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Intangible Investment: Predictor of a Business’s Growth and Productivity
Standard measurement tools for productivity and rturn on investment are often based on parameters that can be easily quantified for measurement.
The health of a country is normally measured by factors like GDP. But GDP doesn’t take into account and isn’t able to measure intangible goods. Similarly, McKinsey suggests in a whitepaper that companies often overlook or de-emphasize intangible goods in favor of investment in tangible and more measurable things. Intangible goods for businesses can include things like goodwill, patents, trademarks, and copyrights.
McKinsey research found that companies that showed the greatest amount of growth emphasized investment in intangible goods. The growth achieved by these companies far outpaced their peers that invested less on intangibles. McKinsey concludes that “companies that master the deployment of intangibles investment will be well positioned to outperform their peers.” Regardless of the sector, businesses that focus on intagible investment saw better growth and performance.
Hiroyuki Itami, professor at Tokyo University, wrote that “analysts have tended to define assets too narrowly, identifying only those that can be measured, such as plant and equipment. Yet the intangible assets, such as a particular technology, accumulated consumer information, brand name, reputation, and corporate culture, are invaluable to the firm’s competitive power. In fact, these invisible assets are often the only real source.”
of competitive edge that can be sustained over time.”
McKinsy finds that “intangibles are interdependent, and companies achieve greater synergies by investing in them all. Companies that have invested across all categories of intangibles are further ahead in their digitization journey, less likely to be disrupted because they are highly innovative, and highly likely to be able to attract top talent and retain it. All of this creates value and, importantly, value that can be defended even amid a deep market and economic disruption.”
