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.”

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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 »