- Tangible, measurable resources: Balance-sheet assets like factories, computer hardware, fleets of trucks, cash and other financing
- Intangible, often unquantifiable resources: The expertise and skills of people, relationships with suppliers and customers, ideas, creativity and its output-intellectual property.
In good times and bad, in developed and emerging markets, in "old" industries and "new," the vote is always nearly unanimous in favor of the latter. The most adamant proponent of tangible assets I've encountered was not, as you might think, someone from a natural resources industry, but the owner of a small security-guard business, who said the only thing his customers cared about was his ability to provide strong-looking watchmen who stayed awake all night.
Now, some of this thinking is romantic, or at least political correctness at work: People don't want to raise their hands in public to say that men and women are cogs in the machine, that creativity is overrated, or that they want to hire inside-the-box thinkers.
Largely, though, the voters are right, at least where future of an enterprise is concerned. Value is created by aggressively and continuously increasing productivity, via automation, best practices, business process re-engineering, and other processes, and the full armamentarium of what The Lords of Strategy author Walter Kiechel III calls "Greater Taylorism." (Frederick Taylor studied how to make a worker more productive by taking a stopwatch to everything that worker did. "Greater Taylorism" applies that approach to everything a company does.) Value also is created by making, selling, or doing something distinctive-something new and different.
Most strategists argue that operational effectiveness can take you only so far; sooner or later every competitor can work its way out to a "productivity frontier" and-poof!-there goes your competitive edge. Operational effectiveness, Harvard Business School professor Michael Porter sniffs, isn't strategy. A few companies- GE, Toyota, and Walmart come to mind-are so good at pushing the frontier outward that you might say it is their strategic difference; but they are few indeed.
Hence a minor mystery. If Porter is correct, and he indubitably is, why is it that the consulting industry year after year makes most of its money selling operational-effectiveness projects to help clients get closer to the productivity frontier?
But that's a minor (though multi-billion dollar) mystery. Here's a major one: If executives truly believe that value stems from human capital, creativity, and knowledge, and that they should focus on what matters most, then why don't their actions map to their beliefs?
Here's what they-and we-should be doing:
- Identify the intangibles that matter most. Systematically poll customers and suppliers and ask them what makes us stand out. Is it our customer service? Our ability to turn out hot new products year after year? Our systems-integration skills? Our ability to keep our price down?
- Dig deeper and discover the handful of critical capabilities that support and drive that difference. What is the expertise? What are the tools and processes? What technologies?
- Having identified the critical knowledge, we'd care for it. We'd treat our experts really well, curate their expertise with top-of-the-line knowledge management, continuously invest in replenishing what we know, and find the right balance between knowledge sharing and collaboration, on the one hand, and protecting know-how from poachers, on the other. We'd give our intellectual capital the same dutiful stewardship we give our assets and liabilities.
- Sell the bejeezus out of it. We'd relentlessly look for markets and products that leverage the capabilities we have, rather than restlessly entering markets in which we don't have a right to win. We'd fight on our own turf, in other words-and see to it that ours was the greenest grass.
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