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Simultaneous Accounting: Intangible Value Assessment and Control in Integral Management

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This document was developed by Corporate Excellence – Centre for Reputation Leadership from the book Contabilidad simultánea. Valoración y control de los intangibles en la gestión integral (Simultaneous accounting. Intangible value assessment and control in integral management) written by Salvador Guasch, Head of the Institute of Intangibles and international expert on financial and nonfinancial accounting in collaboration with professor Antonio Márquez and Esteve Sitges and published by ACCID and Accounting Economists from the Consejo General de Economistas.

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Simultaneous Accounting: Intangible Value Assessment and Control in Integral Management

  1. 1. Until now, organizations have only focused on the assets and resources that brought economic growth. Nowadays, organizations also rely on other assets which may lack a set value but which contribute to the good running of the organization. This integral and systematic approach is explained in the book Contabilidad simultánea. Valoración y control de los intangibles en la gestión integral (Simultaneous accounting. Intangible value assessment and control in integral management) written by Salvador Guasch, Head of the Institute of Intangibles and international expert on financial and nonfinancial accounting in collaboration with Professor Antonio Márquez and Esteve Sitges. According to the authors, companies need to manage their tangible and intangible values and include them in their strategy. Moreover, they state that a good value system is the one that maximises the assets and resources, which provide economic as well as human, social and environmental profits. “Anything that contributes to the fulfilment of an established objective will have a value within that system and will be part of an specific value frame”. Intangible values have a value of some sort; it doesn’t need to be a price. These values may not be physical, but they are perceptible: working environment, innovation levels, knowledge and management ability are some examples. In this manual, Guasch presents his methodology aiming to meet the demands to capture, quantify and integrate intangible values along with tangible ones in the same system, through a series of units and value coefficients. Financial accounting covers anything that has a monetary value. However, there are some assets, which do no have an established countable value but an identity of their own and can substantially influence the general economic outcome. Strategy documents L18/2015 Simultaneous Accounting: Intangible Value Assessment and Control in Integral Management Metrics Book Summaries This document was developed by Corporate Excellence – Centre for Reputation Leadership from the book Contabilidad simultánea. Valoración y control de los intangibles en la gestión integral (Simultaneous accounting. Intangible value assessment and control in integral management) writen by Salvador Guasch, Head of the Institute of Intangibles and international expert on financial and nonfinancial accounting in collaboration with professor Antonio Márquez and Esteve Sitges and published by ACCID and Accounting Economists from the Consejo General de Economistas.
  2. 2. Book Summaries 2 Simultaneous accounting. Intangible value assessment and control in integral management Self-generated and emerging values In the authors’ words, intangibility must be regarded as “A profound dimension shaped by invisible things, which we might not be able to quantify in currency units but which nonetheless deserves a proper management, due to its strategic importance in order to reach the objectives that have been set”. When a company is well managed and thanks to its good running, it self-generates intangible values. Although these values cannot be regarded as economic assets, they might be considered as practical values, they have not been financially capitalised, they are the result of the right operative innovation, corporate knowledge, management culture, consumer loyalty, staff satisfaction, ethics and social responsibility. Variables such as corporate reputation, working environment or social responsibility must only be registered on the accounting of estimated intangibles. A new business model Many companies are reorienting their behaviour, leadership and philosophy in order to define their identity, purpose and their corporate values. Over the last decades, focusing on objectives and estimations wasn’t enough for management strategies to successfully lead in the new business environment. This is why, nowadays, a new way of understanding and running companies is emerging, a model based on values management and also on the role that companies play as committed social actors within the environments where they operate and participate. . The goal of the values management is for a company to lead according to its defining principles and to the characteristics that make it unique, so apart from maximizing the benefits the company also creates a shared appreciation of itself. This managing model tries to quantify tangible and intangible assets in order to study their mutual implications and synergies. In short, the aim is to launch a Balance Scorecard (balanced matrix in the authors’ words) to consider all the possible value variables, which occur inside a company. Integral Accounting Integral accounting is what value management uses to monitor the right implementation of intangible values. Thus, it needs to understand the global and complex reality of internal and external relationships in a company. According to Guasch, this is the only way “to realise that we need to pay attention to profits and power but also feelings, people and environment. We cannot take anything into consideration if we are not considerate. And this is what integral accounting tries to do”. Integral accounting has been labelled as the new business conscience because it deals with other relevant attributes beyond financial data or profits maximization. This new approach to business aims to introduce financial and nonfinancial indicators in the general information system at all levels, aiming to build/establish a long-term view when it comes to decision-making processes. Quantifying intangible assets Introducing tools to monitor and manage the values of a company, it is important to first define which values and targets have to be kept and strengthen. Integral goals are the ones that stand for the systematic perception of the company. Indeed, the objectives define the values of a company. If a company aims to get global simultaneous results (economic, social, human, relations, environment…), an ambitious frame – of intangible values focused on the most strategic ones so that the business structure stays healthy, productive and consistently functional- ought to be designed. Values can be classified and encoded within three major groups (human, structural, relational) quantified with unity values from 1 to 10 (1 being the lowest and 10 the highest/ excellence). There are suggested matrixes to present and easily compare and manage value units (v.u.). Finally, monetary units (m.u.) are used to register financial accounting. Surveys are carried out in order to assess intangible values as well as to gather information on how the company sees itself and how others see the company. Then, intangible values are quantified, both provided and self generated, following the value matrix, which includes: • Code • Value • Definition of ‘value’, so that everybody taking part in the survey has the same understanding. • Value units (v. u) assigned to each value. These matrixes compare simultaneously all the different values in a company. But to obtain the most of this process, each organization has to establish sensibly which are the most significant and relevant values that should be assessed, controlled and managed, according to the actual business context. The authors believe that assessing intangible values following this methodology provides a company with the following advantages: “Over the last decades, focusing on objectives and estimations wasn’t enough for management strategies to successfully lead in the new business environment”
  3. 3. Book Summaries 3 Simultaneous accounting. Intangible value assessment and control in integral management “A new model of doing business has emerged, based on value management” Table 2: Basic matrix for Human Values Table 3: Basic matrix for organizational values Source: Contabilidad Simultánea, 2015. Source: Contabilidad Simultánea, 2015. HV HUMAN VALUES V. U. 1 Abilities 2 Attributes 3 Moral values 4 Skills 5 Behaviour towards the environment 6 Knowledge 7 Experience 8 Improvement results OV ORGANIZATIONAL VALUES V. U. 1 Products and Services 2 Conventional-formal Organization 3 Systems and Methods 4 Processes 5 Technology 6 Logistic 7 Creativity and Innovation 8 Research 9 Internal Working Terms 10 Business Knowledge 11 Acquired Experience 12 Training 13 Corporate Culture 14 Integrality 15 Internationality 16 Competitiveness 17 Purpose 18 Sustainability 19 Spirituality 20 Harmony 21 Management 22 Good Governance 23 Organizational results Table 1: Quantified estimation Source: Contabilidad Simultánea, 2015. UNITS INITIALS VALUE Monetary m. u. Economic Values v. u. Functional
  4. 4. Book Summaries 4 Simultaneous accounting. Intangible value assessment and control in integral management 1. Establish value units, to be able to actually quantify intangible values. 2. Decode value units into specific coefficients, in order to grade or not economic outcomes. 3. Set more efficient assessment and management methods, as all intangible values are codified. 4. Gather data through research and surveys about how the company’s intangible values are perceived by its environment. 5. Value matrixes allow designing surveys based on the most significant priorities of a company. 6. Data in these matrixes is arranged into files and columns to include all the variables needed for integral management. Intangible values Guasch, who was the first Accounting professor at ESADE, outlines in this book the different intangible values in every organization. He classifies them in three big groups: human, structural, and relational. Human values (HV) The Human Structure (HS) of a company is formed by all the assets which have been developed by people during their personal and professional growth, and which might bring a significant value to the company. People have skills and abilities that evolve and can provide the company with first hand functional value. It is through people that companies can create and innovate and, therefore, evolve and improve their quality. Some of these human values are: new ideas, creativity, personal skills, process innovation, planning, mental maps and diagrams, etc. Table 4: Basic matrix for relational values Source: Contabilidad Simultánea, 2015. RV RELATIONAL VALUES V. U. 1 Investors 2 Employees 3 Customers 4 Consumers 5 Suppliers 6 Hired companies 7 Supply chain 8 Local community 9 Global community 10 Environment 11 Banks 12 Public administrations 13 Public finance 14 Management body 15 Unions 16 Organized consumers 17 Community associations 18 Media 19 Competition 20 Educational institutions 21 Vulnerable groups 22 Next generations 23 Relational results “Integral accounting tries to include relevant data that goes beyond financial assets and economic profit”
  5. 5. Book Summaries 5 Simultaneous accounting. Intangible value assessment and control in integral management It is important to take into consideration the values, which employees bring to a company, as these values play a role in the company’s formation and development. The potential of adding value on a regular basis might be an influential criterion when it comes to internal recruitment processes. Management skills are a good example of human values. Managers are required to have a series of features in order to lead efficiently and consciously, both within the general system and within their own field: • Negotiate: being able to intercede in conflict situations and to find solutions that are suitable for all parts. • Team Management: being able to manage a group of people with different skills in order to meet the set targets. • Delegate: being able to hand over authority and responsibilities to trained people in order to accomplish specific objectives. • Innovate: being able to do new things using the available resources and the personal skill potential as well as the skill potential of all the team members. • Lead: being able to inspire and motivate everybody in an organization so that projects are developed and implemented until they are finished. • Motivate: being able to instil a feeling of shared purpose and also reasons to participate, which will encourage others to reach the corporate goals. • Decide: being able to make the right decisions at the right time. • Team work: being able to work as a part of a team. • Perspective: being able to anticipate future situations in order to react appropriately. • Plan: being able to identify and define beforehand which are the most suitable actions according to the agreed programme. Organizational values (OV) The organizational infrastructure assembles all the tangible and intangible assets that must fulfil their role in the value chain. It depends mostly on the organizational infrastructure if business value is created or not. In fact, as it is portrayed in “Contabilidad simultánea”, this is one of the most decisive values and the less talked about. This value allows creating value from other assets. A quantified assessment on organizational structure allows managing all the physical, technological and human elements, which combined in a harmonious way make the organization development possible. This structure can be found in managing programmes, databases, brands, communication networks, staff selection and staff promotion, control systems and continuous improvement systems, and in other areas of the organization that support the efficiency and productivity of the organization as a whole. A company must evaluate its organizational profile to be able to select and promote the most important operative and strategic values. Relational values (RV) From a holistic point of view, companies need to consider all the people they relate to. Sometimes, organizations do not take into consideration all groups of stakeholders. However, in order to build long-lasting partnerships it is important to establish a strong relation able to create mutual profit for all the parts involved or interested. When talking about “parts involved”, we are referring to the stakeholders included in the organization relational scheme; because they have an identifiable and specific relationship with the organization and because they are interested in the organization’s operational results: consumers, suppliers, stockholders, employees, etc. These relationships may not be formal and both sides do not need to admit the connection for the relationship to exist. On occasions, there are conflicts of interest between the stakeholders and the company. Sometimes, stakeholders may be related to the company but not directly or explicitly interested in it. From time to time, stakeholders go unnoticed due to their lack of organization, especially when it comes to vulnerable groups. A company can and should keep in mind the way its activity affects the interests of the parties involved, particularly when it concerns the interests of clients, investors and employees. Conclusion: integrate financial and nonfinancial assets The authors insist on the fact that companies need to launch two different types of reports. On the one hand, a traditional financial report gathered through the usual method. On the other hand, a report to quantify intangible assets. This last one is a key task that enables an authentic consciousness assessment of the company or institution. The method suggested to monitor the intangible values allows to quantify them using value units. Then, according to the results, the company can change or reshape their actions to improve the management, as well as establishing specific action plans.
  6. 6. Leading by reputation ©2015, Corporate Excellence – Centre for Reputation Leadership A foundation established by major companies aiming to excel in the management of intangible assets and facilitate promotion of strong brands with a good reputation and a capacity to compete on the global markets. Our objective is to become the driving force, which would lead and consolidate professional management of strategic assets and resources, which generate value for companies all over the world. Disclaimer This document is a property of Corporate Excellence – Centre for Reputation Leadership developed with an objective to share business knowledge about management of reputation, brand, communication, public affairs and non-financial metrics. Corporate Excellence – Centre for Reputation Leadership is the owner of all rights to the intellectual property related to images, texts, drawings or any other content or elements of this product. Corporate Excellence - Centre for Reputation Leadership is the holder of all necessary permissions for the use of the document and therefore any reproduction, distribution, publishing or modification of the document without its express permission is prohibited.

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