Measuring the Strategic Readiness of Intangible Assets - Sun and Planets Spirituality AYINRIN
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How
valuable is a company culture that enables employees to understand and
believe in their organization’s mission, vision, and core values? What’s
the payoff from investing in a knowledge management system or in a new
customer database? Is it more important to improve the skills of all
employees or focus on those in just a few key positions?
Measuring
the value of such intangible assets is the holy grail of accounting.
Employees’ skills, IT systems, and organizational cultures are worth far
more to many companies than their tangible assets. Unlike financial and
physical ones, intangible assets are hard for competitors to imitate,
which makes them a powerful source of sustainable competitive advantage.
If managers could find a way to estimate the value of their intangible
assets, they could measure and manage their company’s competitive
position much more easily and accurately.
But
that’s simpler said than done. Unlike financial and physical assets,
intangible assets are worth different things to different people. An oil
well, for example, is almost as valuable to a retail firm as it is to
an oil exploration corporation because either company could sell it
swiftly if necessary. But a workforce with a strong sense of customer
service and satisfaction is worth far more to the retailer than it would
be to the oil company. Also, unlike tangible assets, intangible assets
almost never create value by themselves. They need to be combined with
other assets. Investments in IT, for example, have little value unless
complemented with HR training and incentive programs. And, conversely,
many HR training programs have little value unless complemented with
modern technology tools. HR and IT investments must be integrated and
aligned with corporate strategy if the organization is to realize their
full potential. Indeed, when companies separate functions like HR and IT
organizationally, they usually end up with competing silos of technical
specialization. The HR department argues for increases in employee
training, while the IT department lobbies for buying new hardware and
software packages.
What’s
more, intangible assets seldom affect financial performance directly.
Instead, they work indirectly through complex chains of cause and
effect. Training employees in Total Quality Management and Six Sigma,
for instance, should improve process quality. That improvement should
then increase customer satisfaction and loyalty—and also create some
excess resource capacity. But only if the company can transform that
loyalty into improved sales and margins and eliminate or redeploy the
excess resources will the investment in training pay off. By contrast,
the impact of a new tangible asset is immediate: When a retailer
develops a new site, it sees financial benefits from the sales in the
newly opened outlet right away.
Although
these characteristics make it impossible to value intangible assets on a
freestanding basis, they also point the way to a new approach for
quantifying how intangible assets add value to the company. By
understanding the problems associated with valuing intangible assets, we
learn that the measurement of the value they create is embedded in the
context of the strategy the company is pursuing. Companies such as Dell,
Wal-Mart, or McDonald’s that are following a low-cost strategy derive
value from Six Sigma and TQM training because their strategies are
predicated on continuous process improvement. The strategy of offering
customers integrated solutions (rather than discrete products) pursued
by Goldman Sachs, IBM Consulting, and the like requires employees good
at establishing and maintaining long-term customer relationships. An
organization cannot possibly assign a meaningful financial value to an
intangible asset like “a motivated and prepared workforce” in a vacuum
because value can be derived only in the context of the strategy. What
the company can measure, however, is whether its workforce is properly trained and motivated to pursue a particular goal.
Viewed
in this light, it becomes clear that measuring the value of intangible
assets is really about estimating how closely aligned those assets are
to the company’s strategy. If the company has a sound strategy and if
the intangible assets are aligned with that strategy, then the assets
will create value for the organization. If the assets are not aligned
with the strategy or if the strategy is flawed, then intangible assets
will create little value, even if large amounts have been spent on them.
In
the following pages, we will draw on the concepts and tools of the
Balanced Scorecard to present a way to systematically measure the
alignment of the company’s human, information, and organization
capital—what we call its strategic readiness—without which even the best strategy cannot succeed.
Defining Strategic Readiness
In
developing the Balanced Scorecard more than a decade ago, we
identified, in its Learning and Growth Perspective, three categories of
intangible assets essential for implementing any strategy:
- Human Capital: the skills, talent, and knowledge that a company’s employees possess.
- Information Capital: the company’s databases, information systems, networks, and technology infrastructure.
- Organization Capital: the company’s culture, its leadership, how aligned its people are with its strategic goals, and employees’ ability to share knowledge.
To
link these intangible assets to a company’s strategy and performance,
we developed a tool called the “strategy map,” which we first introduced
in our previous article for Harvard Business Review,
“Having Trouble with Your Strategy? Then Map It” (September–October
2000). As the exhibit “The Strategy Map” shows, intangible assets
influence a company’s performance by enhancing the internal processes
most critical to creating value for customers and shareholders.
Companies build their strategy maps from the top down, starting with
their long-term financial goals and then determining the value
proposition that will deliver the revenue growth specified in those
goals, identifying the processes most critical to creating and
delivering that value proposition, and, finally, determining the human,
information, and organization capital the processes require.
The Strategy Map
This
article focuses on the bottom—the foundation—of the map and will show
how intangible assets actually determine the performance of the critical
internal processes. Once that link has been established, it becomes
easy to trace the steps back up the map to see exactly how intangible
assets relate to the company’s strategy and performance. That, in turn,
makes it possible to align those assets with the strategy and measure
their contribution to it. The degree to which the current set of assets
does—or does not—contribute to the performance of the critical internal
processes determines the strategic readiness of those assets and thus
their value to the organization. The strategic readiness of each type of
intangible asset can be thought of as follows:
Human Capital (HC):
In
the case of human capital, strategic readiness is measured by whether
employees have the right kind and level of skills to perform the
critical internal processes on the strategy map. The first step in
estimating HC readiness is to identify the strategic job families—the
positions in which employees with the right skills, talent, and
knowledge have the biggest impact on enhancing the organization’s
critical internal processes. The next step is to pinpoint the set of
specific competencies needed to perform each of those strategic jobs.
The difference between the requirements needed to carry out these jobs
effectively and the company’s current capabilities represents a
“competency gap” that measures the organization’s HC readiness.
Information Capital (IC):
The
strategic readiness of information capital is a measure of how well the
company’s strategic IT portfolio of infrastructure and applications
supports the critical internal processes. Infrastructure comprises
hardware—such as central servers and communication networks—and the
managerial expertise—such as standards, disaster planning, and
security—required to effectively deliver and use applications. Two
categories of applications, in turn, are built on this infrastructure: Transaction-processing applications, such as an ERP system, automate the basic repetitive transactions of the enterprise. Analytic applications promote analysis, interpretation, and sharing of information and knowledge. Either type may or may not be a transformational application—one
that changes the prevailing business model of the enterprise. Levi’s
uses a transformational application to tailor jeans to individual
customers. Home Shopping Network uses a transformational application to
measure the “profits per second” being generated by currently offered
merchandise. Transformational applications have the most potential
impact on strategic objectives and require the greatest degree of
organization change to deliver their benefits.
Organization Capital (OC):
Organization
capital is perhaps the least understood of the intangible assets, and
the task of measuring it is correspondingly difficult. But in looking at
the strategic priorities that companies in our database of Balanced
Scorecard implementations used for their organization capital
objectives, we found a consistent picture. Successful companies had a culture
in which people were deeply aware of and internalized the mission,
vision, and core values needed to execute the company’s strategy. These
companies strove for excellent leadership at all levels, leadership that could mobilize the organization toward its strategy. They strove for a clear alignment
between the organization’s strategic objectives and individual, team,
and departmental goals and incentives. Finally, these companies promoted
teamwork,
especially the sharing of strategic knowledge throughout the
organization. Determining OC readiness, we concluded, would involve
first identifying the changes in organization capital required by the
new strategy—what we call the “organization change agenda”—and then
separately identifying and measuring the state of readiness of the
company’s cultural, leadership, alignment, and teamwork objectives.
Strategic
readiness is related to the concept of liquidity, which accountants use
to classify financial and physical assets on a company’s balance sheet.
Accountants divide a firm’s assets into various categories, such as
cash, accounts receivable, inventory, property, plant and equipment, and
long-term investments. These are ordered hierarchically according to
the ease and speed with which they can be converted to cash—in other
words, according to the degree of their liquidity. Accounts receivable
is more liquid than inventory, and both accounts receivable and
inventory are classified as short-term assets since they typically
convert to cash within 12 months, faster than the cash recovery cycle
from such illiquid assets as plant and equipment. Strategic readiness
does much the same for intangible assets—the higher their state of
readiness, the faster they contribute to generating cash.
Human Capital Readiness
All
jobs are important to the organization; otherwise, people wouldn’t be
hired and paid to perform them. Organizations may require truck drivers,
computer operators, production supervisors, materials handlers, and
call center operators and should make it clear that contributions from
all these employees can improve organizational performance. But we have
found that some jobs have a much greater impact on strategy than others.
Managers must identify and focus on the critical few that have the
greatest impact on successful strategy implementation.
John
Bronson, vice president of human resources at Williams-Sonoma,
estimates that people in only five job families determine 80% of his
company’s strategic priorities. The executive team of a chemical company
has identified eight job families critical to its strategy of offering
customized innovative solutions. These job families employ, in
aggregate, 100 individuals—less than 7% of the total workforce.
Kimberlee Williams, vice president of human resources at Unicco, a large
integrated facilities-services management company, says that three job
families are key to its strategy: project managers, who oversee the
operations in specific accounts; operations directors, who broaden the
relationships within existing accounts; and business development
executives, who help acquire new accounts. These three job families
employ only 215 people, less than 4% of the workforce. By focusing human
capital development activities on these critical few individuals, the
chemical company, Unicco, and Williams-Sonoma can greatly leverage their
human capital investments. It is sobering to think that strategic
success in these three companies is determined by how well they develop
competencies in less than 10% of their workforces.
Once
a company identifies its strategic job families, it must define the
requirements for these jobs in considerable detail, a task often
referred to as “job profiling” or “competency profiling.” A competency
profile describes the knowledge, skills, and values required by
successful occupants in the job family. Often, HR managers will
interview individuals who best understand the job requirements to
develop a competency profile they can use to recruit, hire, train, and
develop people for that position. To see how this might be done,
consider Consumer Bank, a composite example distilled from our
experiences in working with about a dozen retail banks.
Consumer
Bank was migrating from its historic strategy of promoting individual
products to one offering complete financial solutions and one-stop
shopping to targeted customers. The map for this new strategy identified
seven critical internal processes, one of which was “cross-sell the
product line.” Human resources and line executives then identified the
financial planner as the job most important to the effective performance
of this process. A planning workshop further identified four skills
fundamental to the financial planner’s job: solutions selling,
relationship management, product-line knowledge, and professional
certification. For each internal process on its strategy map, Consumer
Bank replicated this approach, identifying the strategic job families
and critical competencies each required. The results are summarized in
the exhibit “Human Capital Readiness at Consumer Bank.”
Human Capital Readiness at Consumer Bank
To
take the next step—assessing the current capabilities and competencies
of each of the employees in each strategic job family—companies can draw
from a broad range of approaches. For example, employees can themselves
assess how well their current capabilities fit the job requirements and
then discuss those assessments with a mentor or career manager.
Alternatively, an assessor can solicit 360-degree feedback on employees’
performance from their supervisors, peers, and subordinates. From these
assessments, employees get a clear understanding of their objectives,
meaningful feedback on their current levels of skill and performance,
and specific recommendations for future personal development.
Consumer
Bank estimated that it needed 100 trained and skilled financial
planners to execute the cross-selling process. But in assessing its
recent targeted hiring, training, and development programs, the bank’s
HR group determined that only 40 of its financial planners had reached a
high enough level of proficiency. The bank’s human capital readiness
for this piece of the strategy was, therefore, only 40%, as the exhibit
shows. By replicating this analysis for all its strategic job families,
the bank learned the state of its human capital readiness and thus
whether the organization could move forward quickly with its new
strategy.
Information Capital Readiness
Executives
must understand how to plan, set priorities for, and manage an
information capital portfolio that supports their organization’s
strategy. As with human capital, the strategy map serves as a starting
point for delineating a company’s IC objectives. In the case of Consumer
Bank, the chief information officer led an initiative to identify the
specific information capital needs of each of the seven internal
processes previously identified as critical to the bank’s new value
proposition.
For
the customer management process “cross-sell the product line,” the
workshop team identified an application for customers to analyze and
manage their portfolios by themselves (a customer portfolio
self-management system) as a transformational application. The workshop
team identified an analytical application for the same process (a
customer profitability system) and a transaction-processing application
(an integrated customer file). The internal process “understand customer
segments” also needed a customer profitability system, as well as a
separate customer feedback system to support market research. The
process “shift to appropriate channel” required a strong foundation of
transactional systems, including a packaged CRM software suite that
included modules for lead management, order management, and sales force
automation. For the operations process “provide rapid response,”
participants identified a transformational application (customer
self-help) as well as an analytic application (a best-practice community
knowledge management system) for sharing successful sales techniques
among telemarketers. Finally, the “minimize problems” process required
an analytical application (service quality analysis) to identify
problems and two related transaction-level systems (one for incident
tracking and another for problem management).
After
defining its portfolio of IC applications, the project team identified
several required components of IT infrastructure. Some applications
needed a CRM transactions database. Others required that a Web-enabled
infrastructure be integrated into the bank’s overall Web site
architecture. The team also learned about the need for an internal
R&D project to develop a new interactive voice-response technology.
All together, the bank’s planning process defined an information capital
portfolio made up of 14 unique applications (some of which supported
more than one internal process) and four IT infrastructure projects.
(See the exhibit “Information Capital Readiness at Consumer Bank.”)
Information Capital Readiness at Consumer Bank
The
team then turned to assessing the readiness of the bank’s existing
portfolio of IC infrastructure and applications, assigning a numerical
indicator from 1 to 6 to each system. A score of 1 or 2 indicates that
the system is already available and operating normally, perhaps needing
only minor enhancements. A score of 3 or 4 indicates that the system has
been identified and funded but is not yet installed or operational. In
other words, current capability does not yet exist but development
programs are under way to close the gap. A score of 5 or 6 signals that a
new infrastructure or application is needed to support the strategy,
but nothing has yet been done to create, fund, and deliver the
capability. Managers responsible for the IC development programs
provided the subjective judgments for this simple measurement system,
and the CIO was responsible for assessing the integrity of the reported
numbers. In the IC exhibit, we can also see that Consumer Bank
aggregated the readiness measures of individual applications and
infrastructure programs—designating them green, yellow, or red, based on
the worst-case application in the category—to create a portfolio status
report. With such a report, managers can see the strategic readiness of
the organization’s information capital at a glance, easily pinpointing
the areas in which more resources are needed. It is an excellent tool
for monitoring a portfolio of information capital development programs.
Many
sophisticated IT organizations already use more quantitative, objective
assessments of their information capital portfolios than the subjective
process we’ve just described for Consumer Bank. These organizations
survey users to assess their satisfaction with each system. They perform
financial analyses to determine the operating and maintenance costs of
each application. Some conduct technical audits to assess the underlying
quality of the code, ease of use, quality of documentation, and
frequency of failure for each application. From this profile, an
organization can build strategies for managing its portfolio of existing
IC assets just as one would manage a collection of physical assets like
machinery or a fleet of trucks. Applications with high levels of
maintenance can be streamlined, for example, applications with high
operating costs can be optimized, and applications with high levels of
user dissatisfaction can be replaced. This more comprehensive approach
can be effective for managing a portfolio of applications that are
already operational.
Organization Capital Readiness
Success
in performing the critical internal processes identified in an
organization’s strategy map invariably requires an organization to
change in fundamental ways. Assessing OC readiness is essentially about
assessing how well the company can mobilize and sustain the organization
change agenda associated with its strategy. For instance, if the
strategy involves focusing on the customer, the company needs to
determine whether its existing culture is customer-centric, whether its
leaders have the requisite skills to foster such a culture, whether
employees are aware of the goal and are motivated to deliver exceptional
customer service, and, finally, how well employees share with others
their knowledge about the company’s customers. Let’s explore how
companies can make these kinds of assessments for each of the four OC
dimensions.
Culture.
Of
the four, culture is perhaps the most complex and difficult dimension
to understand and describe because it encompasses a wider range of
behavioral territory than the others. That’s probably why “shaping the
culture” is the most often-cited objective in the Learning and Growth
section of our Balanced Scorecard database. Executives generally believe
that changes in strategy require basic changes in the way business is
conducted at all levels of the organization, which means, of course,
that people will need to develop new attitudes and behaviors—in other
words, change their culture.
Assessment
of cultural readiness relies heavily on employee surveys. But in
preparing surveys, companies need to distinguish clearly between the
values that all employees share—the company’s base culture—and the
perceptions that employees have of their existing system—the climate.
The concept of base culture has its roots in anthropology, which defines
an organization’s culture as the symbols, myths, and rituals embedded
in the group consciousness (or subconscious). To describe a company’s
base culture, therefore, you have to uncover the organization’s systems
of shared meanings, assumptions, and values.
The
concept of climate has its roots in social psychology and is determined
by the way organizational influences—such as the incentive structure or
the perceived warmth and support of superiors and peers—affect
employees’ motivation and behavior. The anthropological component
reflects employees’ shared attitudes and beliefs independent of the
actual organizational infrastructure, while climate reflects their
shared perception of existing organizational policies, practices, and
procedures, both formal and informal.
Surveying
perceptions of existing organizational policies and practices is a
fairly straightforward task, but getting at the base culture requires a
little more digging. Anthropologists usually rely on storytelling to
identify shared beliefs and images, but that approach is inadequate for
quantifying the alignment of culture to strategy. Organizational
behavior scholars have developed measurement instruments, such as
Charles O’Reilly and colleagues’ Organizational Culture Profile, in
which employees rank 54 value statements according to their perceived
importance and relevance in the organization. Once ranked, an
organization’s culture can be described with a reasonable degree of
reliability and validity. Then the organization can assess to what
extent the existing culture is consistent with its strategy and what
kinds of changes may be needed.
One
caveat: Managers do need to be aware that some variations in culture
are necessary and desirable in different operating units or functions.
The culture of an R&D group, for example, should be different from
the culture of a manufacturing unit; the culture of an emergent business
unit should be different from the culture of a mature one. Executives
should strive for agreement throughout the organization about
corporatewide values such as integrity, respect, treatment of
colleagues, and commitment to customer satisfaction. But some value
statements in the survey instrument should refer to the culture of
specific operating units. So, for example, surveys of the employees in
operations and service-delivery units would include statements about
quality and continuous improvement, whereas the R&D department
survey might include statements about creativity and innovation. For
employees involved in customer acquisition, statements might relate to
retention and growth or to a deep understanding of individual customers’
preferences and needs.
Leadership.
If
companies change their strategies, people will have to do some things
differently as well. It is the responsibility of leaders at all levels
of the organization—from the CEO of a retail chain down to the local
store managers—to help employees identify and understand the changes
needed and to motivate and guide them toward the new ways of working.
In
researching the best practices in our Balanced Scorecard database, we
were able to identify seven generic types of behavioral changes that
build organization capital, and each fell into one of two categories:
changes that support the creation of value—such as increasing people’s
focus on the customer—and those required to carry out the company’s
strategy—such as increasing accountability. The sidebar “Seven Behaviors
for Transformation” describes these behavioral changes in more detail.
Seven Behaviors for Transformation
To ensure that it gets the kind of leaders it needs, a company should draw up a leadership competency model
for each of its leadership positions. This is a kind of job profile
that defines the competencies a leader is expected to have to be
effective in carrying out the company’s strategy. For example, one
manufacturing company, attempting to create teams to solve customers’
problems, identified and defined three competencies essential for people
in team leadership positions:
- needs. —Outstanding leaders understand their customers. They place themselves in the customers’ minds and spend time with them to understand their current and future
- excellence. —Outstanding leaders work collaboratively with their own teams and across organizational and geographic boundaries. They empower their teams to achieve
- position. —Outstanding leaders tell the truth. They openly share information with peers, managers, and subordinates. They tell the whole story, not just how it looks from their
Often,
organizations will measure leadership traits, such as those listed
above, through employee surveys. A staff or external unit solicits
information from subordinates, peers, and superiors about a leader’s
mastery of the critical skills. This personal feedback is used mainly
for coaching and developing the leader, but the unit can also aggregate
the detailed (and confidential) data from the individual reviews to
create a status report on the readiness of key leadership competencies
needed throughout the organization.
Alignment.
An
organization is aligned when all employees have a commonality of
purpose, a shared vision, and an understanding of how their personal
roles support the overall strategy. An aligned organization encourages
behaviors such as innovation and risk taking because individuals’
actions are directed toward achieving high-level objectives. Encouraging
and empowering individual initiative in an unaligned organization leads
to chaos, as the innovative risk takers pull the organization in
contradictory directions.
Achieving
alignment is a two-step process. First, managers communicate the
high-level strategic objectives in ways that all employees can
understand. This involves using a wide range of communication
mechanisms: brochures, newsletters, town meetings, orientation and
training programs, executive talks, company intranets, and bulletin
boards. The goal of this step is to create intrinsic motivation, to
inspire employees to internalize the organization’s values and
objectives so that they want to help the organization succeed. The next
step uses extrinsic motivation. The organization has employees set
explicit personal and team objectives aligned to the strategy and
establishes incentives that reward employees when they meet personal,
departmental, business unit, and corporate targets.
Measuring
alignment readiness is relatively straightforward. Many survey
instruments are already available for assessing how much employees know
about and how well they understand high-level strategic objectives. It
is also fairly easy to see whether or not individuals’ personal
objectives and the company’s existing incentive schemes are consistent
with the high-level strategy.
For
example, a large property and casualty insurance company adopted a new
strategy intended to reduce its underwriting losses by creating a
tighter link between the underwriters, who decide whether to accept a
new piece of business, and the claims agents, who deal with the
consequences from poor underwriting decisions. Historically, these
specialists lived in different parts of the organization, and their
incentives were totally unrelated to each other, which clearly did
little to foster cooperation between them or with the line business
units they supported. To reflect the new strategy, the company changed
to a team-based compensation system in which everyone’s incentive pay
was based on a common set of measures (their Balanced Scorecard).
Underwriters and claims agents, who worked in service departments shared
by the various business units, were now rewarded using the Balanced
Scorecard measures related to the business units they supported. The
company used a survey instrument to capture the employees’ perceptions
of the improved teamwork created by aligning the incentive systems.
Teamwork and Knowledge Sharing.
There
is no greater waste than a good idea used only once. Most organizations
have to go through a cultural change to shift individuals from hoarding
to sharing their local knowledge. No asset has greater potential for an
organization than the collective knowledge possessed by all its
employees. That’s why many companies, hoping to generate, organize,
develop, and distribute knowledge throughout the organization, have
spent millions of dollars to purchase or create formal knowledge
management systems.
The
challenge in implementing such systems is motivating people to actually
document their ideas and knowledge to make them available to others.
Most organizations in our Balanced Scorecard database attempted to
develop such motivation by selecting “teamwork” and “knowledge sharing”
as strategic priorities in their Learning and Growth Perspective.
Typical measures for these priorities included the number of best
practice ideas the employees identified and used, the percentage of
employees who transferred knowledge in a workout process, the number of
people who actually used the knowledge management system, how often the
system is used, the percentage of information in the knowledge
management system that was updated, and how much was obsolete.
For
knowledge sharing to matter, it must be aligned with the priorities of
the strategy map. For example, one organization—a chemical
company—created several best practice communities to complement the
internal process objectives on its strategy map. The Improve Workplace
Safety community consisted of the safety directors from every facility.
They studied the best practices at the high-performing plants and
created a best practice–sharing program. The company’s output measure,
“days away from work,” dropped by 70%. In another example, a children’s
hospital was attempting to reduce costs without reducing the quality of
patient care. Intensive discussions resulted in a top-ten list of best
practices already being used somewhere in the hospital. The hospital
then formed cross-functional medical practice teams of physicians,
nurses, and administrators to implement as many of these procedures as
they practically could. It measured success, the output of this
knowledge-sharing process, by the “number of best practices utilized.”
The effective implementation of best practices over the next three years
led to dramatic improvements in organizational outcomes: Readmission
rates dropped by 50%, cost per case and length of stay each declined by
25%, and both customer satisfaction and quality of care increased. In
these and many other examples in our case files, organizations enhanced
their performance by aligning the teamwork and knowledge-sharing
component of their organization capital with their strategy.
To
get an overview of organizational readiness, companies can put the
information they obtain from their various surveys and assessments
together in a report like the one shown in “Organization Capital
Readiness Report.” In this exhibit, the leadership measure, drawn from
the leadership competency model, displays the company’s estimate, based
on employee surveys, of the degree to which the company possesses the
key attributes for leadership. At 92%, the company is above target on
its leadership objective and can be considered strategically ready in
terms of this dimension. The company’s OC with respect to teamwork and
knowledge sharing is also in good shape. But the firm is performing
inadequately in alignment and in developing the right culture, and these
problems are lowering its overall level of organization capital
readiness.
Organization Capital Readiness Report
• • •
The
intangible assets described in the Balanced Scorecard’s Learning and
Growth Perspective are the foundation of every organization’s strategy,
and the measures in this perspective are the ultimate lead indicators.
Human capital becomes most valuable when it is concentrated in the
relatively few strategic job families implementing the internal
processes critical to the organization’s strategy. Information capital
creates the greatest value when it provides the requisite infrastructure
and strategic applications that complement the human capital.
Organizations introducing a new strategy must create a culture of
corresponding values, a cadre of exceptional leaders who can lead the
change agenda, and an informed workforce aligned to the strategy,
working together, and sharing knowledge to help the strategy succeed.
Some
managers shy away from measuring their intangible assets because these
measures are usually “softer,” or more subjective, than the financial
measures they conventionally use to motivate and assess performance. The
Balanced Scorecard movement has encouraged organizations to face the
measurement challenge. Using the systematic approaches set out in this
article, companies can now measure what they want, rather than wanting
only what they can currently measure. Even if the measures are
imprecise, the simple act of attempting to gauge the capabilities of
employees, information systems, and organization capital communicates
the importance of these drivers for value creation. In the course of our
work, we have seen many companies find new ways to measure—and
consequently new ways to enhance the value of—their intangible assets.
The measurement and management of these assets played a prominent role
in their transformation into successful, strategy-focused organizations.
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