May 2006 Newsletter

In this issue:

How HR Can Help Build Intangible Value

It's interesting to watch changes in business.

Twenty or thirty years ago if we asked, "Do intangibles matter?" we'd get the answer, "What are they?" Or from those acquainted with intangibles, we'd hear, "No."

But now there's a new appreciation for intangibles in our business world.

'Soft stuff' drives market value

Research shows that company value is no longer found on the balance sheet and that market value is becoming less and less correlated with earnings. In fact, two firms in the same industry with the same earnings often have dramatically different market value.

Why? What is driving market value other than a company's assets and earnings?

The answer is intangibles or soft assets-or as some say, the "soft stuff."

Once defined in The Economist magazine as anything "that generates value that you can't drop on our foot," intangibles include speed-to-market, talent, brand, culture or mindset, leadership quality, and unbounded behavior, which means team work, integration, connectivity and the like. Some experts attribute 30 to 60 percent of an average company's value to intangibles.

The question is, how do we make intangibles tangible and what can we do to make intangible value happen.

Creating intangible value

Although which intangibles are most important varies from company to company, how to build intangibles comes down to four basics, according to Dave Ulrich, well-known human resource management educator, consultant and author. (He's professor of business administration at the University of Michigan.) Based on his work with many companies, Ulrich has crafted a four-level guide for intangible value creation:

1) Keep your promises

2) Articulate a clear strategy

3) Put your money behind your strategy

4) Build capabilities to meet your goals

So these are the building blocks to increasing intangible value in your organization. But where does HR fit in?

HR's role in building intangible value

We have a lot of data showing that HR really does make a difference to business outcomes. And its effect is huge. Some experts tell us that good HR practices account for a 40 percent in market value.

The key, as you've probably surmised, is integrating our practices to capabilities. And more than likely, this means a shift in thinking.

In the past, we in HR have preoccupied ourselves with activities. Think of how we describe what we do: recruiting, training, hiring, benefits, compensation, and so on.

But to create intangible value, HR professionals should architect, coach, facilitate and deliver capabilities. Aligning ourselves to our company's strategy, we should focus on speed of change, leadership, collaboration, accountability, brand, learning and shared mindset - all those things that will allow our organization to do what our competitors cannot.

By doing so, we can create a straight line from our employees' work to the firm's intangible - and market - value. 

MGA can help provide focus and creativity, and thereby achieve your organizations objectives.  Never forget, you already have a significant investment in your people through salary, benefits, recruitment and training.  This investment can add up to hundreds of thousands of dollars per year, per person.   

With MGA you can maximize that investment.

Watch for next months article on "Leadership effective - being clear with your audience"

News Articles     Search