Are Relationships Assets?

by Jay Deragon on 10/10/2008

In business and accounting, an asset is defined as a probable future economic benefit obtained or controlled by a particular entity as a result of a past transaction or event.

Assets are usually listed on the balance sheet. It has a normal balance, or usual balance, of debit (i.e., asset account amounts appear on the left side of a ledger.)

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board .”An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”

Most businesses today do not think about or account for the value of relationships as an asset. Yet none of what has traditionally been defined as assets could actually create any value without relationships. Just maybe relationships are the means for maximizing the value of previously defined “assets”. Historically relationships have been considered intangible assets thus rarely if ever do we see the intrinsic value of relationships defined anywhere in the minds of leaders and on the traditional balance sheets of businesses.

Are Intangibles More Important than Tangibles?

Verna Allee, author of “The Future of Knowledge: writes: “As expressed by Warren Buffet in a recent discussion at IMD, Lausanne: “If I trust that the owners run a smooth business I invest. I do not make a Due Diligence to look for IP (and other intangibles)”

If you would sit down with Warren and ask him what he means by running a smooth business he would be describing intangibles such as the quality of the leadership team (intangible), consistent and responsible financial management (tangible), competent people and normal turnover rates (intangible), reliable supply chain partners (intangible), solid customer base (intangible), reputation (intangible) and so forth. He would actually be naming intangible assets
The power of any management practice lies in the way it takes the things we do intuitively and helps us do them deliberately and therefore more effectively. Processes didn’t suddenly show up in business in the late1980s. Business processes have been around for thousands of years. What was different is they were made visible and negotiable. Intangible assets, value networks, KM, social networks, communities of practice. There is nothing “new” happening. What is happening is our capacity to make all of these visible, negotiable and more manageable (not controlled.)

Just maybe all this “social stuff” and the representative influence and power will magnify the true value of the intangibles, relationships. Then again relationships have always been there but the intrinsic value has been set aside while the economic value of tangible assets has dominated markets.

If markets are conversations developed through relationships and transformed into transactions then maybe its time to label relationships as tangible. After all, people are not hidden rather they are all around you carrying on conversations. Conversational exchanges also represent a significant amount of value that isn’t considered “tangible”.

What say you?

{ 1 comment }

mike miller October 11, 2008 at 6:10 pm

I agree its all about the relationships! Relationships = revenue and business growth!

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