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Column by Jack and Patti Phillips
Intangible Measures
If certain data cannot be converted to money, are they still important?
Many organizations are realizing the importance of intangible measures. Sometimes labeled soft data, intangibles can be powerful, elusive, and mysterious. Some believe they cannot be measured; others believe they cannot be converted to money. In most cases, both of these viewpoints are misguided. Intangibles are part of what drives organizations and their projects. What makes them important is the fact that they're often linked to more tangible measures.
Consider these intangible items:
- Adaptability
- Awards
- Brand awareness
- Career mindedness
- Caring
- Collaboration
- Communication
- Conflict
- Cooperation
- Corporate social responsibility
- Culture
- Customer complaints
- Customer response time
- Customer satisfaction
- Decisiveness
- Employee complaints
- Engagement
- Execution
- Image
- Innovation and creativity
- Job satisfaction
- Leadership
- Networking
- Organizational climate
- Organizational commitment
- Partnering
- Reputation
- Resilience
- Stress
- Talent
- Teamwork
These items drive projects such as leadership development, product development, marketing, promotion, certain external programs, technology, quality, and many others. They're also linked to tangibles. For example, customer satisfaction is often linked to sales growth; employee engagement can be linked to productivity; and job satisfaction can be linked to customer satisfaction.
So how do we measure intangibles and place a monetary value on them? Before we examine these two questions in detail, let's define "intangible." An intangible measure is a measure that cannot be converted to monetary value credibly with limited resources. If a measure can be converted to money, then it becomes tangible, but the conversion must meet two important criteria. It must first be credible, or believable -- particularly from the viewpoint of executives who will need to make decisions about it. Second, the value of the measure must be reached within a reasonable amount of time and without excessive use of resources. When we accept that the measure cannot be converted with the resources we are willing to commit, we must leave it as an intangible.
With that definition, the task becomes easier. We need to identify the measures that we can convert in a reasonable amount of time -- with a credible value. Beyond that, it is a matter of providing extra resources to make it happen, which small to medium-size organizations are generally not willing to do.
Our philosophy is that anything can be measured. Think about it: If there is no way to measure it, then why be concerned about it? Measurement might not involve simply counting. Some intangibles, such as complaints, can be counted, while most fall in the perception category, including most of the intangibles listed above. Almost every one of these could be measured on a perception basis, taking data from the most credible sources. Customer satisfaction, a concern in any organization, is based purely on the perception of customers. The degree of networking is best reported by those involved in the networking. The reputation of the organization is taken from the people you want to influence -- where your reputation makes a difference. Measurement systems vary, but typically they are point scales ranging from three to ten levels, sometimes even more. The 5-point scale is the most common.
The problem with these types of measurements is that there are often no standards, making it difficult to benchmark with others. This might not be a problem, because what is important is to determine where you want a measure to be. So comparing this figure to someone else's might be irrelevant. For example, on a 5-point scale where 5 is outstanding and 3 is average or moderate, a 4 might be your goal, even though the rest of the world is at 3. Our premise is simple: If it is important, it can be measured. If it is a phenomenon that can be witnessed or observed, it is measurable. Yes, it might be perception, and that's okay. After all, customer perception drives businesses, employee perception drives major human resources investment, and the perception of a brand drives value.
Can we convert intangibles to money? For example, is there value in a brand? Large companies, such as Coca-Cola, place a huge value on their brands. This can be accomplished in a variety of ways, including calculating sales generated by brand awareness and then assigning value based on what it costs to achieve that brand awareness.
In order to place value on an intangible (or at least a measure that is perceived to be an intangible), first find out what others in your industry have done. Try searching industry reports, available benchmarking, and research databases. (One of our favorites is eric.ed.gov, or ERIC. This database contains studies, articles, and reports published in trade magazines, research reports, scholarly journals, and other professional publications.) Many professors and other researchers spend a tremendous amount of time studying and researching the value of intangibles, publishing their findings in journals. The Internet has made this previously hard-to-find material easily accessible.
Another valuable technique is to ask those who are most experienced with the intangible. Contact individuals within the organization who work with the issue on a regular basis. Their expert input certainly provides a good starting point. Of course, the credibility has to be there. Do they have a significant amount of experience with the issue? Do they understand the full scope of its impact? Are they biased? Sometimes experts want the number to be large or small, depending on their perspectives. Do they have a track record of accuracy? Have their values been checked by others? Have they published their findings? Do they have proper credentials, education, and certification? It pays to address these questions before soliciting expert input.
Finally, calculating the monetary value can prove helpful. This is not preferred, as it is often the most time-consuming method. For example, a few years ago, Sears wanted to place a monetary value on employee job satisfaction measured in feedback surveys. Using store-level data, the Sears team linked job satisfaction to customer satisfaction and then linked customer satisfaction to store revenue. Then they calculated the profits from the additional revenue. In essence, Sears could show the monetary value of increasing job satisfaction. This linkage took about six Ph.D.s nine months to develop (or perhaps it was nine Ph.D.s six months) -- obviously a large expenditure of resources. The project required serious analysis involving extensive data. However, because of the size and scope of the company and the importance of understanding what makes the stores profitable, Sears needed to know this value and was willing to allocate the resources.
Some organizations place a monetary value on customer satisfaction. To do this, they track what happens when customers are dissatisfied. They record the actions taken by customers after the complaint is resolved (if it is resolved). For instance, does the customer return? This thought process creates a decision tree analysis, a technique used to measure the value of customer satisfaction. The analysis takes considerable expertise and resources, far beyond the limitations of many organizations.
The above example takes us back to the original definition of intangibles. If it takes too many resources to convert them to monetary value, or if the conversion is not credible, then leave them as intangibles. After all, everyone knows intangibles have inherent value, even those that cannot be converted to money.
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