What Do They Have That We Haven't? The Power of Intangible AssetsPublished: July 09, 2012 in Knowledge@Australian School of Business
What's the magic ingredient that makes some companies employers of choice and leaves others fighting for the scraps? Why are there halos around specific brands when others desperately struggle for recognition? How is it that some leaders are able to inspire complete loyalty from employees when so many managers lack respect and credibility?
A major study led by Christina Boedker from the Australian School of Business strongly suggests the secret is in a set of performance measures that some managers consider too difficult to quantify. But businesses that are measuring - and improving upon - "intangible assets" are being richly rewarded.
The five intangibles that Boedker measured, across 78 organisations over several years, were leadership, innovation, employee experience, customer orientation and fairness. "Employee experience" includes the level of commitment by employees to the workplace, as well as the level of effort the employees exert on behalf of the organisation. "Customer orientation" relates to an organisation's curiosity about, and connection to, its customers - and how willingly it responds to changes in customer needs. "Fairness" is about the distribution of reward and recognition, and employee satisfaction with their share. "Leadership" involves having a vision, including people in decision-making processes and being receptive to feedback - even criticism.
"We worked with the organisations and ranked the performance of their intangible assets," says Boedker. "We talked about leadership and innovation and customer orientation - all of those things you don't see in the balance sheet. What we found was firms that do better on intangible asset performance also achieve higher levels of productivity and improved profitability. The profit differences were significant in the higher-performing firms - they achieved on average A$40,051 more in profit per full-time employee. So it really does pay off if you get it right and pay attention to your intangibles; if you develop the leadership skills of your people, create a supportive workplace environment, have curiosity and good orientation towards your customers and can change according to their changing needs, and if you innovate and have a forward-looking orientation."
Boedker defines intangible assets as "all those things the accountants just can't readily get a good handle on". Gathering data for the study, Boedker and her team spent about 18 months with each organisation, speaking directly with about 60% of each company's staff to capture an accurate image of the intangible assets within each business.
Take software giant Microsoft, for instance, Boedker says. Their share price was trading at about US$26, but after investigating the balance sheet it became obvious the book value per share was only US$7. So there was US$19 of unexplained value, and it is this value that's tied up in intangible assets.
"There has been a line of thought that says we can't account for or measure intangibles like employee emotions. How do you account for those?" Boedker asks. "Yet we found that positive emotions were much more prevalent in the higher-performing workplaces. So people had a really strong emotional connection with the workplace - they felt proud, valued, cheerful and they even mentioned the word ‘love' in connection with their organisation. Workplaces that didn't do so well were characterised by more negative emotions with higher levels of depression, anxiety and feeling worried."
The responses of companies involved in the research, Boedker says, were fascinating and indicative of the bigger problem the project was exploring. "We gave back to each organisation more than 100 pages of benchmarking information," she says. "The responses of each organisation to this information were interesting. The first step is to have an open mind, be willing to learn from this type of information, be willing to listen to what your employees think about leadership and the workplace in general. After all, the senior executives set the strategic direction of the company."
But some companies didn't want to learn or listen - they didn't like what they were told, reports Boedker. Others - even some that scored poorly - appreciated receiving the information, and wanted to talk and learn more and take it forward. "They presented the results to the board of directors and began to think about how they could improve their performance in these areas. It goes back to the management mindset and the courage of leaders to really learn from the knowledge of staff and respond to it," she says.
In order to develop intangible assets, to harness the potentially enormous power of a happy workforce and a loyal customer base, management of organisations should begin by concentrating on measuring and improving at least one intangible, Boedker says. Trying to cover the lot may be like climbing Mt Everest, she suggests. It's an undertaking far better done in stages, with reflection and celebration as each milestone is passed.
Boedker and her team are working with five companies to develop intervention strategies to lift their performance in some of these areas. Each is focusing on different elements. "Some are focusing on employee engagement and developing emotional commitment to the workplace. Others are focusing on leadership. There are different solutions for different firms depending on the organisation's weaknesses and strengths," says Boedker, who adds: "The most important nominator is having the appetite, the curiosity and the willingness to learn and approach this with an open mind."
How does an organisation measure, manage and improve intangible assets? Gavin Freeman, psychologist and director of The Business Olympian, says there is no single method that will fit every business but a good place to begin is by looking at historical data, which can be far more relevant than current data.
"Many companies recruit people very well to get the right person in the role but few understand why people leave, for instance," Freeman asserts. "Many conduct exit interviews, but few actually use that information to make positive change." The old saying that people join companies but leave managers is very true, notes Freeman. "Staff join a company based on its brand but people in the company, and other issues - they may be internal, departmental, or involve leadership or innovation - will determine whether they stay or leave. A great deal of understanding of current people issues will come from looking back at why people have left … and it's this data that you want to start with. What do people feel is important enough, within the culture of a company, to convince them to stay or go?"
Engagement surveys with boxes inviting employees to express their opinion may be helpful, Freeman says, as long as they are conducted on a regular basis and transparent actions are created around any problem areas identified. It's not possible to measure aspects such as employee experience without first developing programs that offer a look into the minds and beliefs of the people being measured, Freeman asserts.
Trying to measure innovation on its own is futile, Freeman says. "It is simply impossible. But measuring attitudes towards innovation is easy. We frequently hear stories about organisations, such as Google and Atlassian, offering staff a certain percentage of time to work on their own projects. At Google, it's one day a week. They are encouraging a very powerful attitude towards innovation and that can be measured and managed." Innovation may also be measured by analysing how a company utilises social media to share, socialise and sponsor ideas, Freeman suggests. "A lot of companies say they want to be innovative, but if you ask what they do when somebody has a good idea they often struggle to explain. If they don't have a process to progress new ideas then it says a lot."
However, historical data can also deliver insights on innovation, Freeman believes. "If you did a discourse analysis of messages a CEO sent out to staff, and communicated to the market over a period of time, then you'd be able to conduct a succinct analysis of how that company has been performing in terms of innovation." Comparing historical and current data on the run can create "a very powerful tool", Freeman suggests.
Leadership can be measured by looking at the processes - or lack of - that are in place to develop senior people within a company, according to Freeman. Often members of the management team believe development is for the young ones - once they have reached the leadership team or senior management they have nothing left to learn. If this is the case, then there is also nothing in place to help measure leadership.
Regular development sessions provide opportunities to measure the progression of leaders through the results and outcomes of development processes. If development processes are in place for all staff, and those processes are promoted, updated and constantly encouraged, then the business should be measuring the success of the programs. "If you want to measure something then you want to see improvement," Freeman says. "Improvement and measurement go hand in hand."
During the global financial crisis, many companies stopped investing in their people, resulting today in a great divide between employers of choice and the others. To be in the league of the "high-performing, talent-attracting" few, it's necessary to measure the intangibles before you can start improving them. Freeman says: "An organisation that is on its way to greatness will have an integrated performance management system that maps a staff member's experience from the time he or she considers entering the business to the time they leave." Often the impediment is not the cost of putting such a system in place, but giving senior management the time and the know-how to do it. "It's about mapping the accountability to the authority," Freeman says. People may be asked to take on tasks, without being given the authority to fulfil them - that authority may be time or some form of positive incentive to tackle the task.
A performance management system shows an employer is interested in the development and performance of staff - "so part of the senior managers' bonus pool will be attributable to the behaviour and development of their people", concludes Freeman.