Michel de Kemmeter:
The total value of a company mainly is about intangible value. However we only compute its definition and quantification by abstraction to the total value decreased by the amount of tangible assets. It does not provide any details at all what is included. Only an amount. Only a new analysis framework of intangible value will allow acting on it to multiply its amount. This is one of the biggest issues of our century: true value is invisible. And it is hard to assess it with traditional tools. Where is your true value? The value that will guarantee the sustainability of your project? These are not necessary financial means or traditional work tools. In some cases it can be counterproductive to continue working with obsolete tools. To stop at the pride of success is also a barrier. There are numerous examples of companies that obstinately continue in a dead-end path to finally explode. Read the newspapers of some years ago. They are full of examples. And from today until five years we will look back to these companies where the executives didn’t had the humility to question their judgment and disappeared.
Others will emerge. More agile, more value producing, more pragmatic.
Your future value is under the surface of water, as the immerged part of an iceberg. Your company is worth much more than its equity. On average 87% of intangible value on the total value.
Our researches lead us to a model with multiple balance sheets: seven in total. Each time with an asset and a liability-side. Not just to value a brand, distribution network or R&D knowledge. But going in a rigorous way deeper, realistically, systematically and pragmatically. Your brand might have a liability, a depreciation, such as your knowledge. How much do you value what you do not know yet? How much costs your wrong governance, strategic mistakes and the scandal occurring two years ago and not yet settled? Or the patriarchal management system? All is tangible liability that might one day negatively affect the value of your company. But, and more importantly, this is also the biggest potential of value creation, with an ROI going from 1 to 100! If you are able to pinpoint it with cleverness and humility. And mobilize a team to activate it.
7 balance sheets The seven balance sheets are: Earth, Material/Financial, Processes, Emotions, Communication, Knowledge, Common good.
1. The balance sheet “Earth” On the liability side calculate everything taken from the earth: resources, CO2 impact, water, air, pollution. On the asset side everything given back: development of biotopes, CO2 compensation, recycling, water purification and treatment. We focus on the decrease of the impact of our activities and on the recycling but few attention is given on the other side of the balance sheet, compensation, on all its forms. The balance sheet must at least be in equilibrium. Ideally positive. Plan trees, recycle, create biotopes, stimulate the flora and fauna.
The soil of the company. Where it draws its resources, its roots.
2. The balance sheet “Material/Financial” The traditional financial balance sheet with tangible assets and financial debts. The balance sheet focused on by accountants and auditors, for the moment. With extra caution not to activate too much intangible, subject to speculation or abrupt changes, deletion or disappearances due to markets’ changes and in the respective industries. This balance sheet is the consequence of the activation of value on the other six levels and value’s flow from top to down and bottom-up. We can compare it to the health of a company. More liabilities than assets = sickness, vulnerability More assets that debts = health, strength, resilience If you raise the question to any executives asking where is the true value of a company he will more than probably answer from his teams, the collective knowledge and their motivation. Everything outside this tangible balance sheet. We are talking big bucks here, and the future of the company. This balance sheet is an annual "health check-up" of the company, consequence of value creation on the other value levels in and around the company.
The “hara” of the company or vital energy = money
3. The balance sheet “Process” Detect and quantify the sustainability and the efficiency of the production processes, the activation of resources within the ecosystem of stakeholders of the company. The calculated inefficiency and the non-sustainability are on the liability side and the cyclical aspect and the valuation of hidden resources is on the asset side of the process balance sheet. The learning and empowerment process must also be analyzed because often the key for future developments. Some companies excel in their field solely thanks to a unique and proprietary production process or their agility to organize themselves efficiently. It is exactly like the intestines: Are they able to transform the food (resources) into energy? Are you able to efficiently transform your raw materials, including skills and talents in added value, into progress?
The intestines of the company that transform the resources into energy
4. The balance sheet “Emotions” The trust or not into its values, its governance, its offer of product or service, so important, can and must be computed and then improved understanding the actions to be performed beforehand. Because trust is the result of multiple dimensions of management. Motivation or demotivation of the teams is also computed. Everyone know that a demotivated staff cost a lot on multiple levels. It brings all the team below and has multiple adverse consequences. This calculation can also be crossed with other methods such as the discounting of the inefficiency as a percentage of the total pay and benefits. Within an economy more and more based on people and intangibles, we need to develop a new evaluation tool going way further than the intuition of the executive team taking into account all the emotional aspects of the employee and stakeholder. At the center of each company, hiding behind every activity, is a woman or a man. They all have their own history, a variable physical and mental state, with positive or negative impacts on the value of a company. The motivation and trust are consequences of other dimensions such as vision, sense, expertise, all being part of other intangible balance sheets. The emotional intelligence is at the center.
The heart of the company
5. The balance sheet “Communication” Internal or external the quality of the communication is primary and conditions the results. How does the company communicate, towards which targets, with what tools, over which topics, when, what is the purpose, the follow-up? Is the communication efficient, or the opposite, counter-productive? The communication world fundamentally changed and is more in tune with the human psychology. Commitment and loyalty are consequences of this new intelligence in human links. It costs money, and is very costly if inadequate or badly executed. Then, compute! A negative communication will put a burden on the liability side. A positive reception of the delivered messages will increase the asset side. The emotional intelligence takes all its importance because it will put people in motion motivating them.
The voice of the company
6. The balance sheet “knowledge” Since the 1960s we entered into a knowledge-based economy. Shouldn’t be the time to evaluate and compute it? Including its corollary the ignorance. How much does it cost of “not knowing”? If one of our competitor develops the knowledge of its company he has a head start on your own. A dynamic to activate this knowledge can then start to increase the value of the company. Sectorial waking, trainings, information, creativity, collective curiosity, learning company, opinion leadership. On the other side even if we can be proud of some of our knowledge new comers can reduce them to nothing. We have to remain vigilant, realist and pragmatic. The biggest advantage of knowledge by comparison with a physical product exchanging for money is that when you share it, it spreads. The way to monetize it is a real challenge for today!
The head of the company
7. The balance sheet “Common good”
The question of meaning and vision is the strongest mobilizer in psychology. Everyone looks for meaning and purpose in life. Companies try to reconcile with their reason for being and mission-vision. CSR has been abusively used as a way to wash our conscience from collateral damages created by our activity. Nowadays more and more companies include meaning and value creation for their ecosystem at the heart of their business-model. The famous “why?”. We must have the reflex to measure the positive and negative social and societal impact of our activities. This is a must-have if we want to empower with the positive corollary effect of mobilizing team and stakeholders that we can compute in multiples of the investment. Better, this notion of service can be at the basis of tomorrow’s business model. We must detect the fields where our activities will create value and avoid those where we will destroy some.
The reason of being, the mission.
Basic rules for working with the 7D-Value framework:
a. The liability is the anti-matter of value. Same as quantum physics. The negative is a potential, provided where to find it.
b. Balance sheets 1 to 3 are tangible while 3 to 7 are intangible. The intangible is the immerged part of the iceberg that keep him afloat. People drive and carry the organisation, not machinery.
c. A liability impedes the flow of value. Energy offsets are set up, drawing on other pockets of resources, decreasing the value of the company.
d. In the construction phase, energy goes bottom-up, from the roots to the fruits, as in the tree. In the resourcing phase, it goes top-own to enrich the roots and nourish them. More than often we forget these important moments. From 5 to 20% of our time should be dedicated to resourcing, to guarantee a healthy organization. Sometimes we need to resource, give a reverse pulse to nourish the roots, the solidity and resilience of the organization. Take a step back and time with his teams, review the projects with their ramifications for update, to adapt with what happens. At first glance this seems huge, certainly for companies that suffocate and have a hard time to survive. Yet it is essential to grant it.
e. To bring coherence, construct a project you must go top-down first and then bottom-up. Do not start with material resources, but start by building a contributive vision for the common good, in line with the reason for being and its unique excellence. Then assemble and develop the required knowledge. In third mobilize internal and external resources. Fourth, develop an implementation process and finally invoice in the new business model. This is the opposite of the historical path, starting from the resources on the field, monetized, transformed and stop right before the emotional and knowledge aspect. The cycle was shorter and the contribution systematically put aside.
This reading on seven levels of value and the hidden potential is the same for you as an individual, your family, teams, company, city, region, country and community. This is exactly the same principle. As a fractal. We have an algorithm that compute all of this for a company in euros. This is challenging because we use a vocabulary that executives can understand: money. At the same time the value of a company contains more than 80% intangibles. It is time to learn to value and follow it up. A liability, as a small reminder to the financial analysis course is a potential and not a burden. This is anti-matter. Pure potential. If we are able to spot it. When you walk around your plant you only see matter and not the anti-matter hidden in the accounts: loans, capital. The same applies for the physician looking for anti-matter everywhere without finding it. Higgs found the entry door: the boson. We also have the entry door for the intangible value and its potential: the 7D-Value. To find it we have to use new glasses. The liability once found and detected, qualified and quantified becomes a potential for value creation, such as the anti-matter. Exactly like banks acts to create “fiat” money. We can also increase our liabilities and create unlimited amount of value. This is a key for tomorrow!
A simple example to clarify: I’d like to master a new topic for my company. I do not have any basis, hence a liability. Better, I open a space of anti-matter, potential. I identify it. And suddenly it negatively impacts my balance sheet. I learn, improve my knowledge and create value on the asset-side of the balance sheet. The value slowly shifts from the liability to the asset side. I am richer because I create new value. It’s magical. It applies to all levels. The beauty of the system is that you do not need 1€ of capital and an additional 5 cts of interests to reimburse the liability as a bank would work. To the contrary the return on investment for the other levels is colossal, a multiplier of 1 to 5, even to the infinity. The creativity is the ability to tap into the vacuum of space the ideas offering new solution and a human and collective progress.
A pre-requisite to create value is being able to measure what we already have or don’t yet and enter into a dynamic of intangible investment with his entourage. Ideally activate it in collective intelligence. Even stronger each action you will do must create intangible value in your ecosystem by answering to the needs of your stakeholders. In the same process you will gain access to some of their resources that will allow you to make more with more entering into a dynamic of collective abundance and leaving austerity.
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