Intangible Assets

creating value from your intangible assets
unlocking your true potential

C ontents
1 Executive sum m ary
2 B ackground
4 O ptions and flexibility
6 R elationships
10 Know ledge
14 Leadership and Com m unication
18 C ulture and Values
22 R eputation and Trust
26 Skills and C om petencies
30 Processes and System s
34 U nlocking your true potential
36 C onclusions
1
In practice, there are few sources
of com petitive advantage that
cannot be duplicated and m atched
by com petitors.
U ltim ately, a com panys ability to
flourish in this environm ent w ill
depend on its ability to create value
from intangibles.
Irrespective of sector, innovative
com panies recognise that to
m aintain their com petitive
advantage they m ust continually
seek to identify, develop and m ake
best use of all their available
resources so that they can continue
to offer new and im proved products
and services.
This report, w hich draw s on the
experiences of som e of the U Ks
m ost successful com panies,
highlights how successful
com panies in all sectors of the
econom y are m eeting this
challenge through the effective
utilisation and exploitation of their
intangible assets.
The com panies interview ed
stressed that the follow ing
intangible assets w ere essential
ingredients upon w hich their
com panys future success w ould
be built.
I Relationships
I Knowledge
I Leadership and Communication
I Culture and Values
I Reputation and Trust
I Skills and Competencies
I Processes and Systems.
The challenge ahead
The challenge for all com panies is
therefore to look beyond their
existing financial statem ents w hich
provide historic "accounting"
records of tangible assets and to
consider the w ider perspective of
how to invest in and m ake best use
of all the assets of the business,
tangible and intangible.
U ltim ately, the ability of your
organisation to m eet not only its
current goals and objectives, but
also to grasp future opportunities,
w ill depend on its ability to create
value from the intangible assets. It
is only by identifying, m anaging and
developing the full spectrum of
intangibles that you w ill be able to
unlock your full potential.
Executive sum m ary
The com bined im pacts of globalisation, new technology and increased com petition m eans that
all com panies are facing the prospect of continual increm ental and, occasionally, radical change.
2
This report is based on in-depth interview s betw een secondees to the D epartm ent of Trade
and Industrys Future and Innovation U nit and 50 successful organisations. It also draw s on the
assistance of a high level advisory group and input from partner organisations.
B ackground
The conclusions outlined are draw n
from the general question:
What have you got that is
valuable that is not included
in the balance sheet?
The language that the organisations
used to respond to this sim ple
sounding question provides a basis
for understanding w hat these
m issing intangiblesare and how
they contribute tow ards business
success for any organisation.
Analysis of the diversity of responses
has provided a fram ew ork of
im portant areas for reflection in
order to add value to the quality of
planning and problem solving.
Linking intangibles to
goals and problems
Intangible resources are im portant
to all organisations. W eak areas
tend to constrain aspirations w hilst
areas of strength help to generate
new opportunities. R ecipes for
success depend on talented people
acquiring and using the right
m ixture of tangible and intangible
assets to achieve goals and
overcom e both identified and
latent problem s.
W hilst individual aspects of the
overall resource m ix m ay contribute
differently depending on context,
organisations should consider their
vision for how these intangible
areas should be contributing to
business success and how to
invest to build their resources and
capabilities in areas considered key
to success.
Keeping track of intangible
investments
Financial reporting system s focus
on historic balance sheets, profits
and cash flow , but you dont get the
right perception of the prospective
value by looking at history. Value, in
an uncertain w orld, depends on
both objective and subjective
assessm ent of future options and
flexibility as w ell as an extrapolation
based on historic and current
perform ance. M aking sense of the
value to be derived from careful
investm ent in intangibles lies in
considering your future focuson
potential opportunities and
uncertainties rather than by
focusing on historic costs.
3
Tracking progress requires thought.
There are the usual dangers of
m anaging only w hat is m easured
and of m easuring only the things
that are easy to m easure rather
than m easuring the right things.
H ow ever, attem pting to m easure
everything is tim e consum ing,
costly and tends to result in
analysis paralysis. Avoiding the
issue by keeping your head in the
sandrisks a lack of focus on critical
success factors.
What are the right things to
measure in your business?
A sm all num ber of Key
Perform ance Indicators that are
understood and valued by everyone
is m uch better than a prescriptive
set of rules w hich dont appear to
have obvious business benefit.
KPIs, like custom er satisfaction
levels, m ay be view ed from the
perspective of each intangible area
in turn to help identify areas of
strength and w eakness, hence
opportunities and threats. To the
need for selective KPIs, w e w ould
add the view that anecdotes and
stories can be a pow erful w ay of
com m unicating the im portance
of intangibles.
I What Key Performance
Indicators, anecdotes and
stories have you developed
to highlight the importance
of your intangibles?
I How well do you
communicate the risks and
opportunities that your
business faces?
I How attractive is your
organisation, as an employer,
a supplier, a partner or as part
of the community?
4
The seven areas that w e identify are:
I Relationships
I Knowledge
These areas com prise the
intangible raw m aterials that
talented people use to collaborate
w ith each other in order to achieve
goals, solve problem s and seize
opportunities.
O ptions and flexibility
A ll organisations have a diverse m ix of assets, both tangible
and intangible, w hich, if m anaged in a strategic and forw ard
looking w ay, w ill yield new areas of business and profit. W hilst
all organisations are different, and no sim ple form ula w ill fit all
circum stances, w e identify seven intangible value stream s that
require investm ent and m aintenance in order to sustain current
and future business prospects.
5
External reporting
W e also highlight the need for
organisations to im prove the quality
of dialogue w ith a variety of stake-
holders, in com m unicating risks and
uncertainties. U ltim ately the quality
of dialogue affects both licence to
operate, w hich includes issues like
consent to and support for activities
from non financial stakeholders,
and cost of capitalw hich is
influenced by the attractiveness of
the overall business proposition to
financial stakeholders.
I What are the risks and
uncertainties associated
with our plans that we
wish to understand and
communicate?
I What stories and anecdotes
do we currently use to help
others understand the context
and importance of key issues?
I What Key Performance
Indicators do we currently use
to track progress towards goals
and solutions to problems?
Planning investment in
intangibles
For each of the seven areas,
organisations should reflect on their
ow n individual business
environm ent and consider the
answ ers to tw o separate sets of
questions:
1. CURRENT ACTIVITIES
The focus here is on improving
efficiency and effectiveness of
current activities, reviewing
what you do and reflecting on
where improvements might be
achieved in ways that increase
the value of the business.
I Where are we now?
I Where do we want to go?
I How do we get there?
2. FUTURE ACTIVITIES
The focus here is on building
options and flexibility for the future,
investing inunderstanding how the
business context is likely to change
and what needs to be done to
position the business to handle
uncertainty and to drive or at least
take advantage of change.
I What is changing?
I What do we want to change?
I How shouldweinvestfor
the future?
R elationships
6
7
The challenge facing your company
O nly by developing an effective strategy
for m anaging and m aintaining excellent
relationships w ith all its key stakeholders
can a com pany hope to achieve
its full potential.
A successful com pany is one that
looks constantly to build on its
existing relationships, be they
external (custom ers, suppliers or
anyone else w hose ideas and
co-operation m ay assist in m eeting
goals and solving problem s) or
internal (different functions and
theirteam s w orking together to
seize opportunities and create
value).
U nderstanding how to identify,
develop, organise and sustain an
appropriate netw ork of relationships
that bring new w ays of w orking,
ideas and opportunities plays a key
role in the quest for com petitive
advantage.
I Do your people enjoy working
with each other and does
this extend to your external
relationships?
I How well does your
organisation work as a team
to look after, learn from and
make best use of your network
of internal and external
relationships?
I Do you have appropriate
people with the right talents,
training and outlook to
maintain key relationships and
to communicate the value of
these within your
organisation?
Over the years
we have made an
enormous investment in
building the trust of our
suppliers: this is reflected
in things like the credit
terms provided to us
8
M anaging relationships w ith
custom ers is obviously im portant,
but w hatever its resources, no
organisation can do everything on
its ow n and there w ill alw ays be
additional value to be gained from
investing in a sensible netw ork of
external relationships. Successful
com panies continually acquire
know ledge, ideas and other
resources by developing
relationships w ith a diverse range of
useful contacts. Learning from both
in-house operations and externally,
perhaps through collaboration,
consultation or investm ent,
provides the inspiration for
innovation and im itation.
W hether internal or external,
sustainable relationships rely on
each party continually providing
value, or at least the prospect of
value to the other party. Value m ay
be sim ply m oney earned, but it
m ight also be considered in term s
such as know ledge or experience
gained and successfully applied,
reputation enhanced or a problem
solved. Losing the trust of
im portant relationships ultim ately
destroys value, profitability and
com petitiveness. R elationships
based purely on legal docum ents
m iss the all-im portant "hum an"
factors.
What companies told us
The interview s conducted as part of
this w ork indicated that both
internal and external relationships
needed to be addressed if a
com pany w as to be successful.
The discussions highlighted that for
internal relationships, the key
issues are things like how w ell the
people w ork together to solve
problem s and achieve success,
how m uch they cared about the
w ay they w orked and the quality of
the environm ent in w hich they
w orked. This applies equally to
external relationships.
We seek to build relationships with all those who can
bring valuable things to the organisation, from raw
materials to technology
R
e
la
tio
n
s
h
ip
s
9
Next steps and key questions
For your com pany to reach its full
potential in this area it is essential
that you not only consider how you
can develop and im prove your
current relationships, but that you
also carefully consider how you can
develop and im prove the
relationships necessary for your
future success.
D etailed here are som e
key questions to allow you to
consider how best to tackle this
im portant area.
Relationships Checklist
Focus on the current business
environment (Im proving the w ay
you currently do things)
Where are we now? (SWOT)
W hat do w e offer that encourages
others to w ork w ith us? W hy dont
som e choose to w ork w ith us?
W hat m ight w e do better? W hat
is at risk if w e dont attract and
sustain the relationships w e need?
Where do we want to go?
W hat are our goals for increasing
the value of the goods and
services w e currently offer and
the ideas and experiences w e
gain from our relationships?
How do we get there?
W hat are the m ost im portant
relationshipproblem s that w e
need to solve?
Focus on the future business
environment (C reating options and
flexibility to take advantage of change)
What is changing?
H ow should w e seek to take
advantage of new w ays of w orking
enabled by technology and
outsourcing? D espite change, w hat
critical ingredients of our w ays of
w orking m ust w e m aintain?
What do we want to change?
W hat are our goals for creating
new sources of value for existing
and prospective relationships?
Investing to create future value
W hat are the key relationships that
w e need to secure to help achieve
our future aspirations?
Without people, you dont
have any value in your
business. Value
creation is all about
developing good
relationships
We need to stay close to our customers to learn from them
and support them in order to keep ahead of competitors
Know ledge
10
11
For a com pany to survive and
flourish in this environm ent it is
essential that it not only
continuously looks to develop its
know ledge base, but also ensures
that this know ledge is shared and
used effectively throughout the
organisation. Explicit or codified
know ledge can be w ritten dow n
and as such is easily replicated and
copied. Tacit know ledge is held in
the m inds of individuals and is
shared through stories, contact
and discussion.
W ithout know ledge m anagem ent
com panies m ay fail to identify and
respond fast enough to key
know ledge opportunities
and gaps. Failure to share
know ledge also m akes them m ore
vulnerable to a sudden loss of
know ledge, for exam ple through a
key em ployee leaving.
I Are you confident that your
organisation is doing all it
should to acquire and utilise
the knowledge you need to
build and sustain the
organisation?
I What active steps have you
taken to ensure that
knowledge is shared
throughout the organisation?
I How easy would it be for
competitors to replicate your
knowledge and ways of
working? What steps have
you taken to protect the
organisation from losing
critical knowledge at the
wrong time?
The w ay in w hich a com pany m anages and utilises its
know ledge has alw ays been crucial to success. H ow ever,
against a background of increased com petition and the
increasing im pact of new technology and electronic
com m erce, the added value a com pany can achieve from
the effective use of its know ledge and expertise is
becom ing increasingly im portant.
We build on previous
projects through talking
to each other, we share
knowledge and ideas
to spark off thoughts
on how to solve
particular problems
12
The interview s conducted
highlighted that successful
com panies are the ones that take
active steps to acquire, retain and
effectively deploy new know ledge.
They also identified the need to
keep it up to date rather than
allow ing it to go stale.
Som e know ledge is unique and can
be protected by law , patents,
design rights and copyrights; other
know ledge is kept secret in an
effort to sustain com petitive
advantage. W hilst som e
intellectual propertycan be given a
value for accounting purposes
m ost know ledge is excluded from
the balance sheet. This is because
accounting rules focus on factual
historic costm easurem ent rather
than engaging in speculation on the
potential future m onetary value of
know ledge and understanding
and the degree of uncertainty
and opportunity.
In addition to traditional know ledge
assets, successful com panies also
consider the value of the overall
know ledge base in term s of the
w ay that it can be used to create
value in the context of
relationships. This includes
know ledge about people or things,
about how som ething is done,
about problem s, opportunities,
context and so on. They also
m entioned things like reputation
and prestige that arise from being
considered know ledgeable.
The com panies that w ere
interview ed also recognised that
m ost of the know ledge and
understanding necessary to operate
business functions is not unique
and that good ideas tend to be
copied and w ays of w orking
replicated as soon as their value is
appreciated. They therefore
constantly sought to learn and
im prove and recognised that a
good w ay of doing so w as via
the exchange of know ledge
through their relationships w ith
their key partners.
H aving know ledge is only half of
the equation: having it som ew here
w ithin the organisation is very
different from ensuring that those
w ho need it have access to it and
use it to create value in the context
of relationships. A ll com panies
should therefore keep in m ind the
follow ing key criteria if they are to
m axim ise the benefits of their
know ledge base.
I That sharing knowledge
is vitally important if the
organisation is to reach its
full potential.
I Understand how to use
their knowledge effectively
in the context of each key
relationship.
I Learning the wrong things
or applying learning in the
wrong way can turn this
crucial intangible asset into
a liability.
K
now
ledge
13
that you not only consider how you
can acquire and utilise the
know ledge required for your
current activities, but that you also
carefully consider w hat know ledge
you w ill need for your future
success.
im portant area.
Knowledge Checklist
W hat know ledge gives us a
com petitive advantage? W hat
know ledge lies unused? H ow
m ight w e m anage our know ledge
better? W hat risks do w e need
to m anage?
W hat are our goals for im proving
the flow s of know ledge and
experience necessary to sustain
our key relationships?
gaps in our know ledge that w e
need to fill?
What is changing?
W hat current know ledge w ill w e
need to build on to take advantage
of the future m arketplace?
W hat are our goals for creating
new products and services that
w ill generate value by solving
problem s for our relationships?
W hat are the key know ledge
gaps that need to be addressed to
secure our future aspirations?
The more experience is
gained with different
bespoke solutions, so
the easier it is to
leverage this knowledge
into new solutions for
new relationships
We need to understand our customers preferences,
how to package and how to market
We invest in gathering knowledge. Knowledge
underpins everything we do
Leadership and
C om m unication
14
15
C larity of purpose helps to
encourage a culture that considers
the custom er relationship first,
rather than the com m and structure,
because people understand the
balance betw een the goals of the
organisation and the day to day
needs of sustaining the goodw ill of
custom ers. Everyone rem ains
m otivated tow ards achievem ent of
goals, but innovative and creative
thinking is encouraged to
enhance com petitive advantage
and brand value.
I Is your leadership actively
involved in the change
process, do all your people
understand what the priorities
are, how they should
contribute and are they
predisposed and motivated to
behave in this way?
I Do you use 360 reporting in
the context of all your
relationships to find out what
they think?
I Can you map your most
important internal and
external communication
channels, the important flows
of knowledge and sharing of
insight that helps achieve
goals and solve problems?
If com panies are to achieve their full grow th potential it is
essential that clear goals and aim s are set and are em bedded
throughout the organisation. This can only happen through strong
leadership and effective com m unication. Successful com panies
have such qualities and are the ones in w hich everyone is
aw are of the role they play in the com panys success.
We didnt start off with a
strategic vision, we started
with an operational need.
Clarity about what you
want to do is valuable
16
If the com panys leaders are to
provide effective direction and support
they m ust behave them selves in
the w ay they w ould like others to
behave. They m ust consider the
w ays in w hich people are inspired
to pull together to solve problem s
and to achieve goals.
This is not just about people
understanding w hat they are
supposed to do, it is also about
com m itm ent because they believe
that it is the right thing to do. This
goes further than sim ply
understanding m ission statem ents
and targets, but requires a m uch
deeper understanding of context.
Exam ples w ere given w hen all too
often it is disaster rather than
foresight that acts as the catalyst
for change. To avert this, everyone
needs to be clear on how to
contribute and w hy their contribution
is im portant to the future prospects
of the organisation.
Successful com panies achieve this
through the clarification of goals,
reinforced by leadership
com m itm ent and support for the
developm ent of an atm osphere that
encourages continuous learning,
creativity and innovation. The
potential rew ard is not seen sim ply
as that of im proving efficiency and
effectiveness. W hilst these are
im portant short-term and long-term
goals the potentially bigger prize is
about enhancing im age and brand.
Such an approach, reinforced by
appropriate m otivation and rew ard
packages, not only releases the
energy and com m itm ent of its
people, but also enhances the
prospect of attracting and retaining
talented people and partners.
The com panies w e m et also
stressed that a crucial com ponent
of a com panys future success w as
the ability to think ahead w hen
developing the business strategy.
N o organisation has the resources
to do everything. Successful leaders
distinguish betw een w hat m ust be
done w ithin the organisation and
w hat should be done outside.
They achieve valuable options and
flexibility through outsourcing,
collaboration, joint ventures,
strategic investm ent and spin out of
valuable but non-core activities.
Leadership and Communication
ge
17
that you not only consider how
effective the current leadership
and com m unication channels are
in your organisation, but that you
constantly seek to im prove to m eet
future challenges.
im portant area.
Leadership &Communication
Checklist
Is everyone clear on the m ission
and values of the organisation and
do these reach the hearts and
m inds of our people? A re goals
and responsibilities clear? A re
risks and potential rew ards clearly
understood?
W hat do w e need to change
to increase our com petitive
advantage?
W hat action plans do w e need to
im plem ent to im prove team w ork,
problem solving, creativity and
innovation?
What is changing?
D oes everyone understand how
the m arket is changing? A re
responsibilities and priorities
clear? D oes everyone understand
how to contribute to and benefit
from success?
W hat are the resources and
capabilities w e need to support
our am bitions for the developm ent
of new products and services?
W hat are the aspects of our
developm ent plans that w ill enable
us to w in and sustain the support
of both financial and non-financial
stakeholders?
Identification of the opportunity is one thing; selecting and
investing in the right exploitation route is quite another
Prioritisation of projects is based partly on the
usual investment appraisal methods but projects
also have to fit with strategy fit with strategy is
the first hurdle
C ulture and Values
18
19
Successful organisations respond
to change by encouraging new
innovative thinking that seeks a
sustainable future rather than
seeking to sustain the past.
A key com ponent in a com panys
ability to achieve this goal is its
ability to inspire its people, create
outstanding products and services
and connect effectively w ith
aspirations and values of all their
im portant internal and external
relationships. This m eans investing
in understanding how to reach the
hearts and m inds of groups w ho
m ay not all share a com m on
perception of the m eaning of value.
These are key intangible assets
w hich your com pany w ill be judged
on and w ill form one of the
foundation stones of your success.
company has the culture and
values necessary for success
now and in the future?
I How effectively is everyone
motivated to behave in ways
that contribute to the
companys goals?
I Within the organisation,
who has the power to invest
in change or the power to
block change?
We invest to support a culture where people share not just
knowledge but their inner thoughts. Others can copy our
systems but they cannot copy a culture of trust that we
have built over time
The speed w ith w hich new w ays of w orking are identified and
replicated due to faster aw areness of m arket developm ents
highlights the need for w ays of w orking that can adapt quickly
to new challenges and grasp available opportunities.
20
Successful com panies are those
w hich recognise culture and values
as valuable resources that help
the business to get things done.
M ore im portantly, they care about
doing things in the right w ay for
each relationship.
Im portant elem ents of a culture
and values strategy are things like
team w ork, w illingness to learn and
to take m easured risks. W hilst you
cant expect to be able to tell
people to becom e passionate about
things that are suddenly thrust
upon them , you can at least explain
the context, the w ay they can help,
the rew ard for success and highlight
the risks to the organisation for
failure. The key here is to ensure
that everybody understands how
their role influences the ability of the
com pany to succeed and that they
feel em pow ered to get on w ith
respective roles.
M otivation for desired behaviours,
accountability and the need for the
creativity and innovation necessary
to sustain the organisation as the
environm ent changes are all strongly
linked to culture. W ith increasing
com petition w ithin and betw een
all sectors of the econom y, it is
im portant that all organisations
rem ain responsive to change.
Investing in the right culture and
values plays a key role in allow ing
organisations to m eet new
challenges and grasp new
opportunities.
W hilst you cant change your
history, and produce a new
successful culture overnight, you
can seek to ensure that action plans
contribute to goals, objectives and
problem solving in w ays that
contribute to your vision for the
brand of the com pany.
The w ay people w ork w ith their
relationships needs to be brand
enhancing, both internally and
externally. C hanging the w ay you
w ork w ithout thought as to how the
brand w ill be affected can be very
dangerous. Im position of change
w ithout w inning hearts and m inds
of those affected m ay destroy value
through conflict and bickering.
Likew ise, reputation and trust
carefully built up over years can be
destroyed in a m om ent by a
thoughtless act or statem ent.
We want to build a culture of decision-making based on clear
objectives rather than passing the decision up the line
Culture and Values
21
that your organisation has the culture
and values that w ill not only help you
to m eet the challenges facing you
today, but also enable the com pany
to grasp future opportunities.
D etailed here are som e key questions
to allow you to consider how best
to tackle this im portant area.
Culture and Values Checklist
W hat is it about our behaviour
that m akes it rew arding to w ork
w ith us? W hat could w e do
better? W hat do w e need to do to
im prove? W hat can w e learn from
the w ay others w ork?
the loyalty and com m itm ent of all
our relationships?
problem s that w e need to solve?
What is changing?
H ow do w e sustain the w ays of
w orking w e value w hilst
em bracing new opportunities
e.g. those offered by advances
in inform ation and com m unication
technologies?
W hat are our goals for im proving the
clim ate for creativity and innovation?
W hat do w e need to do to sustain
the com m itm ent and energy of
our people?
We recognise that different
groups have different
cultures rather than a
single culture. Its
important to manage the
relationship between
different cultures to keep
the overall team together
R eputation
and Trust
22
23
W hatever sector of the econom y, the fact that you have the
best product or service in the m arket, at the m ost com petitive
price, w ill count for little if your reputation w ith custom ers,
creditors, suppliers and em ployees is low .
Successful com panies recognise
the key role reputation and trust
play in their ability to com pete
effectively and therefore invest
significant effort in constantly
seeking to enhance their reputation
and to develop trust both w ithin the
organisation and externally.
In addition they also seek to
recognise issues w hich could
dam age these key intangible assets
and take steps to reduce this risk as
far as practicable.
company is taking the steps
necessary to enhance its
reputation and to identify
potential areas that could
damage these crucial assets?
I What are the things that you
need to do to earn and sustain
the levels of reputation and
trust that your plans demand?
I What are the areas that you
worry about most? What are
your most important risks and
uncertainties?
Association with reputable organisations can add value.
Their presence on a list of suppliers or clients adds prestige
and may help to attract other key clients and talent
24
R eputation and trust m ay be linked
to direct experience or third hand
reporting. Essentially w e are
looking at past track record and
future confidence based on
contextual experiences.
Im age and brand are im portant,
but in essence the value of this
intangible is very m uch to do w ith
people and context. A ll of the areas
identified in previous sections
of this report can influence
perceptions, the w ay in w hich
an organisation m anages its
relationships and know ledge,
its leadership and quality of
com m unication, its attractiveness
as a place to w ork for or as an
organisation to do business w ith.
The follow ing sections about skills
and com petencies, processes and
system s likew ise reinforce the
need to think about the im portance
of not sim ply thinking about areas
in isolation, but in term s of the w ay
in w hich they interact w ith each
other. The degree of overlap
betw een areas is im portant just as
the relationship and com petitive
context is im portant.
A good reputation together w ith
trust in the brand inspires loyalty
and tends to attract new
relationships, know ledge and
talent. It is a vital ingredient for
attracting financial resources and
w ill certainly influence the value of
a business if it com es up for sale
because of its im portant link to
future prospects.
R eputation is built up over tim e by
the behaviours of people in the
organisation and the quality of
products and services, but activities
need to be brand enhancing and
increasingly organisations are
taking care to associate them selves
w ith partners that share sim ilar
values. Successful com panies
invest significant tim e and effort
into brand im provem ent, they also
seek to recognise, understand and
guard against factors that could
potentially underm ine this effort.
A dopting such an approach can
significantly enhance your
com panys ability to reach and
com m unicate its full grow th
potential.
We are competing against others. We need to be seen as good people
to do deals with. This gets us into discussions early
Reputation and Trust
25
potential it is essential that it
develops the reputation and trust
that w ill support all your other
activities. It is also essential that
you seek to identify w ays to
enhance these crucial assets w hilst
at the sam e tim e identifying areas
w here these assets could be
dam aged in the future.
im portant area.
Reputation and Trust Checklist
W hat have w e done to deserve
our reputation and the trust of
our relationships? D o all our
activities enhance our brand?
W hich of our behaviours need to
change? D o w e understand the
needs and values of our
stakeholders?
W hat are our goals for increasing
the value of our brand?
W hat are the im portant im age
problem s that w e need to solve?
What is changing?
H ow does our brand need to evolve
to take advantage of the future
m arket place? H ow should w e be
seeking to position the com pany?
H ow should w e seek to extend
the brand?
W hat new im age enhancing
activities do w e w ish to develop
and how should w e exit activities
that dont enhance the brand?
Organisations with a
good reputation may be
able to survive a downturn;
those without probably will
not. People will expect
them to come to a bad end
and to an extent it becomes
self-fulfilling
Our brand is linked to the
status of the companies we
work for
Skills and
C om petencies
26
27
The ability of a com pany to com pete effectively, m eet and
exceed their custom ers needs and realise its full potential is
reliant on attracting, developing and retaining the right m ix of
talented people.
We need a wide variety of skills to grow the capacity of the
business; we also need to bring in new skills to develop the
scope of the business
G row th plans rely, not just on the
ability to scale up the num bers, but
on m aintaining things like quality,
responsiveness and reliability. If
grow th is by acquisition or if non
core opportunities are to be spun-
out then all intangible areas require
particularly careful reflection.
I What do you do to attract and
retain the people you need to
develop the organisation?
I How do you invest to
build the capacity of your
organisation to unlock
your true potential?
I What criteria do you use
for selecting partners and
collaborators?
28
The value of people is a them e that
runs right the w ay through this
report but here w e consider the
investm ent in developing and
releasing the talents essential to
support existing operations and
future plans. Successful com panies
recognise that everyone needs the
space and opportunity to
continually learn.
Talented people dem onstrate their
w orth by responding to the problem s
of dealing w ith conflicting priorities
by doing the right thingbecause
they understand not just their ow n
areas of accountability, but, the
organisations goals and the
operating context. The less talented
blindly follow the historic rulebook.
N obody is suggesting anarchy, but
since innovation is the key to
survival, a m easure of freedom to
experim ent and learn from both
success and failure is im portant to
both individual and organisational
developm ent. The skill lies in
m aintaining a sensible balance
betw een risk and rew ard.
M any of the com panies
interview ed highlighted the value of
team skills, som etim es above
qualifications. They also identified
the com m itm ent to see projects
through to a successful conclusion
and the ability to recognise the
com m ercial potential of
developm ents and to act quickly
w hen the need arises.
The talents, skills and
com petencies of the w orkforce,
together w ith external partners,
represent the hum an resource
available to sustain the
organisation. The scaleability and
replicability of existing activities
needs to be considered alongside
the problem of m anaging potential
new activities. The ability to retain
talented people w ill be at risk w hen
their aspirations and your plans
dont fit, hence the interest of
som e in corporate venturing and
spin-out activity as a w ay of
extracting value from non-core
opportunities.
The ability of your com pany to
reach its full potential w ill depend
on the continued learning and
developm ent of all m em bers of the
organisation. M any of the
com panies interview ed stressed
the need to fully understand the
skills and com petencies required to
operate and com pete effectively
and once identified ensuring that
the necessary investm ent is m ade
to provide all staff w ith the tim e and
space to learn and apply new skills.
R ew ard, recognition and the
opportunity to use them w as seen
as playing a key role in m otivating
staff to obtain the skills and
com petencies needed for current
and future success.
The expertise of all employees, not just the acknowledged experts,
is an important part of customer service
Reputaton and
S
kills and C
om
petencies
s
e
s
a
n
d
S
y
s
te
m
s
29
Skills & Competencies Checklist
W here are our strengths and
w here do w e need to invest in
im provem ent? W hat
opportunities do w e have to
m ake better use of our talents?
W hat do w e risk by failure to
m ake best use of all our
resources and capabilities?
W hat are our goals for
attracting the right people and
the right learning and
developm ent opportunities?
H ow do w e convey the value of
w orking w ith this organisation?
What is changing?
W hat talents w ill w e need to have
in order to take advantage of the
future m arketplace?
W hat are our goals for acquiring the
new skills and com petencies that
w e w ill need to sustain our
relationships?
W hat are the gaps that w e need
to fill?
Prospective new employees spend a day with the
business, as much an interview for the company as for the
individual. That way we end up with a better fit
potential it is essential that you not
only attract the right people, but
that you also provide them w ith the
opportunity to gain the skills and
com petencies they need to m eet
your current needs and future
challenges.
im portant area.
This is about getting the right, relatively small number
of people who, like in football, are key buy a good
striker and goalkeeper
Processes
and System s
30
31
The right processes and system s
contribute to the efficiency and
effectiveness of organisations, but
flexibility and adaptability are also
im portant. Successful com panies
consider these aspects by
benchm arkingthem selves against
the best they can find in order to
identify im provem ent areas w ithin
their ow n operations.
company has the information
flows needed to evolve the
way it works so that it
remains competitive?
I How do your processes and
systems stack up against your
most dangerous competitors?
I How do you ensure that when
important knowledge is
discovered by one part of the
organisation, that it is applied
and shared with others in
order to extract its full value?
To com pete effectively a com pany needs to ensure that it has
in place the processes and system s in the right location to
support all its activities and to m eet the various dem ands of its
various stakeholders.
Simplification of process is an important element of
knowledge codification and knowledge sharing; we make
extensive use of process redesign to simplify processes
We invest in systems to improve accuracy of delivery,
speed of delivery, stock control and systems to interface
with customers and the network of distributors
32
This section is about the w ay in
w hich organisations set about the
process of using know ledge to
design the right processes to
deliver value to relationships. Its
about learning how to m ake best
use of their overall portfolio of
tangible and intangible assets. Its
also about evaluating and using
ideas to design operations that are
custom er focused.
A ll organisations w ill have a range
of things that they do in a regular
and consistent w ay, things like staff
appraisal, project appraisal, budgeting,
setting targets, producing financial
statem ents, m arketing, planning,
project m anagem ent, com pliance
w ith standards and legislation,
identification, packaging and
m anagem ent of intellectual
property etc the potential list goes
on and on. The detailed w ays in
w hich these activities are
undertaken w ill vary from
organisation to organisation,
context to context. There is obvious
overlap w ith know ledge, skills and
com petencies. Investing in the right
processes and system s relies on
understanding how know ledge and
know -how are com bined, in the
right place, at the right tim e, to
create w ays of w orking that
provide brand enhancing
com petitive advantage.
Successful com panies recognise
that as w ith all the other areas it is
im portant to consider inter-
relationships, the quality of
operations has a clear link to reliability
and reputation. Equally the effective
use of know ledge to im prove
processes w ill be dependent on the
effectiveness of relationships,
w hich in turn m ust be supported by
the right culture and values.
W hilst operational issues w ill tend
to provide the focus for num erical
m easurem ent, for exam ple
efficiency ratios, there is a danger
of m easuring w hat is m easurable
rather than m easuring w hat is
im portant. Selection and
interpretation of perform ance
indicators and action plans related to
the im provem ent of processes and
system s needs to be considered in a
holistic w ay against the overall tangible
and intangible asset base. This
applies particularly to know ledge
flow s that arise from each
relationship involved in the process.
Project management is important,
particularly for IT projects
S
kills and C
om
petenc
e
P
ro
c
e
s
s
e
s
a
n
d
S
y
s
te
m
s
33
Investing in systems is primarily about improving efficiency, but do not
assume that systems fix processes, they dont. Processes must be sorted
out first, then systems come in to automate them. Putting a system in
will not fix a busted process, you have to fix the process first
potential it is essential to consider
both the current investm ents in
processes and system s required
to support your current activities
and those designed to m eet
future challenges.
im portant area.
Value mapping processes are used to get customers to
rank product features; this information is fed straight into
the product development and marketing strategies
Processes and Systems Checklist
W hat do w e do really w ell
com pared w ith our com petitors
and w here are w e w eak?
W hat ideas do w e have for
im provem ents in key areas? W hat
risks are w e exposed to because
of the w ay in w hich
w e currently operate?
the efficiency and effectiveness
of our operations?
For each of our operations w hat
are the m ain problem s that w e
need to solve?
What is changing?
H ow should the w ay w e w ork
evolve to take advantage of the
know ledge and ideas w e get
through w orking w ith our
relationships and by observation of
m arket developm ents?
W hat are our goals for developing
our com m unication flow s and
m aking the best use of all resources
and capabilities at our disposal?
W hat are the key investm ents
that w e need to m ake, not just
in tangible assets but in the
intangibles needed to
support them ?
Successful com panies seek to
im prove their value creating potential
through the creation of options and
flexibility in respect of all their assets.
U nderstanding the intangible
factors that contribute to the value
of both tangible and intangible
assets, things like, design, location,
ease of use, safety, replicability,
scaleability, flexibility, reliability,
quality and for intellectual property
things like the scope and degree of
legal protection are all im portant
aspects to consider.
I Do you appreciate that value
may mean different things to
different stakeholders?
I Have you identified the key
risks, uncertainties and
problems that need to be
explained and tracked?
I Are your key investment
priorities clearly communicated
to both internal and external
audiences in terms that
embrace both financial and
non-financial goals?
U nlocking your true potential
A ll com panies are different and there is no sim ple form ula that
fits all. Talented people learn to use the seven intangibles
stream s identified to provide them w ith insight into current and
potential future w ays of w orking involving all the assets of the
business, both tangible and intangible.
Our relationship with financial institutions is enhanced
by our mutual understanding of intangibles
You cant do everything at once, focus on
the most important things first
34
I Relationships and knowledge
are im portant throughout the
value chain. H ow ever, all
tangible and intangible assets
need to be considered together
if you are to unlock your
organisations full potential.
I A prescriptive approach to either
investm ent or reporting is not
the answ er.
I A ttem pting to place a financial
value on specific intangibles w as
seen as unreliable, potentially
m isleading and dangerous.
I Values also need to be considered
in the context of value to w hom
and for w hat purpose. W hen
selling a business or idea, value
needs to be considered from the
differing perspectives of buyers
and sellers.
I Financial statem ents alone do
not provide the answ ers for
either internal or external
reporting.
I Forecasting is an uncertain
process, but it is im portant to be
able to discuss goals, problem s
and success criteria in the
context of identified risks and
uncertainties from both an
internal or external
com m unication perspective.
I Leadership and Communication:
successful leaders consider not
just w hat to do, but w hen,
w here and how to do it and w ith
w hom . They recognise that
business life is a trade off
betw een activities, stakeholder
groups, individuals, risk and
rew ard, certainty and uncertainty,
cash absorbing and cash
generating. They com m unicate
priorities and w in the
investm ent needed to ensure
that the com panys structure
and fram ew orks can adapt and
evolve in the light of change.
I Culture and Valuescontributes
to the quality of the w orkplace
environm ent, care for each other
and for tangible assets, it links to
happiness, safety, openness,
team w orking, co-operation,
em pathy and so on and this
extends to w ays of w orking
w ith external relationships.
I Reputation and Trust m ay be
influenced by the first
im pression given by people and
by tangible assets, like look and
location of property, the capacity
of equipm ent or by a long list of
Intellectual Property. In the long
term , how ever, im age and brand
are sustained by things like
em pathy w ith needs, reliability,
quality, security, uniqueness,
responsiveness, friendliness and
so on, in other w ords things that
help to m ake the overall
relationship experience som ething
to be valued.
I Skills and Competencies:
its not sufficient to sim ply know
about things, to possess the
tangible facilities or to ow n the
intellectual property, you need
the talent to m ake use of
resources to create value for the
organisation. The core
com petencies are identified as
the ability to learn alongside
ability to seize opportunities at
the right tim e, and place in
innovative w ays that create
value for all concerned.
I Processes and Systems: its
not sim ply a case of considering
how to do som ething, you need
to consider the im plications of
the w ay you do it, com pliance
w ith legislation, w ith quality
standards and the standards
dem anded by society as a
w hole. Staying in touch w ith the
m ood and aspirations of
stakeholders rem ains an
im portant consideration. This
requires a com m itm ent to
thinking about flow s and
availability of know ledge, ideas,
m aterials, cash and other
resources, not sim ply from your
ow n perspective, but from the
perspective of the other side of
the relationship.
I
35
36
This study highlights the need for
organisations to look beyond their
existing financial statem ents to
consider how a w ide spectrum of
excluded intangibles contribute to
their current and future potential to
create value.
It is the overall m ix of tangible and
intangible investm ents that
differentiates one organisation from
another, and w ithin this m ix a
spectrum of intangibles are
identified as key com ponents of
brand and com petitive advantage.
The intangible investm ent areas
highlighted by this spectrum are:
I Relationships
I Knowledge
B ased on the text and questions
w ithin this report, organisations
m ay identify the strengths,
w eaknesses, opportunities &
threats associated w ith the overall
spectrum , in order to m anage and
develop action plans to:
1 Improve the efficiency and
effectiveness of current
activities by targeting
investment to where its most
needed.
2 Build the components of value
that will provide the options
and flexibility necessary to
sustain the future.
3 Enable the diagnosis of
problems and the
identification of critical
success factors and key
performance indicators.
4 Facilitate internal
communication of values,
goals, problems,
opportunities, risks
and uncertainties.
B ased on the above, team s
collaborate to identify root causes
of problem s, decide action plan
priorities, and an appropriate basis
against w hich to m easure progress.
Progress is usually m easured
regularly by broad indicators, for
exam ple custom er, supplier or staff
satisfaction survey trends,
operational productivity ratios,
com pliance w ith standards or the
achievem ent of m ilestones for
project w ork.
A s a result of undertaking these
internal exercises:
5 The insight achieved from the
above provide the bones for
enhancing external
communication and reporting.
The flesh on reporting being
the quality of the dialogue
with specific external groups
enabled through an in depth
understanding of the overall
contributions to existing
operations and future
aspirations from the various
intangibles.
.
C onclusions
B ased on the responses of 50 successful organisations, this
study provides a w ay to focus on the key intangible resources
and capabilities that talented individuals use to m eet goals, to
solve problem s and to create the type of innovative clim ate
necessary to offer a sustainable and rew arding future.
37
A cknow ledgm ents
The Future and Innovation U nit, w ould like to
thank the follow ing individuals, partners and
organisations for their invaluable input to this
docum ent.
Advisory Group
Stephen H ailey (C hairm an)
John G rant
H erm ann H auser
Tom O ates
Tim Parker
Jonathon Porritt
B ernard Taylor
Stuart W allis
Project Manager
Tim H oad
Partners
C entre for B usiness Perform ance,
Institute of C hartered A ccountants
in England and W ales.
C entre for Exploitation
of Science and Technology
C onfederation of B ritish Industry
D esign C ouncil
Institute of D irectors
Institute of M anagem ent C onsultancy
M anagem ent C onsultancies A ssociation
The C entre for Tom orrow s C om pany
The C hartered Institute of M arketing
The C hartered Institute of Personnel
and D evelopm ent
The Industrial Society
Organisations
A IT G roup
A m adeus C apital Partners
A rthur A ndersen
A straZeneca
B & Q
B ackup Staff
B ede Scientific
B ite C om m unications
B onas M achine C om pany
B T
B uckm an Laboratories International
B usiness Intelligence
C & J C larke
C elem i
C olt Telecom
C onduit C om m unications
C orporate Television N etw orks
C osgrove H all Film s
D iageo
Eyretel
Forum for the Future
G SM G roup
H alfords
H SB C B ank
Iceland G roup
Interregnum
JP M organ
Lever Faberge U K
Linklaters
London B ridge Softw are H oldings
M arks & C lerk
M arsh
M errill Lynch Investm ent M anagers
N ovo N ordisk
N ovartis International
O scar Faber
Pow derJect Pharm aceuticals
R egus
R em edy C om puter Services
ServiceTec
Shared View Social R esponsibility
Southern B ioScience
St Lukes
Telos Partners
The B A E SYSTEM S Virtual U niversity
The B ook People
The R afferty C onsultancy
U nilever
U nipart G roup
W oolw ich
D esigned and produced by The R afferty C onsultancy 01342 301346 w w w .raffertys.co.uk
Department of Trade and Industry
Future & Innovation Unit
B 7/17, 1 Victoria Street
London SW1H 0ET
For additional copies:
Website: www.innovation.gov.uk
Telephone: 0870 1502 500
Fax: 0870 1502 333
May 2001. Department of Trade and Industry. http://www.dti.gov.uk/
Crown Copyright. URN 01/727

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creating value from your intangible assets

unlocking your true potential

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