Companies reliant on intangible assets including data, brands and proprietary algorithms are pulling away from their traditional economy cousins.
This is no surprise in a year when digital stocks would have been expected to rocket anyway. But since the gap will most likely widen further, this trend could be bleak for companies heavily dependent on tangible asset value creation. Divergence between intangible and tangible asset economies started in the early 2000s as companies recovering from recessions invested in IP, branding and digitalisation precisely to be able to do more with less. And given that something like only 20% of the potential in the Cloud has so far been realised, then investing in intangible asset value creation looks likely to be the hot ticket for years. This is reflected in indices of companies with the highest and lowest intangible value per employee (Netflix is low, car makers are high), and also in employment figures. The largest listed American companies employ far fewer people today than twenty years ago. Where does this shift in investor focus leave businesses who build things and employ people?
Possibly at the point where we need to look again, very carefully, at intangible assets as strategic components that are integrated in our business models. Four decades of ‘brand’ as a business tool may have rendered it as slightly taken for granted. But it seems there’s never been a greater need to reinvent it than now.
‘Brand’ is old enough to slip easily into autopilot mode. Despite its maturity as a business staple, not everyone sees its value or wants to be involved in it. The ‘it’ in branding can easily become quite repetitive, and while for many companies there is a real need for clear fundamentals – purpose, vision, mission and values, there is also an opportunity to take a simpler, more singular path. What the shiny algorithm has over the traditional brand concept, is the instant appeal of a fantastic idea that can be grasped by a two-year-old and which sits in a super supply and demand model (watch Airbnb Inc.’s forthcoming IPO).
Preparing to reinvent our ‘brand’ means re-acquainting ourselves with the point of intangible assets. If we happen not to be an IP-generating machine, but simply people manufacturing services or products, then we need to rediscover the value of our idea. Not a ‘brand idea’ plucked from a lexicon of positive-sounding adjectives, but what we are actually about.
Even if we can’t spell algorithm, we should take a leaf out its book. Around 80% of the market value of the S&P 500 is attributed to intangible assets. These are assets with a defined future revenue flow and a measurable cost. Know-how and culture are potentially such assets. If we can leverage these, they are transferrable across generations and can help to secure future revenue flows. As we head into and hopefully quickly out of the next recession, surely this is the time for those of us in people businesses to deconstruct and rebuild our old frameworks that were designed for a world that has changed beyond recognition? We should focus instead on our inside story. What we are really interested in as people. The chances are if we define this honestly enough, then others will be interested too, including our customers and investors. We’ll find the algorithm we need.
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