Inside the TSE Tower in downtown Toronto sits Stock Exchange Place, a sort of learning and conference centre that opened about two years ago. Around a small circular stage are a series of thin screens painted with numerical symbols that rise from the ground when an event is about to begin. These
screens obscure most of what’s going on behind the scenes, but if you look closely enough you can almost see through them. That’s more or less Pam Cohen Kalafut’s view of the business world today.
Cohen Kalafut, a researcher with the Cap Gemini Center for Business Innovation, was in town Wednesday morning for the launch of a book she co-wrote with colleague Jonathan Low. It’s called Invisible Advantage: How Intangibles Are Driving Business Performance, and it represents six years’ worth of research. Cohen Kalafut and Low argue that most businesses fail to recognize how factors like leadership, reputation or brand contribute to their bottom line. According to their research — based on mathematical formulae and detailed analysis of some initial public offerings — 35 per cent of portfolio manager’s decisions about where to allocate their investment dollars is based on intangibles.
If this doesn’t sound particularly pertinent to senior IT executives, bear with me. Cohen Kalafut and Low have tried to put some metrics behind the intangibles by creating what they call a Value Creation Index (VCI). Looking at companies as diverse as Dell, McDonald’s and Sears, they estimate that a 10 per cent change in a company’s VCI is associated with a 50 per cent change in its market value. Breaking these down into verticals, Cohen Kalafut focused on the financial service industries, ranking the intangibles that particularly drive value. Technology, as in the know-how of the organization, not it’s software or hardware, came in at No. 3.
The notion of measuring intangibles might make some enterprise executives uneasy, but Cohen Kalafut says communicating them will lead to great returns from customers and shareholders. She pointed out that some companies, like Shell, are coming out with special supplements to their annual report to show there’s more to their progress than numbers. In Shell’s case, for example, it will address its environmental record, but many financial services firms or related companies might want to highlight intangible benefits of its IT investments. The alternative — to keep these and other intangibles like workplace/culture, adaptability and human capital under wraps — could lead to disaster. Next to Cohen Kalafut’s slide featuring Shell was the Enron logo. “”In the U.S., we’ve seen some good examples of what non-transparency can do,”” she said. “”The returns on transparency far outweigh the returns on secrecy.””
To an extent, that shift is already happening. The stories we publish on ITBusiness.ca attempt to examine many of these intangibles, even as we try to pinpoint the hard return on investment companies achieve after completing an IT project. Many organizations are working hard to articulate these milestones. Of course, this becomes just another form of hype and salesmanship, and we share a responsibility with our readers to try and bring a critical eye to what they tell us. There are always war stories and pitfalls that won’t go in those special supplements.
While I can’t endorse Invisible Advantage (having only gotten through the first two chapters before the presentation began), I can applaud an attempt to get a handle on what has traditionally been impossible to grasp. We all know deep down intangibles are valuable, but particularly in this climate when budgets constrain so many IT projects, we could only benefit from a way of proving their worth to senior management. No formula will replace intuition — which might be defined as the subjective assessment of the intangible — but we could consider this a way of upgrading it.