I recently read two different blog posts on measuring intangible benefits of IT (information technology) projects. The first by Paul Ritchie More On Intangible Benefits and the other by Tabrez Khan A Case for IT’ s Non-financial ROI.

Both bloggers make the case that intangibles are important but very difficult to measure. I agree that they are important but think it is unfortunate that they are seen as so hard to measure. The field of intangibles and intellectual capital provide a number of important ideas that can be applied in IT business cases. Here are a few.

IT is Intangible: To start with, it is important to recognize that IT is itself a (mostly) intangible investment. I say this because much of IT spending is not capitalized on the balance sheet but, rather, expensed on the income statement. Any analysis of the costs of a project ends up happening outside the accounting system because so much of the spending simply gets expensed.

The only reason for mentioning this is to remind those in IT that intangibles are not something to be ignored or dismissed. They are actually at the heart of almost every business today. Roughly 80% of the value of companies today is intangible, that is, not on the balance sheet. IT is a big part of that. So IT should embrace the study of intangibles.

Intangibles Gain Value From a System: Another important point is that intangibles do not have much stand-alone value. Their value comes as part of a system. Most IT implementations cannot be picked up and moved to another company without a lot of work. This is because they exist in a larger context of the work patterns and skill of the workers that use them. Continue reading »

I’ve just finished reading Denise Caruso’s book, Intervention: Confronting the Real Risks of Genetic Engineering and Life on a Biotech Planet. I absolutely love it! As the book’s subtitle suggests, Denise recounts the tragedy of how hubris in the biotech industry — compounded by sub-standard risk assessment methods used by government regulators — has blinded us to potentially catastrophic consequences of releasing billions of living, reproducing, evolving man-made organisms the environment, the long-term effects of which are completely unknown.

But Intervention delivers a much broader message, about how the human propensity for hamartia isn’t miraculously expunged by mathematics, statistics, or the scientific method.

In proving her point about assessing the risks of genetic engineering, Denise calls into question the seemingly unassailable position of science in our culture. The book suggests we desperately need “a new kind of science” (to borrow Steven Wolfram’s phrase) — one that accounts for the nature of the beings (i.e., us) who are wielding its increasingly powerful tools. Try as we might, whatever model we create to try and describe reality, our scientific models inescapably say much more about human beings than they do about some objective reality. In the book, Denise exposes our lapses in rationality due to cognitive, social, and technological realities. Such lapses are everywhere in the areas I cover (technology, social trust, and privacy).

So while reading the book, I decided present my views on these issues in a blog post. Admittedly, going into some depth on Denise’s book on the Hybrid Vigor blog (which is Denise’s creation) seems almost self-congratulatory. But I think the larger themes in Intervention are relevant to most of the really difficult problems we’re trying to solve globally today, and understanding these issues will help focus our discussion at Hybrid Vigor. Continue reading »

There was a great post last week on the Empirical Finance Research blog that asked the question: Does the Stock Market Value Intangibles? The post reviews a paper by Alex Edmans at the Wharton School of Business at University of Pennsylvania, which looked at the relationship between employee satisfaction and equity prices.

Edmans concluded that from 1998-2005, a stock portfolio of the companies listed on Fortune magazine’s “Best Companies to Work For in America” increased in value by an average of 13% per year–double the rate of the market as a whole. Empirical Finance outlines how to build an investment strategy based on this fact.

This looks like a fun blog. The post previous to this one gave rating of 5 (on a scale from 1 to 10) for a strategy that looks at CEO real estate purchases as an indicator of expected declines in stock prices. They gave a rating of 9 to strategy based on investing in Fortune’s Best Companies list as a simple way of targeting companies that create the most value in today’s “ideas-based service economy.”

Continue reading »

Innovation is the major strategic challenge for just about every organization today. But it is an elusive goal. This great post by Brad Kolar on his The Question of Leadership blog advises, “Want to innovate? Stop trying to be innovative and start solving problems.” He talks about the fact that successful innovation does not start intentionally. It starts by identifying hard problems and getting to work on them. Solving problems creates value.

This is a hard thing for organizations to swallow. They are accustomed to the command-and-control approach where making something a goal is the first step to getting it done. I’ve seen companies that have as a shared goal “to become more innovative.” This means that the personal goals of everyone in the organization include something about “being more innovative.”

But a manager cannot order someone to innovate! He or she has to create the environment where there is enough freedom and the right resources so that their employees can and will innovate. In this view, the manager’s role is to help frame the problem, convene the conversation and get the right people to the table. Continue reading »

Larry Downes had a great blog post a couple weeks ago on The Writers Strike and the Battle for Virtual Value. Downes points out that the traditional media, with whom the writers were negotiating, have not figured out how to make money on the internet. Nevertheless, he asserts, they spent over $2 billion fighting about “revenues that do not yet exist from channels that have not yet been created.”

Contrast this with the recent New York Times editorial by songwriter and author Billy Bragg, The Royalty Scam. Bragg tells the story of Bebo, the social-networking site that grew to 40 million members in two years and, in Britain, apparently ranks with MySpace and Facebook in popularity.

A couple years ago, Bebo founder Michael Birch asked to meet Bragg after Bragg had lobbied MySpace on its proprietary rights clause. Birch assured him that Bebo would always put the interests of artists first—although this “support” never included any kind of royalty to the artists contributing content. Last week, when Bebo sold to AOL for $850 million, Bragg observed:

The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend. Continue reading »

I resolved to start blogging about intangibles when I read a recent article in Fortune about soybeans called, “How Brazil Outfarmed the American Farmer.” The article explained how the Brazilians have used cutting-edge technology and well-designed market networks to become a dominant player in the soybean market. I saw this as just the latest proof that, as Thomas Friedman put it, “The World Is Flat.”

I believe that we have a lot of work to do to learn how to manage the intangibles that determine the winners and the losers in this “flat” world. And the American farmers are just the latest in the long line of businesspeople on the losing end of the intangibles game.

Fortunately, around the same time, I met Denise Caruso, who runs the Hybrid Vigor Institute and edits this blog. We became acquainted after she wrote a wonderful piece in the New York Times, “When Balance Sheets Collide With the New Economy” which highlighted the inadequacy of financial reporting to deal with the knowledge economy.

Denise explained how knowledge intangibles are invisible in financial and managerial reporting. They are also often passed over in decision making—in the assumption that “soft” issues cannot stand up to the rigor of traditional analysis.

But it is the soft issues that count. Continue reading »

This post isn’t about Eliot Spitzer. Yes, of course I’m as outraged as anyone over how this scandal takes the wind out of Cathouse: the Musical. But something else about the Spitzer incident really hit home: The confirmation that my financial institution is a federal agent.

According to this USA Today article, financial institutions reported 17.6 million transactions to the Federal Crimes Enforcement Network in 2006. Does this fact imply that 17.6 million transactions in 2006 were criminal in nature? No, they were simply “transactions of interest” (my term). In addition, financial institutions filed about 1 million “suspicious activity” reports in 2006 (up from 413,000 in 2003) to government agencies. Allegedly, it was the suspicious activity reports that linked Spitzer to the prostitution ring.

But most of the people behind the other 17.59 million financial transactions aren’t accused of any crime. Still, their spending habits are monitored, and if anything sketchy turns up they’ll then be accused of a crime. This seems afoul of the Fourth Amendment, Continue reading »

Last week, Melissa Lafsky cited some statistics on the rampant growth of click fraud and then punctuated the absurdity of the situation by questioning, rhetorically, whether everyone on the Internet is now a criminal for clicking with unlawful intent. Just who made it a fraud to click on a link, anyway? But to people whose immense fortunes are tied to sorting out honest clicks from false clicks, click fraud isn’t absurd at all. So after a flurry of comments about the piece, Lafsky clarified her position in a follow-on post.

Happily, Google’s got click interpretation down to a science, so we’re all off the hook (although the algorithm apparently still struggles with interpreting wit, sarcasm, irony, rhetoric, and French). So now I’m anxiously anticipating the beta of Google Intentions: an app for searching everyone’s click streams, categorized by intent!

The latest (Spring 2008) issue of Strategy+Business magazine is on the newsstand and on the web — and in it, my piece whacking cost-benefit analysis, the bane of innovation and sane regulatory policy. I’m already getting letters …

(Free) registration is required to read the article online.

Earlier this week, Olivia Judson posted a much-commented-upon essay on the biology of clouds at the New York Times site.

I am happy to report that in April 2002, Oliver Morton, Hybrid Vigor Fellow and the news and features editor for Nature (as well as the author of two books), wrote a terrific monograph for Hybrid Vigor on essentially the same subject, The Living Skies: Cloud Behavior and Its Role in Climate Change.