You have made the point that companies do in fact invest in intangibles (software implementation is an excellent example) and as the financial data is available, why not make it a practice to use to understand that nature of that investment?

But let’s push the envelope even further: beyond examining the existing financial data better to understand how much one has invested in intangibles, how does one then evaluate the RETURN on said investment?

It is one thing to know how much you spent on intangibles; it is another to be able to intelligently evaluate what you got for it and how well implemented your expenditures were. But this question pushes the conventional mindset yet further, in that to answer it we would have to let go of the managerial Holy Grail of MEASURING (related to tangible phenomena), and develop the new skill set of EVALUATING or INTERPRETING intangible phenomena.

Measurment of intangibles, generally speaking, requires contrivances which often obscure the intangible reality we are trying to evaluate. The bad news is that intangibles generally can’t be “measured”, by their very nature; it is self-evident that a bin of coal is phenomenologically different from human assets like industry knowledge, functional cultural norms, a basic sense of security, team trust, honesty, etc, etc.

Per you article, such intangibles are more and more THE heart of the value of a business. But if we limit our understanding of them to “measurement”, we will be doomed to failure, treating apples as oranges. What will it take to wake clients up to the imperative of shifting cultural mindsets to a new axiom suitable to post-information age conditions: Measure what is measurable, but learn to EVALUATE what is intangible….

This thought may provoke anxiety initially; it pushes the envelope and we are confronted with the realization that we may not have the requisite skills. But it is better to have that humbling experience and get on with the learning than to continue to operate as if you were running a coal mine. : )

Nice work. Jim Ludwig http://www.integralinput.com

As always, the key challenges will be to define how the different assets should be reported, but this is something that accountants actually excel in.

To get the whole thing started, you will need support from the analysts: from my experience companies rarely divulge more data than they absolutely have to, even when it would be beneficial for their valuation.

I will explore this further in the Scandinavian market, where I am located. Let’s continue the dialogue over e-mail.

Best regards,

.Henrik Martin