McKinsey has just published an article on the key role of intangible assets in making profits (subscription required to read full text):
Article on profit per employee as new metrics of corporate performance and
- Today’s approach to measuring financial performance is geared excessively to the capital-intensive operating styles of 20th-century industrial companies. It doesn’t sufficiently account for factors such as the contributions of talented employees that, more and more, are the basic source of wealth.
- Financial performance—observed through balance sheets, cash flow reports, and income statements—is and always will be the principal metric for evaluating a company and its managers. But greater attention should be paid to the role of intangible capital and the ways of accounting for it.
- The superior performance of some of the largest and most successful companies over the past decade demonstrates the value of intangible assets.
- Companies can redesign the internal financial performance approach and set goals for the return on intangibles by paying greater attention to profit per employee and the number of employees rather than putting all of the focus on returns on invested capital.
Article on 21st century organization.
- Professional employees, who create value through intangible assets such as brands and networks, now constitute up to 25 percent or more of the workforce in financial services, health care, high tech, pharmaceuticals, and media and entertainment.
- Making professionals productive enables big corporations to be competitive, yet most of them do little to improve the productivity of these employees.
- Corporate organizational structures—designed vertically, with matrix and ad hoc overlays—make professional work more complex and inefficient.
- Companies must change their organizational structures dramatically to unleash the power of their professionals and to capture the opportunities of today’s economy.