Thursday, November 06, 2008

How valuable are your intangibles?

If you had to add an "intangibles" line item to your balance sheet, what monetary value would you assign to your brand? How much is the creativity of your staff actually worth?

According to author Denise Caruso, "... intangible assets now make up between 60 and 80 percent of global corporate worth. The monetary value represented by those percentages is staggering. Leonard Nakamura of the Philadelphia Federal Reserve Bank declared in 2001 that the value of gross investments in such intangibles as alliances and networks, human capital, and leadership was greater than $1 trillion annually for the United States alone. Reports from both the Federal Reserve and the National Bureau of Economic Research (NBER) calculated that as much as $800 billion of intangible investment was excluded from published data on U.S. gross domestic product in 2003. The exclusion translated to more than $3 trillion of intangible corporate value."

Caruso adds, "When the authors of the NBER working paper ­ Carol Corrado, Charles Hulten, and Daniel Sichel ­ added intangible assets to the sources-of-growth framework used by the Bureau of Labor Statistics, they saw 'a significant difference in the observed patterns of U.S. economic growth' that drive investment, corporate strategy, and government market interventions.

"If the absence of effective accounting for intangibles is significantly skewing official statistics, that means the daily decisions being made by investors, managers, and regulators are actually based on financial data that has only a marginal connection with economic reality ­ and does not even acknowledge the existence of the most important drivers of value in the global economy."

What are the implications for these un- and under-accounted for assets, and whose responsibility is it to support markets and promote investment in intangibles? Read the entire article here.

Denise Caruso is the executive director and chair of the Hybrid Vigor Institute, which supports cross-disciplinary inquiry and collaboration on science, technology, and social issues. She is the author of Intervention: Confronting the Real Risks of Genetic Engineering and Life on a Biotech Planet

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At 9:25 AM, Anonymous Anonymous said...

Discussions of intangibles often get very abstract and hard to understand. They are a powerful new asset class that absolutely drives the 60-80% of value that Denise Caruso cites. But businesses do not make decisions based on value. The easiest way to get the intangibles agenda onto the table at every management and board meeting is to start thinking about the cost of intangibles. Investments in intangibles run through the income statement (for a lot of reasons, intangibles are not on the balance sheet). These costs should be broken out and analyzed as any long-term tangible investment is analyzed. It's not sexy but it is a basic step that we need to take in order to make intangibles a normal part of our business information and management systems.


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