It’s time to believe in things we cannot see.

Things that have no physical presence, but still make an impact, are real and valuable. 

Standard accounting practices define and value intangible assets. Unlike tangible assets (such as land, buildings, machinery, computers, vehicles and inventory), intangible assets cannot be physically touched, but still hold long term financial value for a business enterprise.

Intangible assets include intellectual property, such as inventions and designs, protected by patents, copyrights, trademarks and licensing agreements, together with resources integral to the business, such as brand recognition, a loyal customer base and other forms of goodwill.

Intangible assets are important not just for the value contributed to individual businesses, but for the performance of national economies. The Organisation for Economic Cooperation and Development (OECD), among others, charts the rise of the ‘knowledge economy’. 

The knowledge economy is one in which production of goods and services is based primarily on knowledge-intensive activities, creating greater reliance on intellectual property and human capital, rather than physical inputs, for innovative and competitive business performance.

In other words, what and who you know is more important than what you traditionally own and use as the means of production.

Knowledge economies are commonly associated with high tech manufacturing such as electronics, IT and computers, and aerospace; service sector industries including education, healthcare and software design; and business services, e.g., insurance, information and communications. The knowledge driving these industries comprises both explicit knowledge (from formal qualifications, facts, figures, data) and tacit knowledge (from experience, judgement, how things work, intuition, ways of dealing with people, and learning by doing).

Effective use of intangible assets is at the heart of the growth of knowledge-based economies.

Knowledge-rich economic activity and investment in intangible assets has accelerated in modern economies, especially over the last three decades, reflecting an age of information and globalization. Undoubtedly, there have been both positive and negative impacts from these developments, from leaps in accessing transformative technological innovations in the everyday economy to the rise of insecure, low paid work in the gig economy.

Some commentators, like McKinsey & Company, now argue that the global COVID 19 pandemic has “accelerated the shift toward a dematerialized economy” and with it, an incentive to invest in the intangibles of learning, knowledge and intellectual capital that unlock greater productivity and future growth potential.

McKinsey & Company cite research showing that economies that are experiencing growth in intangibles investment are also posting growth in total factor productivity. They make the case that companies deploying all four types of intangible capital—-innovation capital, digital and analytics capital, human and relational capital, and brand capital—-not only grow, but build capabilities that create competitive advantage. This augers well for future growth.

In examining this link between use of intangible assets and enhanced productivity and growth, we must avoid the trap of mistaking correlation for causation. It is important to delve deeper to understand just how the two work together.

Valuable insights for doing this come from an unexpected source, the UK-based anthropologist and journalist, Gillian Tett, in her recent book with the sub-title ‘How Anthropology Can Explain Business and Life’.

In short, Gillian Tett advises us to go out of our way to learn from people and things that are strange to us. Just as anthropologists do in studying other people, societies and cultures that are different from their own. They watch and listen, alert to the silences, that is, to those significant statements that give context to observations, but are so unremarkable and natural to the local people that they go unsaid. Understanding this unspoken context is vital to finding the truth and avoiding false conclusions.

The message is to actively seek out and use different perspectives. Gillian Tett calls for bridge building between economics and the social and behavioural sciences, between the quantitative and the qualitative, and across academic disciplines. This ability to build bridges is itself an intangible asset.

Upcoming business leaders will benefit from mastering the art of managing these things that they cannot see.

REFERENCES:

Rob Waugh, Making sense of the knowledge economy, The Telegraph, 29^th May 2019.

Andrew Wyckoff, Knowledge is growth, OECD, 2019, see https://www.oecd.org/innovation/knowledge-is-growth.htm

Eric Hazan et al, Getting tangible about intangibles: The future of growth and productivity?  Discussion Paper, McKinsey Global Institute, 16^th June 2021.

Gillian Tett, Anthro-Vision—How Anthropology Can Explain Business and Life, London, 2021.