The Risk Of Intangibles Is Not Knowing

by Jay Deragon on 11/06/2012

Businesses buy insurance to protect their assets and the public against risk. That works for 30% of the assets but leaves 70% at risk.

In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.  Tangibles represent only 30% of an organizations value while intangibles represent 70%. (Ernst & Young)

In the industrial era capital was created by materials and machines (tangible assets) while the knowledge economy relies on assets created by human, structural, relational and strategic capital (intangible assets). Managing the risk of  intangible assets requires a new set of tools and a different way to think.

Value & Risk Has Shifted

Information has become transparent. The Social Era is changing the role and dynamics of intangible risk management. Knowledge and its source (human capital) is transparent. The social graph exposes (relationship capital) the relational bonds of information and individuals. Employees collaborating together (human capital) and with external partners (relationship capital) to create re-usable knowledge, designs and processes (structural capital) that meet market needs via a viable business model (strategic capital).

Information about intangible capital are no longer hidden in silos rather all things are inter-connected, related and represent a new era of value creation and emerging risk. Tangible assets are no longer the driving force of economic development.  Everything is connected to everyone and what was previously intangible has now been made visible, viable and quantifiable.  These dynamics are creating new risk and new value previously unknown and unforeseen.

Intangible risk management identifies a new type of risk – a risk that has a 100% probability of occurring but is mismanaged by most organization due to a lack of knowledge. The lack of knowledge by itself is an intangible risk. Knowledge risk occurs when human capital is under utilized. Relationship risk occurs when collaboration is inhibited by culture. Structural risk occurs when people are restrained from using knowledge, fixing processes and the pursuit of innovation. Strategic risks occur when the productivity of knowledge workers is reduced, when cost increase, when service quality suffers which all lead to reduced profitability.

Risk management relies of data and informational flows in a timely fashion. Capturing and connecting data, information and related knowledge is strategically relevant to all organizations worldwide. Not knowing or having the right intangible data, information and relevant knowledge of the value that can be captured from intangible assets is certain death to organizations unprepared and unaware.

The risk is more about not knowing how to capture and manage the intangible value.

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