The market value of publicly held companies is derived from two primary sources—tangibles and intangibles. Products, services, operations and revenue from operations are tangibles while talent, focus, culture, and differentiating capabilities—collaboration, innovation, leadership and execution represent intangibles.
At the end of the day, the ultimate outcome of the combination of tangibles and intangibles is customer experience. Accordingly, the primary goal and most critical contributor to sustainable success is the ability of organizations and the individuals who lead, manage and operate them to transform customers into passionate advocates.
When external customers are passionate, they advocate for the success of your organization. When internal customers are passionate, they serve as a springboard for your personal success, driving career advancement, expanded opportunities for creative engagement and contribution.
By the way, internal customer experience is almost always directly predictive of external customer experience.
Not surprisingly, then, intangibles factor substantially in the calculation of market value and the achievement of personal and career aspirations. In fact, a quick perusal of readily available data reveals that up to 80% of market cap is attributed to intangibles—as assessed by Wall Street analysts. The ratio of revenue from operations to intangibles varies widely from company to company. For instance, Apple’s revenue from operations is roughly 20% of its market cap while Research in Motion’s represents the lion’s share of it’s value, with revenue from operations exceeding the value contribution of intangibles.
Why? Wall Street assesses the likelihood of Apple’s talent, culture, teams and leadership to learn, adapt and innovate ahead of its competition to be radically higher than those of RIM. The same holds true for many of household names in publishing, financial services and other businesses dominated by rigid, legacy cultures—their tangible to intangible ratios are most often near balanced or reversed.
You may recall my recent blog post Push vs. Pull Cultures. In Push Cultures, innovation and success are owned and driven at every level of the organization. In legacy Pull Cultures, initiative is closely held and protected at the most senior levels. In fact, far too many pull leaders speak derisively of the capacity of front line operatives to grasp opportunity and contribute value beyond fulfilling functional responsibilities.
Guess which cultural type tends to have higher market valuation and contribution from intangibles?
On the personal side, intangibles are equally critical to sustainable success. Over the years, we have identified a clear set of capabilities that predict the likelihood and level of success for individuals (as well as the organizations to which they contribute). Expressed in terms of a simple equation defining sustainable competitive advantage, it looks like this:
Sustainable Competitive Advantage = △rC2 (differential capacity to relate, create, collaborate)
The greater one’s ability to form and sustain productive relationships, innovate on a recurring and reliable basis, and collaborate effectively to achieve/exceed goals, the greater the likelihood and magnitude of success.
We’ll soon be publishing a white paper that will delve more deeply into the specifics of this. In the mean time, ask yourself a few key questions:
- Do I bring the best possible self I can to the playing field each day?
- Do I accept that my ability to form and sustain positive collaborative relationships will, at the end of the day, trump my role specific expertise and competencies?
- Do I set out to manage projects or relationships?
- Am I routinely generating and putting forward ideas, game plans and road maps for improving what we do and how we do it?
- Am I a strong contributor to successful teamwork, placing the interests of my team and organization ahead of my personal agenda?
- Am I as committed to the success of my team and teammates as I am to my own?
- Am I waiting or offering?
Your answers will be instructive. By building awareness of and consciously committing to continuously strengthen relationships, creative contribution and collaboration, you will be well on the road toward transforming intangibles into tangibles—for yourself and your organization.