Wednesday, November 16, 2011

The Importance of Intangible Assets and Sourcing

This week's readings focuses on having an introspection at own your organization to reap the benefits of the intangible assets of a company which could well be the distinguishing factor from the rest. Intangible assets could be leadership, talent, speed, goodwill, copyrights, patents, etc. One of the classical example is the one from the reading wherein the author cites JetBlue and Delta as examples. The author states that "JetBlue's market valuation is twice as high as Deltas's despite JetBlue having significantly lower revenues and earnings"-- and it is only because of JetBlue's intangible assets like leadership and planning on which the investors have their confidence. Another similar example that goes without saying is Apple which is officially now the No. 1 company in terms of Market capitalization only because of the vision its leaders had and has. So, lets us talk more on these intangible assets and try to understand in details as to what are some of the above mentioned factors typically looking at from an industry perspective, how we can measure some of these factors to constantly evaluate ourselves against the benchmarks and the industry standards and last but on the least how to build on these intangible assets. As the name suggests, intangible assets refers to the soft competencies of an organization which is a value addition for the company giving or will give the organization competitive advantage. Again, as discussed in some of my earlier blogs ,the term "competitive advantage" could range anything from market share, to market capitalization, profits, reducing debts, etc. But whatever it is this intangible asset will set you apart and balance the missing the current monetary benefits which other companies might have. As the author states talent, speed, unified worked force sharing the same mind set and having a coherent brand identity, accountability, building landing curves, Leadership, having a high customer satisfaction index, fostering innovation, an attitude to strive towards excellence and higher efficiency. However there are no two disclaimers to the above list.

A. The list is not all exclusive and cumulative but is continuously evolving and changing.

B. There is no one single formula which will help in imbibing all the above factors into the organization.

Having said that, it now depends on the mangers to prioritize the list. However if the mangers are simply mangers and not leaders of tomorrow, they might not have the correct vision to read the holistic picture predicting the future and lead the organization into the right direction. So, the starting point would be to get the right people onto the bus. With that it becomes an universal debate whether the destination fixed first and then board the right people onto the bus or vice-versa? Pretty close to the chicken-egg problem. It is for you to answer...

Next comes the important buzzword which has dominated all fields of industry in the last one and a half decade and that is "sourcing". Various prefixes like "out", "crowd", "cloud", "in" have been added over these years but the basic concept remains the same which is nothing but an attempt to reduce costs and optimize certain existing processes of an organization leveraging the expertise of another company in those areas keeping the core business intact without sacrificing any quality. As the author talks about the 7-eleven example which always delivered its own products even though they were diversified. "They even owned the cows that produced the milk it sold." However, the moment of truth arises when the manager needs to decide to keep some of the strategic capabilities within walls or let it out of the bag much like the way Taichi Uno did it for Toyota's Just-in-Time (JIT) concept?

Citations:

Article: Capitalizing on Capabilities (Ulrich and Smallwood, Harvard Business Review,June 2004)

Article: Competing Through Organizational Agility (Sull, McKinsey Quarterly, 2010 #1)

Article: Do You Have the Right Leaders for Your Growth Strategies? (Herrmann, et. al., McKinsey Quarterly, July 2011)

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