What do learning, love, patents, trust, intelligence, loyalty, brand reputation and fear of snakes have in common? You cannot see or touch them — they are intangible.
It’s ironic, but things you can’t see have become more valuable than things you can. Eighty percent of the value of the Fortune 500 is intangible. Take Google. On paper, Google’s net worth is about $5 billion. That’s what it paid for computers, buildings and stuff you can see, minus debts and the expense of wear and tear. Yet, stock market investors value Google at $135 billion. Where does the extra $130 billion come from? Intangibles.
When Pacioli invented double-entry bookkeeping to measure shipping in Venice 500 years ago, intangibles didn’t count for anything. Of course, the stock prices of companies such as Google indicate things have changed in our times.
Yet, business managers still act as if something invisible is worthless because it can’t be seen and sized up. Vestiges of Industrial Age thinking about value live on inside corporate walls. ROI is a useful concept, but it’s not if you leave out the intangibles.
Measuring intangibles involves making judgment calls, so managers often exclude these factors from their calculations. These people tote up the numbers for things they can see and count, and then they list intangibles on the side, as if this keeps their calculations pure. This is nonsense.
If someone in San Francisco asks me the distance to Los Angeles, and I don’t have a precise answer, I neither put the question in the parking lot for another day nor say it’s some unspecified distance away.
No, I say it’s about 400 miles. Or six hours via Interstate 5 in a Lamborghini or two leisurely days down Highway 1 along the coast, with mandatory stops at Point Lobos and Big Sur.
An approximate answer is better than no answer. The same holds true for intangibles.
In spite of their apparently indiscernible nature, intangibles are very real.
For example, what’s the value of having a 50 percent chance of receiving a fee of $100,000? It’s .50 x $100,000 = $50,000. Using this logic, the return from a $100,000 deal that your sales force has 50 percent odds of landing because of its recent training is an expected return of $50,000.
That might be, say the critics, but how can you say learning caused the result? Maybe it was a new bonus system that went into effect at the same time. Maybe our products were better than the competition’s. Maybe it was sun spots.
Once again, it’s a judgment call, most likely the judgment of the person with authority to write checks to fund learning. Or not.
Learning in organizations is not a science experiment under controlled conditions in the lab. Cause and effect in business is never precise unless it is preceded with the phrase “other things being equal.” Trust me, in the real world, other things are never equal. Reality emerges from the interaction of complex adaptive forces. Stuff happens.
“Sure, Jay,” you say. “This is logical, but you can’t manage what you can’t measure.”
Actually, the old can’t-manage-can’t-measure meme is totally wrong. Executives manage unmeasured things all the time. As John Wanamaker, the famous Philadelphia retailer, said, “I know that half my advertising budget does nothing for the business, but I don’t know which half.” All managers make decisions under conditions of uncertainty.
Decision making involves placing bets on the future. Decisions are more often guided by intuition and judgment than they are by numbers. As the investment prospectus reminds us, “Past success is no guarantee of future performance.”
A lot of the measurement of learning these days lulls learning leaders into thinking they know what’s going on. In most cases, they need to think again.
Jay Cross is CEO of Internet Time Group and a thought leader in informal learning and organizational performance. He can be reached at firstname.lastname@example.org.
- 5 Forces Shaping the Future of HR
- Why ‘Leaders Eat Last’
- 6 ways executive education will never be the same
- Implicit bias affects us all
- Leadership development should begin with “why” — and that’s usually not behavior change
- Change is incumbent on all of us
- Visions and missions — defining your value and purpose proposition