Strategy Maps: Converting Intangible Assets into Tangible Outcomes by Robert S. Kaplan & David P. Norton

Author:Robert S. Kaplan & David P. Norton [Kaplan, Robert S.]
Language: eng
Format: mobi, azw3
Publisher: Harvard Business Review Press
Published: 2003-12-15T14:00:00+00:00

MEASURE INTANGIBLE ASSETS

At first glance, it seems daunting to measure assets—employee capabilities and alignment, information technology, and organizational climate and culture—that are defined by their intangibility, but some measurement principles seem clear. Intangible assets should not be measured by how much money was spent to develop them, nor should their value be determined by independent appraisals of the capabilities and value of HR and IT assets. The value of intangible assets comes from how well they align to the strategic priorities of the enterprise, not by how much it costs to create them or how much they are worth on a freestanding basis. If the intangible assets are closely aligned to the strategy, they will have greater value to the organization. The converse is also true; intangible assets that are not aligned to the strategy will not create much value, even if large amounts of money have been spent on them.

For measuring intangible assets, perhaps we can learn from the principles used in a company’s balance sheet to measure the organization’s tangible and financial assets. Accountants organize the asset side of the balance sheet by categories, such as cash, accounts receivable, inventory, property, plant, and equipment, and long-term investments. Assets are ordered hierarchically, by their degree of liquidity, the ease with which the asset can be converted to cash (see Figure 7-6). Accounts receivable is more liquid (quicker conversion to cash) than inventory, and both accounts receivable and inventory are classified as short-term assets since they typically convert to cash within twelve months. Long-term assets, as their name suggests, take longer to return the amount invested in them back to cash. For example, property, plant, and equipment (PP&E) provide a capability for converting raw materials to finished goods inventory, which gets sold, becomes accounts receivable and, eventually, cash. But many cycles of such conversion are required before the initial investment in PP&E is recovered.

Figure 7-6 Framework for Measuring Intangible Assets

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