Most of what we do as managers and most of what is still taught in business schools is a toolset that was perfected in the industrial era for managing factories. It shows people how to manage from the top down and is built on the assumption that the boss has all the answers. Org charts are the prototypical view of the organization under this model.

 

We all know that the world has changed. That the industrial era is over. That top-down isn’t enough. There are lots of conversations about how to deal with this change. Companies doing network analyses. Looking for ways to create more inclusive management models. Working to understand the elusive phenomenon that is innovation.

 

But the mainstream is still ignoring one of the basic underlying shifts in the foundation of organizations. As we moved from the Industrial to the Social Economy, the core competitive (and collaborative assets) of organizations shifted from being mostly tangible to now being mostly intangible. Today 80% of the value and 100% of the competitive advantage of companies resides in intangible assets like people, knowledge, processes, networks, relationships, culture and business models.

 

It is a rare business person that has any tools beyond their own good instincts to deal with this shift. Accounting calls these things goodwill. Financiers call them “soft” assets. Business schools ignore the research that shows how absolute and final this shift is.

 

What business people and organizations need are a few of the same things that they have in their toolset if they were to manage an old-style factory: a way to identify intangibles, inventory them, model their operation, measure them and optimize their performance. It’s not that exotic. It’s common sense management. People need a similar toolset for intangibles.

 

It’s absolutely critical if individuals, organizations and economies are going to solve some of the exciting and potentially mind-bending opportunities out there: improving the health of our people, the quality of our environment and the strength of our economy. The solutions are all out there, inside our minds, waiting for the right environment to nurture the collaboration and innovation to find them.

 

That’s why I founded Smarter-Companies and created the ICounts Tools. To empower organizational leaders with tools to focus on what’s important: intangible capital. Join us on our mission to change management and empower people and organizations to build a better future.

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Comment by Mary Adams on March 9, 2013 at 10:30am

There is some work at the international level in something called the "Capitals Project." I will be interviewing Ken Jarboe about this and posting the video in the next few weeks.

I have to say that I don't think GAAP will be the catalyst for change. I think it will be driven by the stakeholders who need information about the 80% of value that is intangible. One of our open source tools is the ICounts Index. It basically asks people to rate the relative importance of intangibles in their organizations.

I've talked about this to CPA's and to management accountants. The difference is night and day. The CPA's struggle because intangibles just don't, as you say, fit GAAP. So even though they see that intangibles are flowing through the financial statements and not being recognized, the CPA's can't change GAAP and their minds shut down. Management accountants, however, are accustomed to using accounting information for management purposes. They are fascinated with trying to represent what's really going on.

This is why we have decided to create a new skills set and tools (many of them open source) to help organizations "see," measure and manage intangibles. Anyone who is interested in IC can become an ICountant and begin to contribute to the success of their organization through better management of intangibles.

Comment by Matthew Loxton on March 8, 2013 at 8:21pm

When I discussed this with Finance staff they were interested and open, but were not going to do anything about it unless there was a clear message that it would be part of GAAP.

Are there any moves afoot to get this into GAAP?

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