Imagine the influence the world’s largest management consulting firm has on the minds of executives all around the globe. The fact is that many of those executives are in fact ex-McKinsey Managing Directors who stay loyal to the perspectives offered by the firms remaining MD’s.
Whatever McKinsey says is usually considered thoroughly thought out, researched and grounded in intellectual discourse by some very smart people. With that kind of influence one may assume their positions on emerging business issues are logical, holistic and strategically sound. But what if their positions on issues did not tell the whole story? How many firms would head off into the Milky Way believing the wrong things?
Let’s Examine a Recent McKinsey Article
The article in question titled “ Measuring the full impact of digital capital” authored by Jacques Bughin and James Manyika. Both of these authors are people with global recognition for their intellectual contributions to business.
The article starts by mentioned the recent decision by US Bureau of Economic Analysis GDP figures categorizing research and development as fixed investment. It will join software in a new category called intellectual-property products.
Then they go on and frame the discussion around a knowledge based economy and a mismatch between the digital economy and the way we account for it. They continue explaining their definition of digital capital and the different tangible and intangible assets that make up digital capital. Things like disruptive innovations, new business models, new players with unlimited scale and radically new ways of doing things are all the result of digital capital and all the related intangibles. All well said. OK, so far so good.
Then McKinsey begins to stray. They say “Since identifying intangible assets is difficult, companies may be missing growth opportunities.” Here is what is wrong with that statement:
- There is an entire body of work representing a complete taxonomy of intangibles as well as tools to identify, measure and prioritizing intangible assets.
- There is a global community of over 500 academics, management consultants, accountants and professionals in finance called Smarter Companies who have studied, identifying, measuring and prioritizing intangibles for years.
- If McKinsey typed “intangible capital” into Google they would find references on the first page to things like Mary Adams book, Intangible Capital, to the Smarter Companies Community, to The Conference Board studies on Intangibles with contributions by Mary Adams and a host of other relevant references indicating that identifying intangible assets is not difficult because it has already been done.
McKinsey goes on and says ”We want to emphasize the importance, for many business leaders, of making the mind-set shift required to embrace the importance of digital capital fully“….But what they are suggesting isn’t really a mind shift. It’s a continuation of silo industrial thinking. The real mind-set shift required is to embrace the importance of intangible capital fully as a system and not a silo. The body of work done to date shows the systems includes four elements:
- Human Capital
- Strategic Capital
- Structural Capital
- Relationship Capital
Under each of these are dozens if not hundreds of other interrelated intangible components that interact with each other and with the four primary elements. Digital Capital would be a part that fit under one or more of the elements (mostly structural capital) but interact with all of them.
Digital Capital is a significant intangible but by itself it cannot produce anything. After all, intangible capital creates value from and through interaction. Interaction requires two or more moving elements that inspire, engage and connect people with people and things.
In my humble opinion the social and economic opportunity for improvement is larger than just digital capital and McKinsey, as a thought leader, should have addressed the whole and not just a part.
BTW, McKinsey does not enable interaction through comments on its own articles thus not exhibiting use of the very intangible capital it talked about, digital capital. Go figure.