams (Smarter Companies – Intangible Capital Advisors) who has reported that 70% of a corporates value is attribued to ‘intangible capital’, yet this is often not reflected in the company ‘book value’. Of interest, Mary Adams has co-authored the recently published book Intangible Capital: Putting Knowledge to Work in the 21st Century Organization with Michael Oleksak.

    Kind Regards
    Peter

  4. apintalisayon Says:

    Dear Peter, can I invite you to a Skype video conference call on July 22, 2010 where you can expound on the value creation by intangibles, including relationship capital, before members of the KM Association of the Philippines?
    Cheers!
    Apin

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