Today, it is the non-financial performance, made up of mostly the intangibles within organizations, that is accounting for upwards of 80% of present investors’ valuation of our organizations.
Yet do shareholders really have the knowledge to judge the real source of value creation inside our organizations? I think not but they should. Does Management actually?
We lack a real line of sight into the true value of our organizations that make them dynamic
There is a pressing need to connect the real sources of value creation and these come from all our capitals and bring this clearly into the ‘line of sight’ of the management itself within our business organizations, as well as the shareholders.
There is this chronic lack of real understanding of where the true value does come from or if it is known, given the public recognition it deserves beyond the usual “oh, its in the business model”or similar assumption- what is? Where does real value lie?
Lets begin with the make up of all our capitals, it is way beyond just financial
Often when you begin to talk of capital, automatically the financials come to mind. The financial decisions and results are an outcome from our ability to leverage all the other capitals making up our organizations. Most of these are intangibles and you often get that glazed look and the standard reply “intangibles are difficult to measure”.
Yet they really do need to be effectively measured and understood. They need to be really understood to know where the value creation potential does actually lie. Knowing the values of these can determine the gaps that need plugging and the potential that can be leveraged in what you have available to you.
Understanding ALL the capitals within our organizations is essential
Thankfully understanding our capitals, beyond the financials, has been a work-in-progress for many years, we know more about it yet it still remains grossly understated within any of the reporting mechanisms organizations make.
The need to make our intangibles that remain invisible on our present balance sheets has to be addressed. These are ones that make up
1) the internal structures, processes, routines, databases that contribute to the structural capitals ,
2) the external structures where external relationships, networks and customer capital contribute into the make-up of relationship capitals, and
3) the competences that include individual experiences, knowledge, competences, skills, capacity to learn, the absorbing and translating of an idea that all build and contribute to the human capital aspects of our organizations.
Turning the intangible light switch on is becoming essential
Management is still groping in the dark on measuring its intangibles, yet there is this pressing need to find the light switch and through the spotlights on the understanding on all the intangibles that make up our organizations, be these ones regarded as the classics of human, relationship and structured capital.
We need to explore many dynamic factors that have a substantial impact potential for our business.
How often do you hear thoughtful and coherent explanations of market positions, besides the market ranking, the depth in management experience?
Or the understanding of the quality and ongoing upgrading of major processes that are not generic statements but factual and measurement driven?
Or the progress made in research leadership beyond the top-level picture of “areas of focus” so you can truly assess the innovation pipeline and its potential impact beyond the immediate?
We are rapidly moving from physical to knowledge based, often in a real need to build very intellectual based enterprises and knowing where the real value lies is becoming absolutely essential to understand.
This will require a significant shift in existing managerial mindsets. Managing our ‘range of capitals’ is essential to do.
We should seek a better visibility into our organizations
Better outcomes and a greater relationship between investors and the organization needs to be achieved. I think it is possible but it is a journey many today are reluctant to travel. They should.