Intangible assets: manage the hidden 80% of your value through Strategy Map. If you grew up in the ‘70s you will probably remember Bruce Lee. He burned brightly for a few short years as an icon in the American film industry. His films triggered a wave of interest in martial arts and changed the way Asians were presented in American films. His popular philosophy focussed on self-knowledge. With prescient clarity he said:
‘The intangible represents the real power of the universe.
It is the seed of the tangible’.
He could have been writing an introduction to post-information age and Strategy Map thinking.
The real value in organisations today is measured in intangible assets. Towards the end of the 20th Century, with the shift from Industrial to Information age, we began to hear “The Customer is King” and “Our people are our greatest asset”. Consultants arrived to “Optimise our Processes”. Usually our “Kings” suffered as the “Optimisation” failed and gouging retrenchments caused half of the “Greatest Assets” to be out on the street. The contract had changed from “stay with us for life” to “You are only as good as your next great idea”. It was an exciting, confusing time and devastating for those who could not make the change.
The basis for value has shifted – to intangible assets
Intangible Assets are now the key. Up until the ‘80s, the value of an organisation could be understood from financial statements. Strategic decisions were made on financial grounds. If you wanted to dig more holes, you did a discounted cash-flow, calculated your breakeven point, hired more labour and bought more spades. There were far more complex decisions but ultimately tangibles accounted for 80% of corporate value. This bias changed dramatically in the knowledge economy.
By the close of the century Intangible Assets accounted for the value in organisations. In “Strategy Maps” authors Kaplan and Norton say that now 80% of the value in organisations comes from factors such as unique skills, motivation, team cohesion, innovative processes and strategic relationships. Information in databases is not enough. Now you require the skill to synthesise information to create new concepts.
The way you create value through intangible assets is also a change
- Value is created indirectly. Therefore there may be a time-lapse. Intangible assets deliver value through chains of cause and effect. If you sell cars, sales coaching will remove show-stopping surprises from the sales process. Customers will trust your sales staff. You will convert more enquiries into sales and customers will buy more of your offer, increasing the value of each sale. Satisfied customers will increase your rate of referrals and will return to buy their next car.
- Value is created in context. Sales and product training will improve your sales. Personal Mastery training may improve relationships with customers over a longer period. Six sigma training will not impact your sales, except perhaps negatively.
- Value is in the potential. The potential is realised through processes and structures. Having hot-shot, highly trained sales staff will not help you much if they spend their time with unnecessary administration or frustrating post-sales problems.
- Value is created through integration. Staff talent, skills and knowledge will improve your client experience only as your people have access to information from systems through an effective technology infrastructure and as they are supported in a positive culture.
Strategy Map is the best way to manage Intangible Assets
Kaplan and Norton’s Balanced Scorecard shows the measures, targets and actions required to present your value proposition. It is a ‘Balanced’ Scorecard’ because it covers your value proposition, your process and your resources, as well as financial targets. Kaplan and Norton developed a visual perspective on Balanced Scorecard to use in strategic conversation. They called this ‘Strategy Map’.
Here is how Strategy Map looks from the perspective of Intangible Assets.
You can show how you intend to align your Human Capital, Information Capital and Organisation Capital to support your internal processes.
Strategy Map – Figure 1: Aligning skills, culture and information tools
You can group your Internal Processes into simultaneous, complementary themes. The themes are Operations, Customer Management (Marketing and Sales), Innovation and Regulatory and Social (how your organisation shows that it is a good corporate citizen). You can also show how your internal processes are supported by your skills, culture and information capital. You can define strategic job families, an organisational change agenda and a strategic portfolio of information tools. These views will show how they support key areas of performance in your Internal Process.
Strategy Map – Figure 2: Aligning skills, culture and information tools with Internal Process
Themes in the Internal Perspective may deliver value over different time periods. Cutting costs or optimising processes may deliver value in weeks. Building customer relationships may deliver value in sales over months. Delivering value through innovation may take years. There may be conflict between short-term cost drivers and long term development drivers. Understanding these growth curves may be critical to the benefit-scape in the business case for your strategy.
Strategy Map – Figure 3: Complementary Themes and supporting strategic
You can show how internal process delivers your value proposition. The Customer or Client Perspective describes your offer from the perspective of your target market.
Strategy Map – Figure 4: Complementary Themes and supporting strategic skills and capacity support the value proposition described in the Customer Perspective
Finally you can show your financial targets and how they are delivered through the Intangible assets in the organisation. This is the full Strategy Map. With Strategy Map you can highlight the strategic objectives on which you base your strategy. You can also show the systemic relationships between objectives. On a single page you can show how you intend to capture value from your market.
Figure 5: The financial perspective and the full Strategy Map
You can show contradictory financial drivers. The conflict between short-term drivers such as improving cost structures and increasing asset utilisation and long term development drivers, such as expanding revenue opportunities and enhancing customer value to attract more revenue from existing customers, may be shown explicitly as different financial objectives using the Strategy Map structure. Strategy Map allows you to demonstrate the cause and effect links between objectives in process themes and elements of the customer experience you wish to offer.
Figure 6: Core strategic themes.
Strategy Map is an excellent tool discussing, documenting and executing strategy. This has been amply demonstrated over the last 20 years. If you form part of the 90% of organisations who fail to deliver on your strategy, perhaps this could make a difference for you. Strategy Map can achieve the following benefits for you:
- Strategy Map makes the alignment of intangible assets explicit. Strategy Map provides a systemic view of your strategic themes, key objectives, measures and actions.
- Strategy Map solves the problems of language, alignment and strategic focus. The four perspectives, the Internal Process themes, the objectives, and measures provide a lexicon for the strategic conversation. People operating within different perspectives can now understand each other.
- The structure of Strategy Map highlights gaps in the strategy. The Strategy Map template provides a normative checklist for the components of strategy. Your organisation can be explicit about which elements they want to include and which they want to leave out. For instance you may decide to focus on optimised processes but not on innovation.
Finally, Strategy Map prepares you for execution. Themes and objectives, once finalised in the Strategy Map, may be translated into specific annual, monthly, weekly and daily measures and targets and actions for individuals and teams. What you do is governed by your strategy.
