Helping companies to manage the invisible underpins most of the work we do here at Antilles Economics. Invisible assets, though they cannot be seen or touched, are often the secret weapon in every successful company’s arsenal. In this second post in our Managing the Invisible series, we discuss why invisible assets require you to adopt a different approach to managing them than your traditional ‘visible’ assets. If you haven’t read the first post – What are invisible assets? – head over to our website and subscribe to our blog to ensure you don’t miss any more in the series.
Let’s get the not-so-good stuff out of the way.
You can’t just buy and sell invisible assets … most of the time
First, with the exception of a few, you can’t just buy invisible assets. You can purchase or sell tangible assets like buildings and equipment. But you just can’t go out and buy customer experience or innovative thinking. There is no bill of sale or invoice to provide evidence of the value of the invisible asset and you often cannot legally protect it. With the exception of invisible assets like trademarks and property rights and the like, you probably can’t ever sue anyone for having the ‘same’ invisible asset as you do. It’s difficult to even reach a consensus on what to recognize as an invisible asset in any given organization because invisible assets are worth different things to different people. At the same time, if you have an invisible asset that you no longer need, you’re probably stuck with it.
They are time-consuming, expensive and deceptively risky to develop
Because you can’t buy invisible assets, you have to develop them yourself, they take time to mature. Let’s say you want your startup to be lead the market in customer experience, all of the research and preparation in the world won’t make that happen overnight. You have to invest the time and money in developing the processes, cultivating the right culture and developing the right team to deliver market-leading customer experiences. And, even with your massive investment, there is no guarantee that you would ever get it right. In this way, developing invisible assets is also riskier than acquiring tangible ones; which is one of the many reasons why it is so hard to get the budget to develop them in the first place. But that’s a post for another day.
Their impact tends to be indirect
Invisible assets do have an impact on your balance sheet, profits and/or shareholder value. They just take a less direct approach. Let’s say you buy some computers to replace a paper-based process you had. The cost of the computers – the tangible asset – appears immediately on both your balance sheet and your profit and loss statement (depreciation). But the productivity – your intangible asset – takes a less direct route. As staff get more comfortable using a computerized process, they will probably get faster. The improved turnaround time will probably save your company money and could improve your reputation with your customers. That improved reputation could attract more customers. And so on.
They may not be fully controlled by your organization
And, they may not be fully within your control. This one is particularly frustrating. Your brand, for example, lives in the hearts and minds of both your customers/employees as well as those that would never do business with you. Your employees, who helped develop your invisible assets, could leave you tomorrow, taking pieces of those assets with them. Even the time and money it took for you to develop an innovative way of doing something, could be copied tomorrow (in a fraction of the time and sometimes with no money) by someone just watching you work. And there is very little legal recourse. It’s a pain!
They tend to need tangible assets to add value
Weird, I know. But on their own invisible assets almost never create value. Your logo needs something to go on, which most of the time is tangible. Your innovative team needs something to create. Customer experience tends to be tied to your physical location or call centre (both of which are tangible). Even your processes tend to be linked to at least a computer system.
But on the positive side …
They increase in value when used
When you use your invisible assets, they increase in value. They don’t depreciate like most tangible assets do. So, if well cultivated, you can experience increasing returns over their lifetime (which could potentially be forever if you manage them well). Many pay for themselves thousands of times over.
They can provide multiple, simultaneous benefits
They also are good bang for your buck because you can use them in many different ways at the same time! The best way to explain this feature is with an example. Let’s say you have a well-recognised brand. Not only can you get away with lower cost customer acquisition efforts because your target market already knows who you are, you will probably find it easier to attract talented employees and you will be in a stronger negotiating position with other companies in your value chain. All with no additional effort on your part.
They can be generated in the course of your everyday operations
This may be the feature that gets overlooked the most. Whether you want an invisible asset or not, they are being generated in the course of your everyday operations. Your corporate culture does not wait for you to create an employee handbook or host a team building exercise to form. Your brand exists whether you run an advertising campaign or not. Your customers have experiences with you, even if you do not hire a customer experience manager. Your very operations as a business creates invisible assets or liabilities. While it is definitely in your best interest to deliberately cultivate them, take comfort in the fact that you can do so just by being more intentional in how you do business.
They tend to be both inputs and outputs of your operations
While you use invisible assets in the course of your everyday operations, you also are creating them at the same time. A good example of this is information, which is such a great asset these days that whoever has the most insight tends to win. Information is needed to make decisions, operate your business and facilitate effective communication. But information is also the result of the decisions, business operations and communication. The inputs and outputs also don’t have to be of the same invisible asset. You could develop expertise in creating a particular product and that expertise could allow you access to previously inaccessible markets or make it easier to develop relationships with other supportive companies.
They create future value
Finally, invisible assets are key to the future of your business, not the present. If you have strong invisible assets today, it is because you or those that came before you laid the groundwork years ago. It is for this reason that we at Antilles Economics focus on them so closely, even if the traditional accounting systems cannot recognize them (conservatism concept and materiality concept). How you manage your invisible assets today will determine how successful you are tomorrow.
I hope this helped shed some light on the complexity of managing the invisible. Ensure you subscribe so you don’t miss any in our series on Managing The Invisible.