Intangible Assets, Sustainability And Value Creation
Our view, which is shared with most analysts, is that for the majority of businesses today intangible assets account for around 80% of value.
This is in marked contrast to the situation as little as 30 years ago when the figure was 30%.
Key Intangible Asset Classes
- Human capital is the value driven by the accumulated skills, knowledge and experience of company employees
- Relationship capital is the value tied up in positive relationships with employees, suppliers, partners and customers
- Brand capital is the value realised through consistent visual and verbal communications, and idiosyncratic behaviours
Collectively these asset classes drive the lion’s share of corporate value.
Sustainability And Intangible Assets
The challenge for a company is to find ways to systematically build their intangible assets. This is difficult as intangibles are inherently hard to pin down. It is much easier to focus on those things that can be measured – sales, turnover, margins, physical assets.
To help refocus effort on intangible assets companies should put in place strategies to develop their strengths in each area. One way to do this is to leverage business initiatives which can be quickly realigned and applied in the development of intangible assets.
Sustainability is an area where powerful reinforcing links occur which can help build intangible assets whilst delivering compelling sustainability messages.
The link between sustainability and intangible assets can be explored by companies in many ways.
Some Intangible Assets
Human Capital
The accumulated knowledge, skills and experience of those employed by a firm are essentially ‘rented’ rather than owned and can therefore be easily lost to competitors or other companies.
Most employees want to work for a firm with corporate values that align with their individual values.
Sustainability provides a great opportunity to align values around positive themes like good health, conservation, charity, and doing better by doing good.
The more firms embed sustainability at a corporate level the more likely employees will find greater meaning and purpose in their work.
This in turn will support employee attraction, retention and productivity
Relationship capital
The value tied up in relationships is inert unless compounded via positive interactions. Collaboration and connectivity – with customers, suppliers, other stakeholders and, of course, internally – is key to developing meaningful and lasting relationships.
Sustainability provides a common platform on which people can engage in a collaborative way without being overly concerned with competitive constraints and internal politics. Mutually supportive supplier programmes, customer engagement networks and employee initiatives built around sustainability can help stimulate positive interactions.
Brand capital
Brand is built by consistently dramatizing a clear and concise value proposition. Historically perceived to be the preserve of the marketing department, in fact every person in an organisation has the responsibility of communicating the proposition – through their actions.
Sustainability can play a key role in developing brand capital as sustainability messages tend to be unifying and consistently implemented.
Rallying employees around a sustainability initiative can help build consistent and idiosyncratic behaviours which drive brand capital.
Challenge
Despite their impact on value intangible assets are not widely understood or managed.
The lack of ‘ownership’ within an organisation of these assets means that they are often ignored, one way to not ignore their importance is with HRM software solutions.
Sustainability casts a very relevant light on the development of intangible assets.
For those individuals trying to push sustainability higher up the corporate agenda, intangible asset development provides a compelling strategic reason to be taken seriously.
Notwithstanding the value creation benefits; linking sustainability with intangible assets is key to aligning social and environmental initiatives with the core competencies of an organisation.
About the Author Jess Nielsen
Jess has spent years travelling the world full-time. Nothing else comes close to the reaches of this emotive activity...