Human capital Value and values Jonathan Low
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This document discusses the increasing importance of intangible assets to corporate value. It notes that between 50-90% of corporate value for many industries is created by intangibles rather than tangible assets. It defines intangible assets as drivers of business performance not captured by financial statements, such as human capital, relationships, organization, innovation, and reputation. The document presents research showing that perceptions of companies formed through interactions and media, as well as company performance on important values like social responsibility, contribute significantly to reputation and financial outcomes. It advocates for better measurement and management of intangible assets.
Human capital Value and values Jonathan Low
- 1. 0 Human Capital: Value and Values Jonathan Low Predictiv November 18, 2013
- 2. 1 Our Most Valuable Assets Walk Out the Door Every Night
- 3. 2 Organizational value increasingly depends on intangible rather than tangible assets like property, plant, and equipment • In Predictiv’s research on 20 industries, between 50 and 90% of corporate value is created by intangibles Reputation Is An Intangible Value
- 5. 4 Influence
- 6. 5 Intangibles – Drivers of business performance not captured by audited financial statements; > Management • Leadership • Strategy Execution • Communication and Transparency > Relationships • Brand • Reputation • Alliances and Networks > Organization • Technology and Processes • Human Capital • Workplace Organization & Culture • Innovation • Intellectual Capital • Adaptability • Environment/Sustainability
- 7. 6 Dominance
- 8. 7 Perceptions of Ownership – and Performance - Have Shifted Edelman Trust Barometer
- 10. 9 The Smile Curve of iPhone Production and Value Yuqing Xing, Asian Development Bank
- 11. 10 More is More
- 12. 11 Apple’s Bigger than Exxon, Coke, McDonalds or Disney
- 13. 12 2013 Disclosure Trends: Perception Formed Through Interaction Common Practice Communication One way communication Single co. progress report Voluntary reporting Standards Verification as option Ad hoc standards Corporate boundary definition Emerging Trend Multi-stakeholder dialogue Industry benchmarking Mandatory reporting Assurance Global standards Dialogue set definition
- 14. 13 Impressions Are Created on Media the Company Does NOT Control
- 15. 14 Fare Stories -0.15 -0.1 -0.05 0 0.05 0.1 0.15 0.2 0 5 10 15 20 25 30 35 40 Trading Days post Correlation with Adjusted Stock Total Positive Prior Day Prior 2 Days Prior 3 Prior 4 Prior 5 Prior 6 Prior 7 Prior 8 Prior 10 Prior 11 Prior 12 Prior 13 Prior 14 Prior 15 Prior 16 Prior 17 Prior 18 Prior 19 Positive revenue stories have a life of about two months. The maximum occurs at cumulative 17 days stories with stock at 22 days Messages Have a Persistent Impact on Stock Trading
- 16. 15 Company Performance on Important Values Contributes to Loss of Trust in Business Edelman
- 17. 16 Social Responsibility Whole Food Apple Coca-Cola Johnson & Johnson Walt Disney Workplace Enviro Google Coca-Cola Microsoft Kraft Vision and Leadership Apple Coca-Cola Amazon Google Walt Disney Financial Performance Apple Google Coca-Cola Walt Disney Amazon Intangible Ratings Impact Reputation, Correlate With Financial Performance Data Source: Harris Interactive 2012 RQ Survey
- 18. 17 Crunch Time
- 19. 18 0 Importance 1 = not important; 5 = very important Adequacy 1 = not measured; 5 = very well measured Intangibles Performance Metrics Are Inadequate for Most Global 500 Corporations > 81% of respondents stated that their performance measurement system is not well aligned with their corporate strategies > Gaps in intangibles measurement are correlated with financial performance measures such as ROE, 1 & 3-year stock returns, and 5-year sales growth 0 1 2 3 4 5
- 20. 19 Intangibles Are A Significant Factor in IPO Success Intangible Performance (6 were significant out of 18 total) 1. Management Credibility 2. Customer Satisfaction 3. Strategy Execution 4. Effective Executive Compensation 5. Investor Relations 6. Strong Corporate Culture Financial Performance (none significant out of 8 total) Sales, ROA, cost, market share, income growth, etc. Strong in Both Strong in Financials only Strong in Intangibles only Weak in both
- 21. 20 Case Study – Evaluating Comparative Media Relations Efforts Among Industry Competitors. This Measures Both Driver Scores (on left) and Revenue Impacts (on right) Communications About: Client Score Comp#1 Score Comp#2 Score Potential Impact (%) Employee Relations 67 72 60 0.49 Customer Relations 65 65 55 0.19 Management Strength 57 60 52 0.49 CEO 53 51 48 1.64 Corporate Culture 56 50 48 0.01 Brand & General Communications 52 57 49 0.02 Innovation 45 48 50 0.16 Capital Structure 44 44 45 0.63 Cost Control 38 47 40 0.16 Revenue Baseline %=100 Revenue =2397.75* Revenue Deferred = 1747.5* * Revenue = millions
- 22. 21 Case Study #1 - 31% of this company’s market value can be statistically attributed to these intangible value drivers Client Market Value 52B Tangible Financial Drivers Revenue Intangible Drivers Analyst Relations Customer Relations Employee Relations Shareholder Relations Supplier Relations Capital Structure Cost Control Profitability Revenue Growth Stock Performance 69% or $35.9b 31% or $16.1b Better than Competition Innovative Products Market Share Environmental Responsibility Legal and Ethical CEO Strength Fosters Entrepreneurship Overall Management
- 23. 22 Of the 31% of this company’s market value attributed to intangibles, even greater specificity can be assigned to each. 3.5% Supplier Relations 3.4% Analyst Relations 2.6% Profitability 2.2% Overall Management 2.1% Legal, Ethical 1.9% Cost Control 1.8% Environmentally Responsible 1.8% Employee Relations 1.4% Revenue Growth 1.2% Shareholder Relations Client Market Value Intangibles 31%
- 24. 23 Impact on Revenue of Specific Value Drivers CEO Analyst Relations Fosters Entrepreneurship Overall Management Revenue Growth Profitability Employee Relations Capital Structure Environmentally Responsible Market Share Legal, Ethical Employer of Choice Shareholder Relations Innovative products Better than Competition 0 0 Scores Millions of Dollars Stock Performance Supplier Relations FOCUS Low Score, High Impact OBSERVE Low Score, Low Impact MAINTAIN High Score, Low Impact PROTECT High Score, High Impact
- 25. 24 Sell Side Over-optimism Contributes to Public Distrust McKinsey
- 26. 25
- 27. 26 Thank You [email protected] www.predictiv.biz www.thelowdownblog.blogspot.com/ Office 561 832 3352 Mobile 561 543 7670