Week 12
Rylatt, A 2003, Winning the knowledge game, McGraw Hill,Sydney: ch. 15 Measuring your know-how.
Synopsis:
This chapter discusses the new paradigm of measuring an organisation’s intangible wealth performance as a key measure that may become more important than the traditional accounting measurement of the book value of the fixed assets. The measurement of intangible wealth refers to the worth of an organisation’s people, systems and processes. The chapter gives examples of organisations such as Ford, Oracle, and Coca Cola to demonstrate that their market value is now worth vastly more than their book value due to their intangible wealth. The chapter also discusses the issue of finding common measures in order to accurately determine the worth of these intangible assets and that there are many accounting bodies, such as the International Accounting Standards Board, and industry groups researching how to measure this. The chapter then offers and describes five key areas that currently exist on reporting intangible value: 1. Customer Capital; 2. Human Capital; 3. Intellectual Capital; 4. Relationship Capital; 5. Systems Performance. Finally the Chapter concludes with the acknowledgement that businesses can no longer rely on traditional financial reports alone as a performance indicator.
Critique:
The chapter raises some very good points such as a need to find common ground on the measurement of intangible assets across industry in general. Although the chapter discussed five key areas currently used in reporting on intangible value and associated measures, it would have been even better to delve deeper into these and discuss or show how the measurement examples categorically tied into what it was trying to measure with worked or specific industry examples. It would also have been good to see an analysis and discussion around which of these measures worked best and why this was so. Although I understand (and agree to a significant extent) with the need quantify the worth of human capital and the end product of it, the concern I have remains that this needs to be done more from an organisational perspective of understanding itself and its own worth rather than undertaking the exercise primarily for the estimation of external organisational worth (such as listing on the stock market).
Reflection:
This chapter has helped me to understand that an organisation’s worth is not only the value of its physical assets, but also of its people, processes and systems. The chapter has also helped me to understand that there is a great difficulty in trying to measure intangible assets such as innovation and creativity, and we struggle with trying to capture these as a tangible item. It has also helped me to understand that a particular measure or set of measures for one organisation may not be appropriate for another organisation and a great deal of thought and detail need to be undertaken before applying any of these measures.