Measuring the Value of Intangible Assets: Balanced Scorecard Best Practice

In the modern age in which knowledge matters, the quality of customer services, team collaboration, corporate culture, shared values, etc, are the driving forces of competitive strength, the measurement of these parameters is a challenge that balanced scorecard practitioners have to face. In businesses that earn their revenue solely from services, such as call centers, restaurants, R&D and consulting companies, the variability in the performance of companies is entirely explained by subtle contributions that people make by their behavior, good judgment, risk-taking ability, ingenuity, foresight and insight. While many companies are aware that these soft skills are a critical determinant of the performance of companies, they have to depend on quirks of human behavior for that to happen. Under the present circumstances, people are guided by their subjective judgments about the precise impact intangibles have on business performance and there is rarely an agreement. In order to institutionalize the salutary traits of human behavior, companies need to learn to quantify their impact.

One example of intangibles is competence of the staff which is generally presumed to be determined by the years of experience, education levels and track record of the person as judged by references, bonus earned, etc. Yet, it is hard to tell the value of the experience of a person especially in an environment where technological change is rapid and skills acquired from past work are often not transferable to current work. Similarly, people with similar levels of education show varying levels of personal initiative which affects their contributions on the job. In short, the perceived value of intangibles in the current environment is influenced by impressions more than by quantified measures.

A pioneering work to quantify intangibles has been done by Sweden based Karl Erik Sveiby who works with Celemi, a developer of learning processes for rapid adaptation of the business environment. The measures used to estimate the value of intangibles include the value of staff competence, the value of the internal organization, such as value of the management style, new products and systems and processes, as well as the external image including the value of its brand and relationships with customers and suppliers. The company uses the composite of these values as a leading indicator of the health of its business and compares this with the actual business performance to try and find ways to improve.

The measurement of the intangible variables is a means to empower the employees of companies and reward them for their soft skills. In the past, the power politics played a much greater role in the recognition people received in the hierarchy of companies. The measurement of intangibles makes progress towards diminishing the role of subjectivity in decision-making.

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