Intangible Assets Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth (2009) / Chapter Skim
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2 Intangible Assets in a Knowledge Economy
2 Intangible Assets in a Knowledge Economy
Pages 10-20
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From page 10... ...
2.1. TRANSITION FROM THE INDUSTRIAL TO THE KNOWLEDGE ECONOMY Irving Wladawsky-Berger began with a description of the recent evolution in the economic landscape brought about by the digital technology revolution .
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From page 11... ...
" He proceeded to examine how the knowledge economy differs from the industrial economy on the basis of three concepts that were at the heart of 18th century economist Adam Smith's writings. Division of Labor Adam Smith observed that, when markets are big enough to warrant worry ing about efficiencies and productivity, then companies and people can achieve greater productivity through specialization (instead of doing the same custom jobs, as was the practice in agriculture)
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From page 12... ...
Work is ongoing to do just that, but these are the early stages of an extremely complicated knowledge economy, so there is still a long way to go. Moral Sentiment The third principle discussed by Wladawsky-Berger -- one that perhaps is less known about Adam Smith, as it derives from his Theory of Moral Sentiments (not The Wealth of Nations)
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From page 13... ...
Wladawsky-Berger responded that "talent" was not the only attribute contributing to capture this knowledge effect. For example, what appears to be most important to his IBM clients is to help them build global enterprises and cope with the changing market and improve their ability to design processes; to become more efficient and robust; to gather information, analyze it and take action on it; and to use social networks and collaborative mechanisms
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From page 14... ...
Charles Hulten explained that, for macroeconomic analysis, the structural shift that has occurred in business and in the world economy presents a real chal lenge, in part because most conceptual thinking on growth theory and accounting has heretofore applied to an environment in which the production of goods was the critical process to understand. However, in a world in which fewer and fewer physical goods are being made, at least in this country, it is essential to understand what modern companies really do.
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From page 15... ...
human resources, such as developing and retaining talent; and (3) pure organizational intangibles, such as management schemes and capacities, use of information technology, and business models in general.
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From page 16... ...
The problem, as Hulten put it, is one of trying to put a reasonable set of principles around a broad set of intangible asset types. He and his colleagues are encouraged by the results produced from treating intangibles analogously with tangible capital -- that is, as resources that could be used in the production of current or future consumption and hence conceptually satisfy the definition of investment.
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From page 17... ...
When intangibles are discussed as something symmetric with tangible investment, one is dealing only with the commercialized part of the investment, because a process of diffusion ultimately takes place for any major set of ideas that develops. Knowledge diffuses to other companies, to other industries, and to other countries, either directly copied or through spillovers; at this point, it benefits society, not as an investment, but as an idea that penetrates the business culture and is reflected in increased productivity and lower costs.
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From page 18... ...
At IBM, the advertising budget is only one-sixth of marketing; this is probably roughly true of the pharmaceutical industry as well. Although sensitivity analysis has been left for the next generation of research on the topic, CHS were able to show that including intangibles makes a measure ment difference.
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From page 19... ...
There is, Hulten concluded, lots of work ahead in order to develop a more complete understanding of both the private and social returns from intangible investment. During open discussion, Flamm pointed out that advertising and brand equity expose the empirical difficulties of trying to measure intangibles.
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From page 20... ...
He cautioned against the too-easy assumption that all such expenditures should be considered transitory. During open discussion, Senator Bingaman was asked his view about the pace and the outlook for improved financial accounting in terms of disclosure and transparency, given that it is from the business sector that the statistical agencies would ultimately look to for source data.
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