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creating value from your intangible assets

unlocking your true potential

Contents

1 Executive summary2 Background4 Options and flexibility6 Relationships

10 Knowledge14 Leadership and Communication18 Culture and Values22 Reputation and Trust26 Skills and Competencies30 Processes and Systems34 Unlocking your true potential36 Conclusions

1

In practice, there are few sourcesof competitive advantage thatcannot be duplicated and matchedby competitors.

Ultimately, a company’s ability toflourish in this environment willdepend on its ability to create valuefrom intangibles.

Irrespective of sector, innovativecompanies recognise that tomaintain their competitiveadvantage they must continuallyseek to identify, develop and makebest use of all their availableresources so that they can continueto offer new and improved productsand services.

This report, which draws on theexperiences of some of the UK’smost successful companies,highlights how successfulcompanies in all sectors of theeconomy are meeting thischallenge through the effectiveutilisation and exploitation of theirintangible assets.

The companies interviewedstressed that the followingintangible assets were essentialingredients upon which theircompany’s future success would be built.

■ Relationships

■ Knowledge

■ Leadership and Communication

■ Culture and Values

■ Reputation and Trust

■ Skills and Competencies

■ Processes and Systems.

The challenge ahead

The challenge for all companies istherefore to look beyond theirexisting financial statements whichprovide historic "accounting"records of tangible assets and toconsider the wider perspective ofhow to invest in and make best useof all the assets of the business,tangible and intangible.

Ultimately, the ability of yourorganisation to meet not only itscurrent goals and objectives, butalso to grasp future opportunities,will depend on its ability to createvalue from the intangible assets. Itis only by identifying, managing anddeveloping the full spectrum ofintangibles that you will be able tounlock your full potential.

Executive summary

The combined impacts of globalisation, new technology and increased competition means thatall companies are facing the prospect of continual incremental and, occasionally, radical change.

2

This report is based on in-depth interviews between secondees to the Department of Trade and Industry’s Future and Innovation Unit and 50 successful organisations. It also draws on theassistance of a high level advisory group and input from partner organisations.

Background

The conclusions outlined are drawnfrom the general question:

‘What have you got that is

valuable that is not included

in the balance sheet?’

The language that the organisationsused to respond to this simplesounding question provides a basisfor understanding what thesemissing ‘intangibles’ are and howthey contribute towards businesssuccess for any organisation.

Analysis of the diversity of responseshas provided a framework ofimportant areas for reflection inorder to add value to the quality ofplanning and problem solving.

Linking intangibles to

goals and problems

Intangible resources are importantto all organisations. Weak areastend to constrain aspirations whilstareas of strength help to generatenew opportunities. Recipes forsuccess depend on talented peopleacquiring and using the rightmixture of tangible and intangibleassets to achieve goals andovercome both identified and latent problems.

Whilst individual aspects of theoverall resource mix may contributedifferently depending on context,organisations should consider theirvision for how these intangibleareas should be contributing tobusiness success and how toinvest to build their resources andcapabilities in areas considered keyto success.

Keeping track of intangible

investments

Financial reporting systems focuson historic balance sheets, profitsand cash flow, but you don’t get theright perception of the prospectivevalue by looking at history. Value, inan uncertain world, depends onboth objective and subjectiveassessment of future options andflexibility as well as an extrapolationbased on historic and currentperformance. Making sense of thevalue to be derived from carefulinvestment in intangibles lies inconsidering your ‘future focus’ onpotential opportunities anduncertainties rather than byfocusing on historic costs.

3

Tracking progress requires thought.There are the usual dangers of‘managing only what is measured’and of ‘measuring only the thingsthat are easy to measure ratherthan measuring the right things’.However, attempting to measureeverything is time consuming,costly and tends to result in‘analysis paralysis’. Avoiding theissue by ‘keeping your head in thesand’ risks a lack of focus on criticalsuccess factors.

What are the right things to

measure in your business?

A small number of KeyPerformance Indicators that areunderstood and valued by everyoneis much better than a prescriptiveset of rules which don’t appear tohave obvious business benefit.KPIs, like customer satisfactionlevels, may be viewed from theperspective of each intangible areain turn to help identify areas ofstrength and weakness, henceopportunities and threats. To theneed for selective KPIs, we wouldadd the view that anecdotes andstories can be a powerful way ofcommunicating the importance of intangibles.

■ What Key Performance

Indicators, anecdotes and

stories have you developed

to highlight the importance

of your intangibles?

■ How well do you

communicate the risks and

opportunities that your

business faces?

■ How attractive is your

organisation, as an employer,

a supplier, a partner or as part

of the community?

4

The seven areas that we identify are:

■ Relationships

■ Knowledge






These areas comprise theintangible raw materials thattalented people use to collaboratewith each other in order to achievegoals, solve problems and seizeopportunities.

Options and flexibility

All organisations have a diverse mix of assets, both tangibleand intangible, which, if managed in a strategic and forwardlooking way, will yield new areas of business and profit. Whilstall organisations are different, and no simple formula will fit allcircumstances, we identify seven intangible value streams thatrequire investment and maintenance in order to sustain currentand future business prospects.

5

External reporting

We also highlight the need for organisations to improve the qualityof dialogue with a variety of stake-holders, in communicating risks anduncertainties. Ultimately the qualityof dialogue affects both ‘licence tooperate’, which includes issues likeconsent to and support for activitiesfrom non financial stakeholders,

and ‘cost of capital’ which isinfluenced by the attractiveness ofthe overall business proposition tofinancial stakeholders.

■ What are the risks and

uncertainties associated

with our plans that we

wish to understand and

communicate?

■ What stories and anecdotes

do we currently use to help

others understand the context

and importance of key issues?

■ What Key Performance

Indicators do we currently use

to track progress towards goals

and solutions to problems?

Planning investment in

intangibles

For each of the seven areas,organisations should reflect on theirown individual businessenvironment and consider theanswers to two separate sets of questions:

1. CURRENT ACTIVITIES

The focus here is on improving

efficiency and effectiveness of

current activities, reviewing

what you do and reflecting on

where improvements might be

achieved in ways that increase

the value of the business.

■ Where are we now?

■ Where do we want to go?

■ How do we get there?

2. FUTURE ACTIVITIES

The focus here is on building

options and flexibility for the future,

investing in understanding how the

business context is likely to change

and what needs to be done to

position the business to handle

uncertainty and to drive or at least

take advantage of change.

■ What is changing?

■ What do we want to change?

■ How should we invest for

the future?

Relationships

6

7

The challenge facing your company

Only by developing an effective strategy for managing and maintaining excellent relationships with all its key stakeholders can a company hope to achieve its full potential.

A successful company is one thatlooks constantly to build on itsexisting relationships, be theyexternal (customers, suppliers oranyone else whose ideas and co-operation may assist in meetinggoals and solving problems) orinternal (different functions andtheir teams working together toseize opportunities and createvalue).

Understanding how to identify,develop, organise and sustain anappropriate network of relationshipsthat bring new ways of working,ideas and opportunities plays a keyrole in the quest for competitiveadvantage.

■ Do your people enjoy working

with each other and does

this extend to your external

relationships?

■ How well does your

organisation work as a team

to look after, learn from and

make best use of your network

of internal and external

relationships?

■ Do you have appropriate

people with the right talents,

training and outlook to

maintain key relationships and

to communicate the value of

these within your

organisation?

‘Over the years

we have made an

enormous investment in

building the trust of our

suppliers: this is reflected

in things like the credit

terms provided to us’

8

Managing relationships withcustomers is obviously important,but whatever its resources, noorganisation can do everything onits own and there will always beadditional value to be gained frominvesting in a sensible network ofexternal relationships. Successfulcompanies continually acquireknowledge, ideas and otherresources by developingrelationships with a diverse range ofuseful contacts. Learning from bothin-house operations and externally,perhaps through collaboration,consultation or investment,provides the inspiration forinnovation and imitation.

Whether internal or external,sustainable relationships rely oneach party continually providingvalue, or at least the prospect ofvalue to the other party. Value maybe simply money earned, but itmight also be considered in termssuch as knowledge or experiencegained and successfully applied,reputation enhanced or a problemsolved. Losing the trust ofimportant relationships ultimatelydestroys value, profitability andcompetitiveness. Relationshipsbased purely on legal documentsmiss the all-important "human"factors.

What companies told us

The interviews conducted as part ofthis work indicated that bothinternal and external relationshipsneeded to be addressed if acompany was to be successful.

The discussions highlighted that forinternal relationships, the keyissues are things like how well thepeople work together to solveproblems and achieve success,how much they cared about theway they worked and the quality ofthe environment in which theyworked. This applies equally toexternal relationships.

‘We seek to build relationships with all those who can

bring valuable things to the organisation, from raw

materials to technology’

Relationships

9

Next steps and key questions

For your company to reach its fullpotential in this area it is essentialthat you not only consider how youcan develop and improve yourcurrent relationships, but that youalso carefully consider how you candevelop and improve therelationships necessary for yourfuture success.

Detailed here are some key questions to allow you toconsider how best to tackle thisimportant area.

Relationships Checklist

Focus on the current business

environment (Improving the wayyou currently do things)

Where are we now? (SWOT)

What do we offer that encouragesothers to work with us? Why don’tsome choose to work with us?What might we do better? Whatis at risk if we don’t attract andsustain the relationships we need?

Where do we want to go?

What are our goals for increasingthe value of the goods andservices we currently offer andthe ideas and experiences wegain from our relationships?

How do we get there?

What are the most important‘relationship’ problems that weneed to solve?

Focus on the future business

environment (Creating options andflexibility to take advantage of change)

What is changing?

How should we seek to takeadvantage of new ways of workingenabled by technology andoutsourcing? Despite change, whatcritical ingredients of our ways ofworking must we maintain?

What do we want to change?

What are our goals for creating new sources of value for existingand prospective relationships?

Investing to create future value

What are the key relationships thatwe need to secure to help achieveour future aspirations?

‘Without people, you don’t

have any value in your

business. Value

creation is all about

developing good

relationships’

‘We need to stay close to our customers to learn from them

and support them in order to keep ahead of competitors’

Knowledge

10

11

For a company to survive andflourish in this environment it isessential that it not onlycontinuously looks to develop itsknowledge base, but also ensuresthat this knowledge is shared andused effectively throughout theorganisation. Explicit or codifiedknowledge can be written downand as such is easily replicated andcopied. Tacit knowledge is held inthe minds of individuals and isshared through stories, contact and discussion.

Without ‘knowledge management’companies may fail to identify andrespond fast enough to keyknowledge opportunities and gaps. Failure to shareknowledge also makes them morevulnerable to a sudden loss ofknowledge, for example through akey employee leaving.

■ Are you confident that your

organisation is doing all it

should to acquire and utilise

the knowledge you need to

build and sustain the

organisation?

■ What active steps have you

taken to ensure that

knowledge is shared

throughout the organisation?

■ How easy would it be for

competitors to replicate your

knowledge and ways of

working? What steps have

you taken to protect the

organisation from losing

critical knowledge at the

wrong time?


The way in which a company manages and utilises itsknowledge has always been crucial to success. However,against a background of increased competition and theincreasing impact of new technology and electroniccommerce, the added value a company can achieve fromthe effective use of its knowledge and expertise isbecoming increasingly important.

‘We build on previous

projects through talking

to each other, we share

knowledge and ideas

to spark off thoughts

on how to solve

particular problems’

12


The interviews conductedhighlighted that successfulcompanies are the ones that takeactive steps to acquire, retain andeffectively deploy new knowledge.They also identified the need tokeep it up to date rather thanallowing it to go stale.

Some knowledge is unique and canbe protected by law, patents,design rights and copyrights; otherknowledge is kept secret in aneffort to sustain competitiveadvantage. Whilst some‘intellectual property’ can be given a‘value for accounting purposes’most knowledge is excluded fromthe balance sheet. This is becauseaccounting rules focus on factual‘historic cost’ measurement ratherthan engaging in speculation on thepotential future monetary value ofknowledge and understanding and the degree of uncertainty and opportunity.

In addition to traditional knowledgeassets, successful companies alsoconsider the value of the overallknowledge base in terms of theway that it can be used to createvalue in the context ofrelationships. This includesknowledge about people or things,about how something is done,about problems, opportunities,context and so on. They alsomentioned things like reputationand prestige that arise from beingconsidered knowledgeable.

The companies that wereinterviewed also recognised thatmost of the knowledge andunderstanding necessary to operatebusiness functions is not uniqueand that good ideas tend to becopied and ways of workingreplicated as soon as their value isappreciated. They thereforeconstantly sought to learn andimprove and recognised that a good way of doing so was via the exchange of knowledgethrough their relationships withtheir key partners.

Having knowledge is only half ofthe equation: having it somewherewithin the organisation is verydifferent from ensuring that thosewho need it have access to it anduse it to create value in the contextof relationships. All companiesshould therefore keep in mind thefollowing key criteria if they are tomaximise the benefits of theirknowledge base.

■ That sharing knowledge

is vitally important if the

organisation is to reach its

full potential.

■ Understand how to use

their knowledge effectively

in the context of each key

relationship.

■ Learning the wrong things

or applying learning in the

wrong way can turn this

crucial intangible asset into

a liability.

Knowledge

13


For your company to reach its fullpotential in this area it is essentialthat you not only consider how youcan acquire and utilise theknowledge required for yourcurrent activities, but that you alsocarefully consider what knowledgeyou will need for your futuresuccess.


Knowledge Checklist




What knowledge gives us acompetitive advantage? Whatknowledge lies unused? Howmight we manage our knowledgebetter? What risks do we need to manage?


What are our goals for improvingthe flows of knowledge andexperience necessary to sustainour key relationships?


What are the most importantgaps in our knowledge that weneed to fill?



What is changing?

What current knowledge will weneed to build on to take advantageof the future marketplace?


What are our goals for creating new products and services that will generate value by solvingproblems for our relationships?


What are the key knowledge gaps that need to be addressed to secure our future aspirations?

‘The more experience is

gained with different

bespoke solutions, so

the easier it is to

leverage this knowledge

into new solutions for

new relationships’

‘We need to understand our customer’s preferences,

how to package and how to market’

‘We invest in gathering knowledge. Knowledge

underpins everything we do’

Leadership andCommunication

14

15

Clarity of purpose helps toencourage a culture that considersthe customer relationship first,rather than the command structure,because people understand thebalance between the goals of theorganisation and the day to dayneeds of sustaining the goodwill ofcustomers. Everyone remainsmotivated towards achievement ofgoals, but innovative and creativethinking is encouraged to enhance competitive advantageand brand value.

■ Is your leadership actively

involved in the change

process, do all your people

understand what the priorities

are, how they should

contribute and are they

predisposed and motivated to

behave in this way?

■ Do you use 360° reporting in

the context of all your

relationships to find out what

they think?

■ Can you map your most

important internal and

external communication

channels, the important flows

of knowledge and sharing of

insight that helps achieve

goals and solve problems?


If companies are to achieve their full growth potential it isessential that clear goals and aims are set and are embeddedthroughout the organisation. This can only happen through strongleadership and effective communication. Successful companieshave such qualities and are the ones in which everyone isaware of the role they play in the company’s success.

‘We didn’t start off with a

strategic vision, we started

with an operational need.

Clarity about what you

want to do is valuable’

16


If the company’s leaders are toprovide effective direction and supportthey must behave themselves inthe way they would like others tobehave. They must consider theways in which people are inspiredto pull together to solve problemsand to achieve goals.

This is not just about peopleunderstanding what they aresupposed to do, it is also aboutcommitment because they believethat it is the right thing to do. Thisgoes further than simplyunderstanding mission statementsand targets, but requires a muchdeeper understanding of context.Examples were given when all toooften it is disaster rather thanforesight that acts as the catalystfor change. To avert this, everyoneneeds to be clear on how tocontribute and why their contributionis important to the future prospectsof the organisation.

Successful companies achieve thisthrough the clarification of goals,reinforced by leadershipcommitment and support for thedevelopment of an atmosphere thatencourages continuous learning,creativity and innovation. Thepotential reward is not seen simplyas that of improving efficiency andeffectiveness. Whilst these areimportant short-term and long-termgoals the potentially bigger prize isabout enhancing image and brand.

Such an approach, reinforced byappropriate motivation and rewardpackages, not only releases theenergy and commitment of itspeople, but also enhances theprospect of attracting and retainingtalented people and partners.

The companies we met alsostressed that a crucial componentof a company’s future success wasthe ability to think ahead whendeveloping the business strategy.No organisation has the resourcesto do everything. Successful leadersdistinguish between what must bedone within the organisation andwhat should be done outside. They achieve valuable options andflexibility through outsourcing,collaboration, joint ventures,strategic investment and spin out ofvaluable but non-core activities.

Leadership and Communication

ge

17


For your company to reach its fullpotential in this area it is essentialthat you not only consider howeffective the current leadership and communication channels are in your organisation, but that youconstantly seek to improve to meetfuture challenges.

Detailed here are some key questions to allow you to consider how best to tackle thisimportant area.

Leadership & Communication

Checklist




Is everyone clear on the missionand values of the organisation anddo these reach the hearts andminds of our people? Are goalsand responsibilities clear? Arerisks and potential rewards clearlyunderstood?


What do we need to change to increase our competitiveadvantage?


What action plans do we need toimplement to improve teamwork,problem solving, creativity andinnovation?



What is changing?

Does everyone understand how the market is changing? Areresponsibilities and priorities clear? Does everyone understandhow to contribute to and benefitfrom success?


What are the resources andcapabilities we need to support our ambitions for the developmentof new products and services?


What are the aspects of ourdevelopment plans that will enableus to win and sustain the support of both financial and non-financialstakeholders?

‘Identification of the opportunity is one thing; selecting and

investing in the right exploitation route is quite another’

‘Prioritisation of projects is based partly on the

usual investment appraisal methods but projects

also have to fit with strategy – fit with strategy is

the first hurdle’

Culture and Values

18

19

Successful organisations respondto change by encouraging newinnovative thinking that seeks asustainable future rather thanseeking to sustain the past.

A key component in a company’sability to achieve this goal is itsability to inspire its people, createoutstanding products and servicesand connect effectively withaspirations and values of all theirimportant internal and externalrelationships. This means investingin understanding how to reach thehearts and minds of groups whomay not all share a commonperception of the meaning of value.

These are key intangible assetswhich your company will be judgedon and will form one of thefoundation stones of your success.


company has the culture and

values necessary for success

now and in the future?

■ How effectively is everyone

motivated to behave in ways

that contribute to the

company’s goals?

■ Within the organisation,

who has the power to invest

in change or the power to

block change?

‘We invest to support a culture where people share not just

knowledge but their inner thoughts. Others can copy our

systems but they cannot copy a culture of trust that we

have built over time’


The speed with which new ways of working are identified andreplicated due to faster awareness of market developmentshighlights the need for ways of working that can adapt quicklyto new challenges and grasp available opportunities.

20


Successful companies are thosewhich recognise culture and valuesas valuable resources that help the business to get things done.More importantly, they care aboutdoing things in the right way foreach relationship.

Important elements of a culture and values strategy are things liketeamwork, willingness to learn andto take measured risks. Whilst youcan’t expect to be able to tellpeople to become passionate aboutthings that are suddenly thrustupon them, you can at least explainthe context, the way they can help,the reward for success and highlightthe risks to the organisation forfailure. The key here is to ensurethat everybody understands howtheir role influences the ability of thecompany to succeed and that theyfeel empowered to get on withrespective roles.

Motivation for desired behaviours,accountability and the need for thecreativity and innovation necessaryto sustain the organisation as theenvironment changes are all stronglylinked to culture. With increasingcompetition within and betweenall sectors of the economy, it isimportant that all organisationsremain responsive to change.

Investing in the right culture andvalues plays a key role in allowingorganisations to meet newchallenges and grasp newopportunities.

Whilst you can’t change yourhistory, and produce a newsuccessful culture overnight, youcan seek to ensure that action planscontribute to goals, objectives andproblem solving in ways thatcontribute to your vision for thebrand of the company.

The way people work with theirrelationships needs to be brandenhancing, both internally andexternally. Changing the way youwork without thought as to how thebrand will be affected can be verydangerous. Imposition of changewithout winning ‘hearts and minds’of those affected may destroy valuethrough conflict and bickering.Likewise, reputation and trustcarefully built up over years can bedestroyed in a moment by athoughtless act or statement.

‘We want to build a culture of decision-making based on clear

objectives rather than passing the decision up the line’

Culture and Values

21


For your company to reach its fullpotential in this area it is essentialthat your organisation has the cultureand values that will not only help youto meet the challenges facing youtoday, but also enable the companyto grasp future opportunities.

Detailed here are some key questionsto allow you to consider how bestto tackle this important area.

Culture and Values Checklist




What is it about our behaviourthat makes it rewarding to workwith us? What could we dobetter? What do we need to do toimprove? What can we learn fromthe way others work?


What are our goals for improvingthe loyalty and commitment of allour relationships?


What are the most importantproblems that we need to solve?



What is changing?

How do we sustain the ways ofworking we value whilst embracing new opportunities e.g. those offered by advances in information and communicationtechnologies?


What are our goals for improving theclimate for creativity and innovation?


What do we need to do to sustainthe commitment and energy of our people?

‘We recognise that different

groups have different

cultures rather than a

single culture. It’s

important to manage the

relationship between

different cultures to keep

the overall team together’

Reputation and Trust

22

23


Whatever sector of the economy, the fact that you have thebest product or service in the market, at the most competitiveprice, will count for little if your reputation with customers,creditors, suppliers and employees is low.

Successful companies recognisethe key role reputation and trustplay in their ability to competeeffectively and therefore investsignificant effort in constantlyseeking to enhance their reputationand to develop trust both within theorganisation and externally. In addition they also seek torecognise issues which coulddamage these key intangible assetsand take steps to reduce this risk asfar as practicable.


company is taking the steps

necessary to enhance its

reputation and to identify

potential areas that could

damage these crucial assets?

■ What are the things that you

need to do to earn and sustain

the levels of reputation and

trust that your plans demand?

■ What are the areas that you

worry about most? What are

your most important risks and

uncertainties?

‘Association with reputable organisations can add value.

Their presence on a list of suppliers or clients adds prestige

and may help to attract other key clients and talent’

24


Reputation and trust may be linkedto direct experience or third handreporting. Essentially we arelooking at past track record andfuture confidence based oncontextual experiences.

Image and brand are important, but in essence the value of thisintangible is very much to do withpeople and context. All of the areasidentified in previous sections of this report can influenceperceptions, the way in which an organisation manages itsrelationships and knowledge, its leadership and quality ofcommunication, its attractivenessas a place to work for or as anorganisation to do business with.

The following sections about skillsand competencies, processes andsystems likewise reinforce theneed to think about the importanceof not simply thinking about areasin isolation, but in terms of the wayin which they interact with eachother. The degree of overlapbetween areas is important just asthe relationship and competitivecontext is important.

A good reputation together withtrust in the brand inspires loyaltyand tends to attract newrelationships, knowledge andtalent. It is a vital ingredient forattracting financial resources andwill certainly influence the value ofa business if it comes up for salebecause of its important link tofuture prospects.

Reputation is built up over time bythe behaviours of people in theorganisation and the quality ofproducts and services, but activitiesneed to be brand enhancing andincreasingly organisations aretaking care to associate themselveswith partners that share similarvalues. Successful companiesinvest significant time and effortinto brand improvement, they alsoseek to recognise, understand andguard against factors that couldpotentially undermine this effort.Adopting such an approach cansignificantly enhance yourcompany’s ability to reach andcommunicate its full growthpotential.

‘We are competing against others. We need to be seen as good people

to do deals with. This gets us into discussions early’

Reputation and Trust

25


For your company to reach its fullpotential it is essential that itdevelops the reputation and trustthat will support all your otheractivities. It is also essential thatyou seek to identify ways toenhance these crucial assets whilstat the same time identifying areaswhere these assets could bedamaged in the future.


Reputation and Trust Checklist




What have we done to deserveour reputation and the trust ofour relationships? Do all ouractivities enhance our brand?Which of our behaviours need tochange? Do we understand theneeds and values of ourstakeholders?


What are our goals for increasingthe value of our brand?


What are the important imageproblems that we need to solve?



What is changing?

How does our brand need to evolveto take advantage of the futuremarket place? How should we beseeking to position the company?


How should we seek to extend the brand?


What new image enhancingactivities do we wish to develop and how should we exit activitiesthat don’t enhance the brand?

‘Organisations with a

good reputation may be

able to survive a downturn;

those without probably will

not. People will expect

them to come to a bad end

and to an extent it becomes

self-fulfilling’

‘Our brand is linked to the

status of the companies we

work for’

Skills andCompetencies

26

27


The ability of a company to compete effectively, meet andexceed their customers needs and realise its full potential isreliant on attracting, developing and retaining the right mix oftalented people.

‘We need a wide variety of skills to grow the capacity of the

business; we also need to bring in new skills to develop the

scope of the business’

Growth plans rely, not just on theability to scale up the numbers, buton maintaining things like quality,responsiveness and reliability. Ifgrowth is by acquisition or if noncore opportunities are to be spun-out then all intangible areas requireparticularly careful reflection.

■ What do you do to attract and

retain the people you need to

develop the organisation?

■ How do you invest to

build the capacity of your

organisation to unlock

your true potential?

■ What criteria do you use

for selecting partners and

collaborators?

28


The value of people is a theme thatruns right the way through thisreport but here we consider theinvestment in developing andreleasing the talents essential tosupport existing operations andfuture plans. Successful companiesrecognise that everyone needs thespace and opportunity tocontinually learn.

Talented people demonstrate theirworth by responding to the problemsof dealing with conflicting prioritiesby ‘doing the right thing’ becausethey understand not just their ownareas of accountability, but, theorganisations goals and theoperating context. The less talentedblindly follow the historic rulebook.Nobody is suggesting anarchy, butsince innovation is the key tosurvival, a measure of freedom toexperiment and learn from bothsuccess and failure is important toboth individual and organisationaldevelopment. The skill lies inmaintaining a sensible balancebetween risk and reward.

Many of the companiesinterviewed highlighted the value ofteam skills, sometimes abovequalifications. They also identifiedthe commitment to see projectsthrough to a successful conclusionand the ability to recognise thecommercial potential ofdevelopments and to act quicklywhen the need arises.

The talents, skills andcompetencies of the workforce,together with external partners,represent the human resourceavailable to sustain theorganisation. The scaleability andreplicability of existing activitiesneeds to be considered alongsidethe problem of managing potentialnew activities. The ability to retaintalented people will be at risk whentheir aspirations and your plansdon’t fit, hence the interest ofsome in corporate venturing andspin-out activity as a way ofextracting value from ‘non-core’opportunities.

The ability of your company toreach its full potential will dependon the continued learning anddevelopment of all members of theorganisation. Many of thecompanies interviewed stressedthe need to fully understand theskills and competencies required tooperate and compete effectivelyand once identified ensuring thatthe necessary investment is madeto provide all staff with the time andspace to learn and apply new skills.

Reward, recognition and theopportunity to use them was seenas playing a key role in motivatingstaff to obtain the skills andcompetencies needed for currentand future success.

‘The expertise of all employees, not just the acknowledged experts,

is an important part of customer service’

Reputat on and

Skills and Competencies

ses and Systems

29

Skills & Competencies Checklist




Where are our strengths andwhere do we need to invest inimprovement? Whatopportunities do we have tomake better use of our talents?What do we risk by failure tomake best use of all ourresources and capabilities?


What are our goals for attracting the right people andthe right learning anddevelopment opportunities?


How do we convey the value ofworking with this organisation?



What is changing?

What talents will we need to havein order to take advantage of thefuture marketplace?


What are our goals for acquiring thenew skills and competencies thatwe will need to sustain ourrelationships?


What are the gaps that we need to fill?

‘Prospective new employees spend a day with the

business, as much an interview for the company as for the

individual. That way we end up with a better fit’


For your company to reach its fullpotential it is essential that you notonly attract the right people, butthat you also provide them with theopportunity to gain the skills andcompetencies they need to meetyour current needs and futurechallenges.


‘This is about getting the right, relatively small number

of people who, like in football, are key – buy a good

striker and goalkeeper’

Processesand Systems

30

31

The right processes and systemscontribute to the efficiency andeffectiveness of organisations, butflexibility and adaptability are alsoimportant. Successful companiesconsider these aspects by‘benchmarking’ themselves againstthe best they can find in order toidentify improvement areas withintheir own operations.


company has the information

flows needed to evolve the

way it works so that it

remains competitive?

■ How do your processes and

systems stack up against your

most dangerous competitors?

■ How do you ensure that when

important knowledge is

discovered by one part of the

organisation, that it is applied

and shared with others in

order to extract its full value?


To compete effectively a company needs to ensure that it hasin place the processes and systems in the right location tosupport all its activities and to meet the various demands of itsvarious stakeholders.

‘Simplification of process is an important element of

knowledge codification and knowledge sharing; we make

extensive use of process redesign to simplify processes’

‘We invest in systems to improve accuracy of delivery,

speed of delivery, stock control and systems to interface

with customers and the network of distributors’

32


This section is about the way inwhich organisations set about theprocess of using knowledge todesign the right processes todeliver value to relationships. It’sabout learning how to make bestuse of their overall portfolio oftangible and intangible assets. It’salso about evaluating and usingideas to design operations that are‘customer focused’.

All organisations will have a rangeof things that they do in a regularand consistent way, things like staffappraisal, project appraisal, budgeting,setting targets, producing financialstatements, marketing, planning,project management, compliancewith standards and legislation,identification, packaging andmanagement of intellectualproperty etc – the potential list goeson and on. The detailed ways inwhich these activities areundertaken will vary fromorganisation to organisation,context to context. There is obviousoverlap with knowledge, skills andcompetencies. Investing in the rightprocesses and systems relies onunderstanding how knowledge andknow-how are combined, in theright place, at the right time, tocreate ways of working that provide ‘brand enhancing’competitive advantage.

Successful companies recognisethat as with all the other areas it isimportant to consider inter-relationships, the quality ofoperations has a clear link to reliabilityand reputation. Equally the effectiveuse of knowledge to improveprocesses will be dependent on theeffectiveness of relationships,which in turn must be supported bythe right culture and values.

Whilst operational issues will tendto provide the focus for numericalmeasurement, for exampleefficiency ratios, there is a dangerof measuring what is measurablerather than measuring what isimportant. Selection andinterpretation of performanceindicators and action plans related tothe improvement of processes andsystems needs to be considered in aholistic way against the overall tangibleand intangible asset base. Thisapplies particularly to knowledgeflows that arise from eachrelationship involved in the process.‘Project management is important,

particularly for IT projects’

Skills and Competenc e

Processes and Systems

33

‘Investing in systems is primarily about improving efficiency, but do not

assume that systems fix processes, they don’t. Processes must be sorted

out first, then systems come in to automate them. Putting a system in

will not fix a busted process, you have to fix the process first’


For your company to reach its fullpotential it is essential to considerboth the current investments inprocesses and systems required to support your current activitiesand those designed to meet future challenges.


‘Value mapping processes are used to get customers to

rank product features; this information is fed straight into

the product development and marketing strategies’

Processes and Systems Checklist




What do we do really wellcompared with our competitorsand where are we weak? What ideas do we have forimprovements in key areas? Whatrisks are we exposed to becauseof the way in which we currently operate?


What are our goals for improvingthe efficiency and effectivenessof our operations?


For each of our operations whatare the main problems that weneed to solve?



What is changing?

How should the way we workevolve to take advantage of theknowledge and ideas we getthrough working with ourrelationships and by observation ofmarket developments?


What are our goals for developingour communication flows andmaking the best use of all resourcesand capabilities at our disposal?


What are the key investments that we need to make, not just in tangible assets but in theintangibles needed to support them?

Successful companies seek toimprove their value creating potentialthrough the creation of options andflexibility in respect of all their assets.

Understanding the intangiblefactors that contribute to the valueof both tangible and intangibleassets, things like, design, location,ease of use, safety, replicability,scaleability, flexibility, reliability,quality and for intellectual propertythings like the scope and degree oflegal protection are all importantaspects to consider.

■ Do you appreciate that value

may mean different things to

different stakeholders?

■ Have you identified the key

risks, uncertainties and

problems that need to be

explained and tracked?

■ Are your key investment

priorities clearly communicated

to both internal and external

audiences in terms that

embrace both financial and

non-financial goals?

Unlocking your true potential


All companies are different and there is no simple formula thatfits all. Talented people learn to use the seven intangiblesstreams identified to provide them with insight into current andpotential future ways of working involving all the assets of thebusiness, both tangible and intangible.

‘Our relationship with financial institutions is enhanced

by our mutual understanding of intangibles’

‘You can’t do everything at once, focus on

the most important things first’

34


■ Relationships and knowledge

are important throughout thevalue chain. However, alltangible and intangible assetsneed to be considered togetherif you are to unlock yourorganisation’s full potential.

■ A prescriptive approach to eitherinvestment or reporting is notthe answer.

■ Attempting to place a financialvalue on specific intangibles wasseen as unreliable, potentiallymisleading and dangerous.

■ Values also need to be consideredin the context of value to whomand for what purpose. Whenselling a business or idea, valueneeds to be considered from thediffering perspectives of buyersand sellers.

■ Financial statements alone donot provide the answers foreither internal or externalreporting.

■ Forecasting is an uncertainprocess, but it is important to beable to discuss goals, problemsand success criteria in thecontext of identified risks anduncertainties from both aninternal or externalcommunication perspective.

■ Leadership and Communication:

successful leaders consider notjust what to do, but when,where and how to do it and withwhom. They recognise thatbusiness life is a trade offbetween activities, stakeholdergroups, individuals, risk andreward, certainty and uncertainty,cash absorbing and cashgenerating. They communicatepriorities and win theinvestment needed to ensurethat the company’s structureand frameworks can adapt andevolve in the light of change.

■ Culture and Values contributesto the quality of the workplaceenvironment, care for each otherand for tangible assets, it links tohappiness, safety, openness,team working, co-operation,empathy and so on and thisextends to ways of working with external relationships.

■ Reputation and Trust may beinfluenced by the firstimpression given by people andby tangible assets, like look andlocation of property, the capacityof equipment or by a long list ofIntellectual Property. In the longterm, however, image and brandare sustained by things likeempathy with needs, reliability,quality, security, uniqueness,responsiveness, friendliness andso on, in other words things thathelp to make the overallrelationship experience somethingto be valued.

■ Skills and Competencies:

it’s not sufficient to simply knowabout things, to possess thetangible facilities or to own theintellectual property, you needthe talent to make use ofresources to create value for theorganisation. The corecompetencies are identified asthe ability to learn alongsideability to seize opportunities atthe right time, and place ininnovative ways that createvalue for all concerned.

■ Processes and Systems: it’snot simply a case of consideringhow to do something, you needto consider the implications ofthe way you do it, compliancewith legislation, with qualitystandards and the standardsdemanded by society as awhole. Staying in touch with themood and aspirations ofstakeholders remains animportant consideration. Thisrequires a commitment tothinking about flows andavailability of knowledge, ideas,materials, cash and otherresources, not simply from yourown perspective, but from theperspective of the other side ofthe relationship.

■

35

36

This study highlights the need fororganisations to look beyond theirexisting financial statements toconsider how a wide spectrum ofexcluded intangibles contribute totheir current and future potential tocreate value.

It is the overall mix of tangible andintangible investments thatdifferentiates one organisation fromanother, and within this mix aspectrum of intangibles areidentified as key components ofbrand and competitive advantage.

The intangible ‘investment areas’highlighted by this spectrum are:

■ Relationships

■ Knowledge






Based on the text and questionswithin this report, organisationsmay identify the strengths,weaknesses, opportunities &threats associated with the overallspectrum, in order to manage anddevelop action plans to:

1 Improve the efficiency and

effectiveness of current

activities by targeting

investment to where it’s most

needed.

2 Build the components of value

that will provide the options

and flexibility necessary to

sustain the future.

3 Enable the diagnosis of

problems and the

identification of critical

success factors and key

performance indicators.

4 Facilitate internal

communication of values,

goals, problems,

opportunities, risks

and uncertainties.

Based on the above, teamscollaborate to identify ‘root causes’of problems, decide ‘action plan’priorities, and an appropriate basisagainst which to measure progress. Progress is usually measuredregularly by broad indicators, forexample customer, supplier or staffsatisfaction survey trends,operational productivity ratios,compliance with standards or theachievement of milestones forproject work.

As a result of undertaking theseinternal exercises:

5 The insight achieved from the

above provide the ‘bones’ for

enhancing external

communication and reporting.

The ‘flesh’ on reporting being

the quality of the dialogue

with specific external groups

enabled through an in depth

understanding of the overall

contributions to existing

operations and future

aspirations from the various

intangibles.

.

Conclusions

Based on the responses of 50 successful organisations, thisstudy provides a way to focus on the key intangible resourcesand capabilities that talented individuals use to meet goals, tosolve problems and to create the type of innovative climatenecessary to offer a sustainable and rewarding future.

37

Acknowledgments

The Future and Innovation Unit, would like tothank the following individuals, partners andorganisations for their invaluable input to thisdocument.

Advisory Group

Stephen Hailey (Chairman)John GrantHermann HauserTom OatesTim ParkerJonathon PorrittBernard TaylorStuart Wallis

Project Manager

Tim Hoad

Partners

Centre for Business Performance, Institute of Chartered Accountants in England and Wales.

Centre for Exploitation of Science and Technology

Confederation of British Industry

Design Council

Institute of Directors

Institute of Management Consultancy

Management Consultancies Association

The Centre for Tomorrow’s Company

The Chartered Institute of Marketing

The Chartered Institute of Personnel and Development

The Industrial Society

Organisations

AIT GroupAmadeus Capital PartnersArthur AndersenAstraZenecaB & QBackup StaffBede ScientificBite CommunicationsBonas Machine CompanyBTBuckman Laboratories InternationalBusiness IntelligenceC & J ClarkeCelemiColt TelecomConduit CommunicationsCorporate Television NetworksCosgrove Hall FilmsDiageoEyretelForum for the Future GSM GroupHalfordsHSBC BankIceland GroupInterregnumJP MorganLever Faberge UKLinklatersLondon Bridge Software HoldingsMarks & ClerkMarshMerrill Lynch Investment ManagersNovo NordiskNovartis InternationalOscar FaberPowderJect PharmaceuticalsRegusRemedy Computer ServicesServiceTecShared View Social ResponsibilitySouthern BioScienceSt LukesTelos PartnersThe BAE SYSTEMS Virtual UniversityThe Book PeopleThe Rafferty ConsultancyUnileverUnipart GroupWoolwich

Designed and produced by The Rafferty Consultancy 01342 301346 www.raffertys.co.uk

Department of Trade and Industry

Future & Innovation Unit

B 7/17, 1 Victoria Street

London SW1H 0ET

For additional copies:

Website: www.innovation.gov.uk

Telephone: 0870 1502 500

Fax: 0870 1502 333

May 2001. Department of Trade and Industry. http://www.dti.gov.uk/

© Crown Copyright. URN 01/727

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