As recently as the 1980s, determining the value of a company was a relatively straightforward affair. That’s because tangible assets made up 80% of an organization’s value, meaning accountants needed merely to estimate the sum total of the company’s factories, equipment, inventory, and other physical holdings. Then something changed.
The explosive growth of information technology during the past few decades has transformed commerce and forced executives, investors, accountants, and the general public to rethink how companies are valued. By 2006, consultants from Accenture had asserted that 70% of the value of the S&P 500 was composed of intangible assets like brand equity, intellectual property, and talent. Last year, a report from Aon and the Ponemon Institute found that the share of value tied to intangible assets had grown to 84%, or roughly $21 trillion across U.S. companies.
Not every company is as rich in intangible assets as those 500, but almost all firms, regardless of industry or size, should be looking to develop these intangible assets if they want to remain competitive in the decade ahead.
The Things You Cannot See
The pace of technological change continues to increase, creating a demand for people with a combination of specialized skills and the ability to think strategically and learn quickly. Not surprisingly, these people aren’t easy to find. The companies that can attract and keep them are better positioned to succeed.
And in the modern world, companies are vying for a new form of knowledge: data. The ones that have it (and the ability to harness it) are able to use data to inform everything from business strategy to product development. In addition, companies that invest in branding are able to earn loyalty and trust in a time when consumers are more fickle than ever because they have more options than ever.
These three intangible assets — talent, data, and brand equity — will continue to be key drivers of value for companies in the next decade and beyond. Here’s how you can maximize their worth.
- Put people first to be more profitable.
There’s truth to the adage that people are your most valuable asset. Firms with higher levels of employee engagement and lower turnover rates are more profitable, according to Gallup. Some leaders are going to great lengths to attract and keep top talent — just look at Dan Price, founder and CEO of Gravity Payments, who took a massive pay cut and instituted a $70K/year minimum salary for his employees. You probably won’t be able to go that far, but providing a competitive salary and benefits package is a great starting point if you want people feel appreciated.
Don’t forget that you’re vital to your company’s success as well. Taking work off of your team’s hands may seem like the admirable or right thing to do, but it’s not always wise if assuming the extra work yourself will put you at risk of burnout. If you’ve ever been on an airplane, you know the drill: Put on your own mask before you help those around you. The same goes in business; make sure that you aren’t stretched too thin so you can help more people avoid the same fate. If there’s too much work on your team’s plate, consider your options before taking on the extra work yourself. Crunch the numbers; is it time to hire an additional team member? Or can you outsource some of the work?
- Protect your data with more than an army of one.
Data is valuable for numerous reasons, not least of which is the fact that it gives companies unprecedented insights into consumer attitudes and motivations. As the tools used to process and analyze it become more powerful and more accessible, its value will multiply. Unfortunately, that value makes your data a target for cybercriminals. Without a comprehensive security plan in place, you’ll have a hard time keeping them at bay.
Many companies invest in a single security solution –— like malware protection software — to keep bad actors out. “Contrary to popular belief, it’s a mistake to rely on malware protection,” cautions Vince Dawkins, president and CEO of Enertia Software, a developer of enterprise solutions for the upstream oil and gas industry. “That’s because malware protection can be penetrated. And, without any other security measures, hackers can easily get to your data.” To truly protect your data as a key asset, make room in your budget for a firewall, backup solution, end-point protection, and cyber insurance, or you may find yourself spending far more on remediation and PR.
- Build brand equity.
Brand equity is sometimes viewed as a nebulous concept — an asset that can’t be fully measured or accurately assessed. But its impact is readily quantifiable based on factors like market prices, shares, profitability, and demand. Thus, it’s no surprise that some of the world’s most successful companies — think Apple, Nike, and McDonald’s, for example — are also considered iconic brands. Moreover, negative brand equity can hurt business and drive customers away, so ignore this asset at your own risk.
Much like building a happy, engaged workforce, building a cohesive brand that evokes positive feelings among customers takes work. Your brand’s perceived quality is a good place to start. Test products on potential customers and utilize market research to help shape your final product. You need honest consumer feedback on your product so you can fix any major issues before a full product launch. If your brand consistently provides customers with high-quality products and/or services, you’ll boost your brand loyalty. Brand loyalists become brand advocates, which means you can reap the rewards of word-of-mouth marketing and reduce other marketing spend.
Intangible assets will continue to be critical components of overall business value among leading companies. You may not be able to see or touch them, but don’t let that fool you into thinking they don’t matter. In fact, no asset matters more.
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