Accounting measures changes in legal property right as evidences by financial transactions. The results of contractual performance are typically classified as assets, expenses, liabilities, capital, revenue and profit or loss. According to Ken Standfield (author of Intangible Finance Standers: Advances in Fundemental Analysis and Technical Analysis) these results are defined as level 1 resources. Financial allocations occur because of the use of knowledge assets, relationship assets, motivation assets, and responsiveness assets. That is, decisions (soft) create financial performance (hard). However, accounting ignores these facts.
Competitive intangibles can be related to as the source of all value creation. Still competitive intangibles cannot be owned by an organization, but it can be influenced. The lack of ownership is the cause that accounting is blind to intangibles. As mentioned in the previous part only conventional intangible assets such as goodwill and intellectual property are recognized by accounting.
In the table below the different resources are listed and categorized. Competitive intangibles (knowledge assets, relationship assets, motivation assets and responsiveness assets) to be referred to as level 3 resources, create level 2 resources (intellectual property rights: intellectual property). These both result in changes in legal property right, level 1 resources.
Accounting or Intangible Management?
Many issues stop executives and investors from managing their organization following the new requirements of the intangible management economy. The ability to manage and measure all forms of intangibles gives a manager unprecedented power to manage their operations.
Where accounting systematically identifies the impact of financial transactions (measures money), intangible management systematically identifies the impact of nanotime transactions (changes in competitive intangibles, in nanotime)
Accounting and intangible management are complementary to each other. One cannot go without the other. The only problem with accounting is that intangible management is missing.
Knowledge Asset Classifications
The knowledge asset classifications are non-interactive with another person communications of information. In order to make intangible management reports knowledge assets are divided into seven sub classifications:
- Find/Retrieve The Nanotime spend finding or retrieving information
- Read/Learn The nanotime spend reading or learning information
- Create/Apply The nanotime spend creating or applying information
- Email/Faxing Total nanotime spend emailing, faxing, text messaging, or otherwise distributing information to an unseen partys
- Invention/Innovation Total nanotime spent inventing or innovating with information, products, or services
- Store/File Total nanotime spent storing or filing information
- Other Total nanotime spent performing other information/knowledge based activities not explicitly detailed above.
Relationship Asset Classifications
The relationship asset classifications is called the concept of the synchronous communication. Synchronous means 'real-time' or 'not delayed'. This part has six sub-classifications:
- Meetings Total nanotime spent with other to discuss general issues as are discussed in typical meetings
- Phone calls Nanotime with others communicating via the phone or other technologies
- Employee networking Nanotime spent on building relationships and engaging other employees or partners.
- Customer contact Nanotime spend on building relationships with the customers or potential customers.
- Internal support Nanotime spent assisting a fellow staff member, contractor or partners.
- Other Nanotime spend on other relationship activities
Organizational Asset Classifications
Together with the two previous assets the organizational asset constitute the third class of intangible assets need to create sustainable value in the intangible management economy. The organizational assets are directly related to the company's internal structure:
- Process impacts Nanotime spend by staff engaged in bottlenecks, ineffective processes and other related cycle-time issues
- Travel Overhead Nanotime spend by staff for travelling, both internally and externally.
- Stress impact Associated with staff stress
- Internal politics Nanotime associated with internal politics
- Red-Tape impacts Nanotime spend by staff engaged in abiding operating procedure and other bureaucratic issues
- Technological impacts Nanotime spent by staff using the electronic infrastructure (computer networks, equipment etc.)
- Cultural impacts Nanotime spent bij staff in abiding by the formal and informal politics
- Other impacts Nanotime spend on other organizational based activities
The four approaches to intangible valuation
- Public data only This approach does not seek to modify publicly available data. No adjustments are made to the information.
- Benchmarked data Investigates specific industries and sectors and then estimates more accurate statistics.
- Sampled data by questionnaires and detailed financial/operational information the intangible analysts can broadly investigate the operations of divisions
- Audited data The collected and interpreted data from specialized software that analysts use interprets data for use in intangible management reports. This creates the most accurate intangible management report.
An example of a intangible balance sheet and income statement can be found on the next pages.
The income statement is a very powerful tool. If Microsoft is able to make its workforce really effective and convert the nanotime into actual performance improvements it has the potential to generate $85 billion on its intangible revenue. In the example Microsoft has generated $32 billion from its competitive intangibles. However, this is when Microsoft would attempt to convert 100% of its potential operational nanotime into effective nanotime, and this would be unrealistic and undesirable for them.
Microsoft would try to convert the optimal amout of sustainable conversion from potential nanotime to effective nanotime. The optimal sustainability threshold is the gross amount of potential nanotime required by an organization to ensure that unsustainable burst time, burnout, absenteeism, stress, turnover, and knowledge worker syndrome are minimized