Today’s management practice are centric to measuring anything and everything that moves. Whether it be a process, a product, some form of media, people, markets and all things tangible that can be measured and correlated to the achievement of results. We even consider some of the intangibles like the number of followers, fans tweets, like’s and friends as a measurement that means something to the recognition of a brand in the minds of buyers. Then that recognition is correlated to results to justify more expense to spend more on the intangibles.
At the end of the day the only measure that matters for today’s business leaders is what result goes into the accounting system. Those are financial measures which represent the outcomes of all the moving parts, both intangible and tangible. Or at least we thought they did.
Have We Missed Some of The Parts?
It is becoming evident that today’s management practice, including accounting, are missing a large part of how and what creates value for a business. We’ve become obsessed with measuring the productivity of people, processes. products and customer as assets to optimize and count on the operating statements as income and expenses. These are some of the parts, not the whole.
Mary Adams writes “The Problem with Accounting”: You see, accounting has the unenviable challenge of applying a tool set designed for the tangible economy to the rapidly-changing and radically-different intangible economy. These standards favor tangible assets and generally recognize spending on intangible assets as operating expenses. This approach has failed to measure or capture the enormous value in the knowledge, ideas and connections that companies have been able to build using information technology and the internet over the last 30 years. These intangible knowledge and collaboration assets are the key drivers of revenues and profits in almost every company today. But since they exist outside the balance sheet, the tangible net worth of the average public company in the U.S. is equal to just 20% of its total corporate value. The rest is., well, intangible and generally not well-understood.
The future business leaders will understand the value of measuring the whole so they know what is driving the results which matters more than a result of a few parts after the game is over.