Summary
By making the traditionally intangible aspects of an organisation tangible, managers can benefit from superior information and greater choice. This new perspective combines insights and knowledge that would previously only have been available by chance alone with a comprehensive view of the organisation in question.
Factors that Drive Intangibles
The recognition and subsequent rise in the importance and value of intangibles has been an ongoing feature of management for some time. Examples such as Knowledge Management, Balanced Scorecards (BSC) and Strategic Planning all attempt to quantify and make tangible aspects of an organisation that are initially intangible in nature.
While there are many examples of tools and techniques to make information more tangible, it is also useful to ask why this trend has been put in motion and what advantages are available from it. The three ideas below are by no means exhaustive, but are an attempt to shed light on the factors that drive the importance of intangibles.
- Economics
- Execution
- Experience
The economic aspect of intangibles looks at two main areas. The first is a broad consensus that intangibles contribute to superior financial performance. Examples include linking activities such as brand valuation, human capital and innovation to increased shareholder returns. A second economic aspect of intangibles looks at increasing efficiency and reducing costs through an improved understanding of intangible costs and the factors of production. Activity based costing is one example of this approach and by better understanding the tangible and intangible costs of production[1], it is possible to generate improvements and efficiencies in resource allocation.
The second idea, execution, is perhaps best summarised by the maxim ‘you can’t manage what you can’t measure’. Turning this on its head, one might propose that being able to define or measure an intangible aspect of an organisation makes its control, management and related execution possible.
The third idea concerns experience. In particular, some of our experience as managers is built around the realisation that we directly control very few things. By extension, much of what we manage is intangible[2] and therefore we are best guided by our experience. This idea is perhaps best summarised by Albert Einstein who said, “the only source of knowledge is experience”. By building on and codifying our experiences (where possible), we are able to turn the intangible, tangible and in doing so, we are able to create a larger pool of knowledge from which to draw. Furthermore, as we increase our pool of knowledge, we are able to ask more probing questions about what is currently intangible and seek new ways to manage it and make it tangible.
The Value of Intangibles
Whilst economics, execution and experience may not be the only factors influencing intangibles, when combined, they go some way to explaining the increasingly important role that intangibles play in modern management[3]. Equally, intangibles impact on three key constituents of an organisation, namely its values (cultural and financial), processes (how work is done) and resources (e.g. human, IT, facilities). By simultaneously impacting on the values, processes and resources (Christensen’s VPR framework) of an organisation, intangibles offer new ways to manage and influence aspects of an organisation that are historically very difficult to administer.
The Use of Other Tools
While there are numerous tools and techniques to help manage intangibles, particularly around people, they have tended to focus on discrete parts of an organisation, rather than offering a complete or holistic view. Continuing Christensen’s Values, Process and Resources based view of the firm, it is possible to examine a variety of tools which aid the management of intangibles. With this framework in mind, it is possible see which tools impact on values, processes and resources.
The following table details thirteen management tools[4] and their primary organisational and VPR focus[5].
| Tool | Values | Process | Resources |
| Balanced Scorecard (BSC) |  | | |
| Business Process Reengineering | | ||
| Core Competencies | | | |
| Knowledge Management | | | |
| Lean Operations | | ||
| Mission and Vision Statements | | ||
| Offshoring | | ||
| Outsourcing | | ||
| Shared Service Centers | | ||
| Six Sigma | | ||
| Strategic Planning | | | |
| Supply Chain Management | | | |
| TQM | | |
As can be seen from the table above, the tools tend to converge on the process component of an organisation. Equally, while BSC and Strategic Planning do span the three elements of VPR, achieving this coverage from other tools requires them to be used in conjunction or combined with one another.
It is also worth acknowledging that some of the tools could cover alternate parts of the VPR framework, creating a different table from the one above. For example, organisations such as Motorola or GE might well consider that they have ‘Six Sigma values’ as part of their corporate culture. Likewise, it would be simplistic to suggest that offshoring and outsourcing have no impact on the resources of the organisation in question. With these exceptions in mind (and there are more besides), the key consideration for the selections made in the table came from each tool’s area of organisational impact or primary focus.
What about the Balanced Scorecard?
From the table above, it would appear that the BSC and to a lesser extent, Strategic Planning offers the perfect tool for managing intangibles and equally providing a holistic view of an organisation’s values, processes and resources. While it would be wrong to suggest that this isn’t the case, there are some relevant intangibles that the BSC can fail to capture, in particular those associated with the learning and growth perspective.
While it is beyond the scope of this article to present a comprehensive overview of the BSC, there are a few observations that can be readily made, particularly in light of linking together intangibles around values, processes and resources. Perhaps the best starting point comes from Kaplan and Norton’s own writing where they state that “the three principal categories for the learning and growth perspective are: employee capabilities, information systems capabilities and motivation, empowerment and alignment”. What is particularly striking about this extract is how one could quite easily substitute the three constituent parts above[6] for Christensen’s VPR framework. The table below illustrates these overlaps.
| Learning and Growth Perspective from the Balanced Scorecard | Christensen's Values, Processes and Resources Framework |
| Employee Capabilities | Resources |
| Information Systems Capabilities | Processes |
| Motivation, Empowerment and Alignment[7] | Values |
In essence therefore, we are back to where we started. In trying to better manage intangibles and in particular those around people, we are left with a choice of tools which focus on discreet parts of an organisation, rather than tools which offer a holistic overview, linking the learning and growth perspective and/or values, processes and resources together.
A 4G Perspective
Given this brief overview of management tools and in particular, the BSC and the VPR framework, there are two potential conclusions that can be drawn. The first is that as we have seen above, BSC and VPR focus on discreet, as opposed to interlinked aspects of people focused intangibles. The second conclusion, as evidenced both by the BSC’s raison d'etre and the diversity of management tools as covered by Bain and others, is that management tools which provide a holistic view, rather than discreet view offer greater value. Building on these two ideas, 4G offers a means of simultaneously analysing the people based intangibles and aspects of the BSC/VPR perspective. At its heart, 4G offers insights into three key areas, namely;
- Understanding individual’s behaviours and personality (Social Profiles)
- The prediction and articulation of relationships (Social Relationships)
- The definition and measurement of culture and values (Social Groups)
The diagram below illustrates how Social Profiles, Relationships and Groups link to VPR ideas.
By understanding and predicting the interlinked roles played by individuals, their relationships and group culture, it is proposed that 4G goes some way to providing managers with new tools and techniques for getting more from their people. Equally, such a perspective offers insights that historically would have only been available by chance alone.
Additional Education Opportunities
Regardless of your current level of management skill, one can always
benefit from additional education. You can earn an MBA online, even while working a full 40 hour work week.
Footnotes and references
[1] This analogy can also apply to transaction costs and better understanding the costs associated with various organisational processes, again with a view to increasing efficiencies.
[2] Examples of intangible factors that are managed on a day to day basis might include; relationships, processes, costing structures and tacit knowledge, amongst others.
[3] By way of example, of the 25 management tools given in Bain’s Management Tools survey, at least 8, or 32% are concerned with the management of intangibles.
[4] The 13 tools are a subset of the 25 tools detailed by Bain at http://www.bain.com/management_tools/
[5] The remaining 12 tools listed by Bain are felt to bypass the VPR framework in that they are a combination of specific technologies, customer management and methods focussed on dealing with the external environment.
[6] Further thoughts on the Balanced Scorecard and attempts at linking and improving the management of the learning and growth perspective can be found in the CIMA and INSEAD paper entitled “Effective Performance Management with the Balanced Scorecard”
[7] For the sake of completeness, one might wish to focus solely on the overlap between alignment and values, but this may be a case of splitting hairs
By Ed Daniel April 15, 2008 - 2:34 pm
Interesting post Bruce. This provides a good argument for the discovery and study of metrics. What I felt you could elaborate further on would be the types of metrics we can collect that help us understand the intangibles better.
I’ve been studying empathic metrics for some time and how one can a) measure these and b) act upon them by drawing conclusions from the patterns as a basis for a metric, thus helping create the PIs for a score card.
Perhaps 4G might begin an open metric wiki that tracks 4G’s thinking on the types of metrics we should be seeking to monitor and measure.
In my current studies I’ve been researching methods to deploy a concept I nicknamed CI^4 which is the perspective of collective, co-operative, collaborative, competitive intelligence technologies that help discover intangibles and enable the community of practice to bring these to bear on the goals of a community of practice.
Must have a beer sometime soon 😉
By Dr. Mike Hicks April 16, 2008 - 8:58 am
I agree with the idea of making intangibles tangible – it is very hard to think intelligently about things you cannot imagine or find a mental shape for. I suppose your work and mine tries to achieve this, especially with our diagnostic tools.
By Peter A Hunter April 17, 2008 - 2:51 pm
Bruce
I am afraid that I don’t quite agree with your proposition that intangibles can be managed. Perhaps I have the wrong end of the stick but it seems to me that intangibles by their nature cannot be managed.
The action of a wave when it hits the beach is tangible but so complex that it defies our most powerful computers to predict what will happen. Human interactions are on another level of complexity and while not completely intangible do frequently defy prediction or logic.
Most failures to implement what are apparently sound management strategies can in some measure be blamed on the implementer’s attempts to “Manage” intangibles.
We can work with intangibles but not manage them.
If we accept that then it is easy to create the environment that will allow us to work with intangibles.
If we don’t we will still be left wondering why our implementation failed when it looked like a sure fire winner?
Thank You
Peter A Hunter
http://www.breakingthemould.co.uk
http://www.hunter-consultants.co.uk
By Dan tdaxp April 18, 2008 - 3:55 pm
Second the important of measurability. While not appropriate for all businesses or circumstances, measurability is often needed for large-scale progress when it’s just impractical to get everyone on the implicit orientation.
By Bruce Lewin April 21, 2008 - 8:53 am
@Ed Daniel
>What I felt you could elaborate further on would be the types of metrics we can collect that help us understand the intangibles better.
You might want to take a look at the page below where we talk about Human Capital and introduce the Relationship Friction metric
>In my current studies I’ve been researching methods to deploy a concept I nicknamed CI^4
Sounds interesting… let’s get together some time…
By Denis Barnard April 21, 2008 - 9:19 am
I have to say that the section of Human Capital as postulated by Hewitt does not chime with our own methodology in The Newbury Index. Like many other methodologies, such as Saratoga, there is insufficient emphasis on causality…e.g. do Employee Satisfaction surveys actually reflect a true picture of motivation? Many of them also take no account of organisational structure and its impact on how things work from the top downwards.
By Motty Perel April 22, 2008 - 4:52 am
The problem is that turning the intangibles into tangibles is, well, an intangible process. Things are simpler at the workplace, and still employers do not get it. If you want to find out why employees hate to produce at their top capacity, why they strike, why they care little about quality, go to my website http://www.ProfitOnJob.com and read my book Smiling for Profit. It is on all Amazon sites and more. There is a TANGIBLE solution there for all these employee problems. Do leave your Review on Amazon.com, please.
By Bruce Lewin April 24, 2008 - 8:20 am
@Peter
>I don’t quite agree with your proposition that intangibles can be managed
Hmm… fair enough… as I alluded to in the article, many management tools attempt to make tangible the apparently intangible, 360 feedback and BPR being just two examples…
>We can work with intangibles but not manage them.
This is an interesting idea – what is the difference between ‘working with’ and ‘managing’?
>Human interactions are on another level of complexity and while not completely intangible do frequently defy prediction or logic
Sure, they aren’t the easiest things to work with. That said, our own work with 4G and particularly around the relationships would suggest its easier than first impressions would suggest!
By Peter A Hunter April 24, 2008 - 10:16 pm
Bruce
“Trying to make tangible the apparently intangible” I have to agree with Motty, is an intangible process.
Try to substitute the word unknowable for intangible and it becomes more apparent how crazy this aspiration really is.
The solution lies around the difference between working with the intangibles and trying to manage them.
“Managing” something that you cannot measure is a logical impossibility.
“Working with” something you can’t measure is something that everybody does every day whenever they interact with another human being.
Trying to make relationships and concepts such as trust, honesty, pride, commitment, engagement, tangible is a futile waste of energy when all we have to do is create the environment that is conducive to their development.
This differs significantly from the normal environment created by managers of suspicion, divisive competition, blame and target setting
By Bruce Lewin April 25, 2008 - 10:20 am
@Peter,
I think its a case of semantics and philosophies…
Is the employee survey now ‘tangible’ because we’ve got some data? Is the business process now ‘tangible’ because it has been mapped?
Hopefully, all management tools go a long way to making things easier to work with and go some way to making things easier to manage.
That said, there’s still a lot of slippage around and regardless of one’s approach, it is my belief that the greatest benefits are to be found in ‘the gaps’ and those aspects of an organisation that are hard to measure, manage and work with!
By Peter A Hunter April 25, 2008 - 12:48 pm
Bruce
The survey itself is tangible but that attitudes that it purports to represent are not.
I worry that we may confuse what is real, the piece of paper, with the intangibles it claims to represent. measuring either will not change what they are.
I agree that the greatest benefits are to be found in those aspects of an organisation that are hard to measure, but I suggest that measuring them will not generate a true picture, or create change.
Peter A Hunter
By Timothy Platt, Ph.D. May 2, 2008 - 8:01 am
This is very interesting, though I have to add that I find myself orienting more to degree and quality of quantifiability, and ability to connect that into knowledge systems (as opposed to keeping it as that much more unqualified data), than I am with tangible versus intangible per se. As such I see a well crafted balanced score card analysis as a validly quantifiable tool insofar as it connects strongly into business plans and models, and into ongoing processes and governance and in ways that can be empirically, quantifiably validated. OK, I am also a mathematician by training with a background in math logic and topology etc so I may the wrong person to ask to identify the tangible candidates in a police lineup. I would probably just pick the tesseract (alias the 8-cell or octachoron). As you focus on making intangibles tangible I guess you would go after the one with two aliases too. Humor aside though I look to quantifiability. At the same time I look to see if it is a tool that when properly applied simply reinforces and optimizes ongoing processes and operations, or if it provides insight that can lead to new innovation and break-away understanding and new processes. Six Sigma falls squarely in the first of these two and has to be viewed as such or you might find yourself simply optimizing the rearrangements of the deck chairs on the Titanic, as your business seeks to do better and better for a shrinking market and market need. Think potential road kill from not preparing for the impact of disruptive technology as one point where this becomes important.
So tangible versus intangible is important but it is only one approach I see as valid and necessary, and as one tool (metatool?) in my (meta)tool chest.
By Nick Jacobs June 19, 2008 - 5:38 pm
Very interesting article Bruce with lots of thought provoking content.
It is also very interesting reading other posted comments as clearly there can be much debate about the concept of managing, controlling or even measuring intangibles but more importantly I think is the notion that businesses should take into consideration the intangible impacts on the overall business operation.
Just being aware is a good place to start as it is always relatively easy to measure and make business decision on the tangibles.
So, no challenging remark from myself but just a complement for tackling this subject in the first place caiuing readers to both ponder and think.
By Four Groups’ Blog » The Value of Intangibles July 3, 2008 - 2:16 pm
[…] Building on the piece on Managing Intangibles, I’m planning on adding some further examples of the increasing significance of intangibles in management. The first comes via the Bradman Group and CIO Magazine and is titled “9 Reasons Why Application Developers Think Their CIO Is Clueless“. Some select examples; 1. The CIO is a control nut. 2. The CIO is aloof. 6. The CIO thinks changes can happen overnight. 7. The CIO doesn’t know the difference between resources and talent. […]
By Gichonjo G Munene April 13, 2009 - 11:34 am
This is quite interesting.The article has provoked my thinking and I wish you can try to adress the issue of valuation for the intargibles which you almost touched.How can we then value human capital?
Gichonjo G. Munene-MBA
By Bruce Lewin April 15, 2009 - 7:30 am
Hi Gichonjo, thanks for this, have a look at this page which is one way to skin the human capital cat! http://www.fourgroups.com/capital
By Dove Lane » Blog Archive » Can KM Be Fun? – Part 1 of 2 January 25, 2010 - 4:58 am
[…] In a perfect business world, all activities could be measured and valued and included on the balance sheet. That is to say, in a perfect business world based upon current accounting standards that grossly fail to assign value to intangibles, such as customer good will, employee satisfaction, brand name, intellectual capital, and social network relationships. I discussed this previously here. Here are some discussions of the issues behind valuing intangibles, such as the Financial Accounting Standards Board’s SFAS 141 and 142, and the factors that drive intangibles. […]