What is Intangible Capital?

1

That was then

2

This is now

3

It’s a seismic shift

Agricultural Era Industrial Era Knowledge Era

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Understanding the shift

Industrial Knowledge Era

Tangible Intangible Assets

Factory Knowledge Factory

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It’s been fueled by investment

http://www.conference-board.org/data/intangibles/

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Where has the money gone?

…to build knowledge assets:

• In computers

• In workforces

• In processes

• In designs, products

• In networks

• In brands

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Investment created new value

Source: Ocean Tomo

“Intangible,” off-balance

sheet portion of corporate value

8

Shift happened economy-wide

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Telecommunications Services

Information Technology

Utilities

Intangible Value as a % of Total Market Capitalization by Sector

1975

2005

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For now, holding at +/- 80%

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This is about the rise of a new kind of economic asset

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What is IC?

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Human Capital

• Employees:– Competencies– Experience– Loyalty

• Management– Industry experience– Managerial expertise

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Structural Capital

• Processes/IT (the heart of modern business)

• Technology/IP– Data, stored information and knowledge– Own product/service designs and knowledge– Intellectual property (patents, trademarks,

copyrights, trade secrets)

• Sales and marketing processes

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Relationship Capital

• Customers

• External partners (suppliers, outsourcing partners, regulators, communities, press)

• Brand and Reputation (the new bottom line)

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Strategic Capital

• Business model– How the knowledge factory fits together

• Culture• External factors:

– Industry– Economy– Competition– Globalization– Regulation

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-Measure-Manage-Monetize

IC Management

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Benefits of IC Management

• Optimized performanceHealthcare co grew revenues with lower headcount

• Increased innovationHigh-end consulting firm doubled in size

• Higher valuationTech firm sold at premium to the market

• Great reputationEngineering firm doubled key hourly rates

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