Intangibles Matter

by Sandy Nelson on February 28, 2012

Consider the following—Apple’s current Market Cap is just under $500 billion while its 2011 revenues were approximately $108 billion. In other words, revenue from operations roughly represents only 22% of the value assigned to Apple by Wall Street analysts. The balance of Apple’s enterprise value, 78% of total, is attributable to analysts’ assessments of the intangible contributors to revenue generation and value appreciation. Intangibles matter.

Aspire to reach and sustain peak performance? If so, you will not only need to have great products and services, efficient operations and supply chain management, etc., but will also need to bring focus and investment to optimizing intangibles. For instance, you will have to become a magnet for top talent, build and sustain a culture capable learning, adapting and innovating ahead of the competition and able to turn on a dime in anticipation of possibility and opportunity while proactively adjusting to inevitable market disruptions.

Your talent and teams must know, align with, focus on and act consistent with What Matters. Leaders and managers must understand and become facile at catalyzing creative engagement and contribution while establishing and modeling high standards for interaction, performance and brand consistency.

You will want to take whatever actions are necessary to assure that your people and teams are strong, accountable, cross-functional collaborators that routinely transform customers (internal as well as external) into passionate advocates. To reach your full potential, egos will need to be left at the door. Effort will be appreciated, but results will win the day.

On the other hand, you might find yourself thinking that while interesting, these efforts seem a bit over the top. Just as you are today, you have a market leading product, strong corporate relationships and a track record of success. Why make the effort or divert funds from Ops to these “soft” endeavors when life is pretty darn good just as it is?

Good question!

For the answer, take a look at the recent article, Blackberry Season, by James Surowiecki on the Financial Page of the February 13 edition of the New Yorker. Chronicling the downward spiral of RIM, widely recognized as the market leader in smartphones not long ago, Mr. Surowiecki tracks the fall of its primary product—the Blackberry—from 44% of the smartphone market in 2009 to just 10% last year. Suggesting that RIM change the name of its flagship product to “Slackberry”, the article notes that stock prices are down 75% and the CEO has recently been replaced.

There isn’t much one can add to the sad fate of RIM, but just for the fun of it, let’s compare RIM’s stats with those delineated above for Apple. RIM’s market cap is $7.4 Billion. Not bad.

But, its revenues are $19.8 Billion—roughly 2.6 times market cap. What does this tell you about Wall Street’s assessment of the value-add of RIM’s intangibles?

In general, intangibles represent 50-75% of market valuation. Revenues from Ops make up the balance.

Take a look at almost any cross section of companies and do the numbers. But, be warned, those organizations tied to legacy cultures accustomed to doing business within traditional constructs of siloed cultures and rigid mindsets—think financial services and diversified media/publishing—will trend toward 50/50 or, in some cases, the reverse order with revenues exceeding market cap, like RIM.

Full potential leaders understand the value of intangibles. Continuously investing in talent and the building of differentiating capabilities, winning leaders proactively optimize intangibles. Intangibles matter.

Think about it!

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