Intangible assets and intellectual capital drive the performance of every business today. This presentation explains how this happens and how businesses can and should measure and manage their intangible value creation. The presentation was originally delivered as part of the IAFS series, Conversations on Intangibles. For more information, please visit www.i-capitaladvisors.com

1. IAFS Conversations on Intangibles
Friday, August 7, 2009
Intangible Asset Performance
and Financial Results
Mary Adams
President
Intellectual Capital Advisors
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2. Economic value is increasingly
intangible
Components of S&P 500® Market Capitalization
14,000
Market Premium
12,000
Intangible Book Value
Tangible Book Value
10,000
8,000
S&P 500 Market Cap ($ billions)
6,000
4,000
2,000
-
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Research: Ned Davis
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3. This change touches all sectors
Intangible Value as a % of Total Market Capitalization
by Sector
100%
90%
80%
70%
60%
1975
50%
2005
40%
30%
20%
10%
0%
ner
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teri st r tion er St th C in an er v tili
E M a
I nd u
cr e al S chn ol U
Dis o ns u
m He F
ion
s
Te
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um C u ni ma
C o ns o mm Inf or
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Te
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4. Here’s the
calculation:
• Total corporate value per the stock
market
• Minus: tangible assets at historical cost
• Minus: intangibles on the balance sheet
at “cost” (really discounted cash flow from
mergers)
• Equals: intangibles (value, cost,….?)
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5. What it really means
• That analysts and investors are not relying
on the balance sheet to help them value
stocks
• That analysts and investors rely on
earnings and narrative reporting
• Earnings are increasingly being driven by
intangibles and intellectual capital
• But there is no concrete information to
make the link between intangibles and
financial performance
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6. Earnings don’t
tell you what the
company has left
in reserve
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7. The clearest answers come from
the field of intellectual capital
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8. ICA-8

9. Value is created when IC elements
are combined in a system
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10. Human Capital
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11. + Structural Capital
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12. + Relationship Capital
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13. + more Structural Capital
(that generates revenue)
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+ more Relationship Capital
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15. This “knowledge factory”
grossed $22+ billion in 2008
From: You Can Grow Like Google on YouTube
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16. Every business has a knowledge
factory
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17. Management
of a factory
• What did it cost to build?
• Is it working as it should?
• What should we do in the future?
• How will we track performance?
• How did we do?
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18. Management of knowledge factory
• What did it cost to build? I-Capex*
• Is it working as it should? Assessment*
• What should we do in future? Strategy
• How will we track results? Perf. Mgmt.*
• How did we do? Financial Statements
* Form the “new accounting”
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19. I-Capex* ($1 trillion/year)
• Intellectual capital expenditures are
expensed under today’s accounting
• Should be tracked in a management report
• Cost is actually the most concrete piece of
data available about intangibles
• Internally, will help with better decisions
• Externally, will help tell corporate story
* the new capital expenditure
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20. IC assessment*
• Like a 360-degree review of the
knowledge factory
• Review is by stakeholders (both internal
and external)
• Asks whether it is working well today,
outlook and risk
• Used for strategy, reporting, M&A
* the new balance sheet
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21. IC Rating assessment output
Intellectual Capital
AAA -
AA
A
BBB R
BB
B
CCC RR
CC
C A BBB R
D RRR
Business Recipe Organizational Relational
Human Capital
Structural Capital Structural Capital
B
BBB A R BBB BBB R A BB RR BBB BBB R
BB BB BB
BBB BBB R BBB BBB R BBB BB RR AA BB R BB BBB - BB BBB R
IP Processes Management Employees Network Customers
BBB BBB RR
Brand
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22. Performance management*
• Uses non-financial indicators
• Examples: headcount, customer
demographics, IP mapping, process
metrics
• Bottom up for learning
• Top down for management and
reporting—key performance indicators
(KPI’s)
* the new income statement
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23. Triangulate intangible performance
Cost
Assessment
Indicators
Source: http://amath.colorado.edu/outreach/demos/hshi/2000Sum/TaT.html
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24. Intangibles battle cry
“Technology and
especially the internet
can really help you be
lazy. Find the leverage
in the world, so you can
be more lazy!” - Larry Page
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25. Resources
• www.icknowledgecenter.com
• Worksheet for knowledge factory:
http://tinyurl.com/you-can-grow-like-google
• www.smartercompaniesblog.com
Mary Adams, 781-729-9650
adams@i-capitaladvisors.com
Twitter: maryadamsica
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