Is 80% of the value of the average business really intangible?

It's true and very easy to see in this calculation from Ocean Tomo.

I use the figure a lot. The fact that 80% of the value of the average business is intangible. It’s an astounding factoid that I use in the hope of awakening a realization in people how fundamentally our economy and our businesses have changed.

The 80% is significant because it is a complete flip from the past. Until the launch of the first PC’s in the early 1980’s, 80% of corporate value was tangible (and 20% was intangible). And, even though that seems like a long time ago, the financial markets and management practices are still tied to the tangible point of view.

Think about it. Most of the value created using computers, the internet and social media are invisible in today’s accounting and management information practices. How did this happen and why the 80% gap?

Basically, businesses have been investing in intangibles like people, software, processes, data, intellectual property, brands, culture and business models for decades. But most of that investment is considered a cost in current accounting standards. So these investments get booked as current year costs.

Year after year, these investment have built a new kind of infrastructure, an intangible value-creation factory, that is invisible and unmeasured. If you asked the average business person what they would think about a company that failed to document 80% of the value of a factory, they would be horrified. But that’s essentially what’s going on in today’s economy.

This leads to inaccurate corporate valuations, suboptimal performance, blocked learning, stifled innovation and stagnant growth.

Is 80% really intangible? Yes. But it doesn’t have to be invisible and unknowable. That’s our mission at Smarter-Companies. To help companies see, measure, manage, optimize and monetize their intangible capital. Find a better future with intangible capital.

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