The assets being managed by your organisation can be tangible or intangible, and are usually classified as material, financial, human or intangible. Investopedia has a simple, easy to understand definition of invisible assets:
Invisible assets are assets that cannot be seen or touched, but still provide value to the holder. Although an invisible asset is intangible, meaning it does not have a physical presence, it provides a financial value that can be approximated.
The problem with the invisible
We’ve done a good job over the centuries of identifying and quantifying the material and financial assets. We know whether they have a positive or negative impact on the value of our organisation, and we can usually agree on an objective value when we need to include them in financial statements. It’s the intangible and human resources that give us trouble. Unlike tangible assets, where the recognition is required by an assortment of legal and accounting rules, there are very few rules to govern the wide range of intangible assets. Unfortunately, because they are invisible, people often forget they exist and it is only in recent decades that we’ve agreed on how to measure a handful of these resources.
There are two common problems with invisible assets. The most common problem we seem to face is determining what we’re actually measuring. It’s a bit like trying to describe an invisible colleague. We bounce into him, hear him speak and see the output of his work, so we know he’s there. But none of us can see him and all of us imagine him just a little bit differently. I think he’s 6ft tall, you think he’s 5’2″ and neither of us can agree. And just imagine trying to explain to someone who has never interacted with him that he is even there. They’d either think we’re crazy or, even if they believe that he exists, they may not think he’s very critical to our organisation.
The second challenge is that the word asset has a very specific meaning. An asset is a resource with economic value that is owned or controlled with the expectation that it will provide a future benefit.
- Economic value is the value of an asset calculated according to its ability to produce income in the future
- Ownership implies that you legally possess the resource.
- Control implies that you can determine the behavior or supervise the operation of the asset.
- Future benefits means that there are likely advantages or profit to be gained from its use or sale in the future.
With this definition in mind, we run into a challenge when considering human resources. We can probably agree on an estimate of the economic value and potential future benefits of a team member. But, we do not own them (at least, most organisations don’t employ slaves these days) and we do not control them (they can quit at any time). And still our human resources are resources that are an integral part of our organisation. So, at what point can we consider them to be invisible assets?
The AE view of invisible assets
The most commonly cited examples of invisible assets are brands, trademarks, patents and copyrights. While we agree with these examples, we consider these to be the ‘visible’ part of the asset. It would be like if we threw paint on our invisible colleague so we can all see his shape. At Antilles Economics, we believe that the asset is more that just the part that is ‘visible’. Our invisible colleague has a skeleton and muscles and veins and blood and organs; not just skin that we covered in paint. Simply because we cannot see those elements of who he is does not mean they are not there and are not critical to his existence. For us, invisible assets are therefore both the end and the means.
We’ll delve deeper into this idea in future blog posts on invisible assets. Ensure you subscribe so you don’t miss any of our posts in our series on Managing The Invisible.