Managing Intangibles - Four Groups


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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.

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Managing Intangibles - Four Groups

  1. 1. Managing Intangibles Linking Behaviour to Bottom Line Performance Managing Intangibles 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 looks at two main areas. The first is a managers is built around the realisa- broad consensus that intangibles con- tion that we directly control very few The recognition and subsequent rise in tribute to superior financial perform- things. By extension, much of what we the importance and value of intangi- ance. Examples include linking activi- manage is intangible6 and therefore bles has been an ongoing feature of ties such as brand valuation1 , human we are best guided by our experience. management for some time. Examples capital2 and innovation3 to increased This idea is perhaps best summarised such as Knowledge Management, shareholder returns. A second econom- by Albert Einstein who said, “the only Balanced Scorecards (BSC) and ic aspect of intangibles looks at increas- source of knowledge is experience”. By Strategic Planning all attempt to quan- ing efficiency and reducing costs building on and codifying our experi- tify and make tangible aspects of an through an improved understanding of ences (where possible), we are able to organisation that are initially intangible intangible costs and the factors of pro- turn the intangible, tangible and in in nature. duction. Activity based costing4 is one doing so, we are able to create a larger example of this approach and by better pool of knowledge from which to draw. While there are many examples of understanding the tangible and intan- Furthermore, as we increase our pool tools and techniques to make informa- gible costs of production5, it is possible of knowledge, we are able to ask more tion more tangible, it is also useful to to generate improvements and effi- probing questions about what is cur- ask why this trend has been put in ciencies in resource allocation. rently intangible and seek new ways to motion and what advantages are avail- manage it and make it tangible. able from it. The three ideas below are The second idea, execution, is perhaps by no means exhaustive, but are an best summarised by the maxim ‘you The Value of Intangibles attempt to shed light on the factors can’t manage what you can’t measure’. that drive the importance of intangi- Turning this on its head, one might pro- Whilst economics, execution and expe- bles. pose that being able to define or meas- rience may not be the only factors ure an intangible aspect of an organi- influencing intangibles, when com- • Economics sation makes its control, management bined, they go some way to explaining • Execution and related execution possible. the increasingly important role that • Experience intangibles play in modern manage- The third idea concerns experience. In ment7. Equally, intangibles impact on The economic aspect of intangibles particular, some of our experience as three key constituents of an organisa-
  2. 2. Managing Intangibles tion, namely its values (cultural and Tool Values Process Resources financial), processes (how work is Balanced Scorecard (BSC) done) and resources (e.g. human, IT, Business Process Reengineering facilities). By simultaneously impacting Core Competencies on the values, processes and resources Knowledge Management Lean Operations (Christensen’s VPR framework)8 of an Mission and Vision Statements organisation, intangibles offer new Offshoring ways to manage and influence aspects Outsourcing of an organisation that are historically Shared Service Centers very difficult to administer. Six Sigma Strategic Planning The Use of Other Tools Supply Chain Management TQM While there are numerous tools and Motorola or GE might well consider that particularly in light of linking together techniques to help manage intangibles, they have ‘Six Sigma values’ as part of intangibles around values, processes particularly around people, they have their corporate culture. Likewise, it and resources. Perhaps the best start- tended to focus on discrete parts of an would be simplistic to suggest that off- ing point comes from Kaplan and organisation, rather than offering a shoring and outsourcing have no Norton’s own writing where they state complete or holistic view. Continuing impact on the resources of the organi- that “the three principal categories for Christensen’s Values, Process and sation in question. With these excep- the learning and growth perspective Resources based view of the firm, it is tions in mind (and there are more are: employee capabilities, information possible to examine a variety of tools besides), the key consideration for the systems capabilities and motivation, which aid the management of intangi- selections made in the table came from empowerment and alignment”11. bles. With this framework in mind, it is each tool’s area of organisational What is particularly striking about this possible see which tools impact on val- impact or primary focus. extract is how one could quite easily ues, processes and resources. substitute the three constituent parts What about the Balanced Scorecard? above12 for Christensen’s VPR frame- The following table details thirteen From the table above, it would appear work. The table below illustrates these management tools9 and their primary overlaps. organisational and VPR focus10. that the BSC and to a lesser extent, Strategic Planning offers the perfect In essence therefore, we are back to As can be seen the tools tend to con- tool for managing intangibles and where we started. In trying to better verge on the process component of an equally providing a holistic view of an manage intangibles and in particular organisation. Equally, while BSC and organisation’s values, processes and those around people, we are left with a Strategic Planning do span the three resources. While it would be wrong to choice of tools which focus on discreet elements of VPR, achieving this cover- suggest that this isn’t the case, there parts of an organisation, rather than age from other tools requires them to are some relevant intangibles that the tools which offer a holistic overview, BSC can fail to capture, in particular linking the learning and growth per- be used in conjunction or combined those associated with the learning and spective and/or values, processes and with one another. growth perspective. resources together. It is also worth acknowledging that While it is beyond the scope of this arti- A 4G Perspective some of the tools could cover alternate cle to present a comprehensive parts of the VPR framework, creating a overview of the BSC, there are a few Given this brief overview of manage- different table from the one above. For observations that can be readily made, ment tools and in particular, the BSC example, organisations such as
  3. 3. Managing Intangibles and the VPR framework, there are two and aspects of the BSC/VPR perspec- potential conclusions that can be tive. At its heart, 4G offers insights into drawn. The first is that as we have seen three key areas, namely; above, BSC and VPR focus on discreet, as opposed to interlinked aspects of • Understanding individual’s behaviours people focused intangibles. The second and personality (Social Profiles) conclusion, as evidenced both by the • The prediction and articulation of rela- BSC’s raison d'etre and the diversity of tionships (Social Relationships) management tools as covered by Bain • The definition and measurement of Learning and culture and values16 (Social Groups) Christensen’s Growth Values, Processes Perspective from and Resources The diagram at the bottom of the page the Balanced Framework Scorecard illustrates how Social Profiles, Relationships and Groups link to VPR Employee Resources ideas. Capabilities Information By understanding and predicting the Systems Processes interlinked roles played by individuals, Capabilities their relationships and group culture, it Motivation, is proposed that 4G goes some way to Empowerment Values providing managers with new tools and and Alignment13 techniques for getting more from their people. Equally, such a perspective and others14, is that management offers insights that historically would tools which provide a holistic view, have only been available by chance rather than discreet view offer greater alone. value. Building on these two ideas, 4G15 offers a means of simultaneously analysing the people based intangibles Four Groups Ltd 5 St. Johns Lane London EC1M 4BH, United Kingdom Tel: +44 (0) 20 7250 4779 Email: © 2007 Four Groups Ltd, 5 St. Johns Lane London EC1M 4BH, United Kingdom. All rights reserved. No part of this document may be reproduced without Company Number: 4650494 express written permission from Four Groups Ltd. VAT Number: 817 7962 85 Registered in England and Wales
  4. 4. Footnotes and references 14. http://www.valuebasedmanage- 1. 15. 2. 3. aq.html 4. 16. 5. This analogy can also apply to trans- action costs and better understanding the costs associated with various organ- isational processes, again with a view to increasing efficiencies. 6. Examples of intangible factors that are managed on a day to day basis might include; relationships, processes, costing structures and tacit knowledge, amongst others. 7. By way of example, of the 25 man- agement tools given in Bain’s Management Tools survey, at least 8, or 32% are concerned with the manage- ment of intangibles. 8. 9. The 13 tools are a subset of the 25 tools detailed by Bain at ools/ 10. The remaining 12 tools listed by Bain are felt to bypass the VPR frame- work in that they are a combination of specific technologies, customer man- agement and methods focussed on dealing with the external environment. 11. 12. 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” 13. For the sake of completeness, one might wish to focus solely on the over- lap between alignment and values, but this may be a case of splitting hairs.