Page 10 - Intangible value

How intangible value is created - services
as a source of growth
COMMERCIAL COUNSELLOR PEKKA LINDROOS / MINISTRY OF EMPLOYMENT AND THE ECONOMY
Economics and economic policy cannot quite grasp the signi cance of intangible val- ue creation and therefore it is challenging to plan policy measures. Although we un- derstand the increasing signi cance of intangible investments for the renewal
of the economy and enabling growth,
the analysis often remains at the level of analysing intangible capital. The com- pany’s capital stock created by invest- ments, whether it is physical or intan-
gible, is still only an opportunity that, in addition, ties up resources and therefore creates expenditure. It does not say an- ything about how this opportunity should be grasped. Knowing how to do this may be the most critical success factor for Finland.
In developed countries, the share of intan- gible investments is 5–10% of GNP, so they account for a considerable share of invest- ments. They can be divided, e.g., into the following categories: 1) Digital systems and knowledge, 2) scientific and creative prop- erty and 3) economic capabilities, such as company-specific human capital, company structure, advertising and brand values. 1
The definition of intangible value creation is further confused by business models which can create value without investments that tie up large amounts of capital. Intangible value creation may take place by combining exist- ing knowledge, ideas or by using an existing opportunity in which a customer need is rec-
ognised. Therefore, all human capital does not need to be within the company, but it can also be made use of by crowdsourcing.2
Both may result in an improved ability to serve customers and create added value in produc- tion for the manufacturing company.
What is most essential in terms of the national economy is how quickly and e ciently these practices spread in companies and how well the operating environment supports
the transition to using intangibles taking place in companies.
Intangible capital is usually divided into three groups, of which human capital comprises expertise and accumulation of knowledge within an organisation. Structural capital structures the operation in a new way and also enables scalability, which is required in the digital age. Relational capital in turn ena- bles joint value creation with the customer in an in-depth interaction which can withstand the storms in global competition better than a traditional decades-old customer relation- ship. More paths to utilisation of intangible capital are created constantly.
Naturally, manufacturing companies also in- vest in intangible projects. For example, training a lathe operator in a drive shaft factory or cre- ating a customer data system for a company that manufactures drain pipes are intangible investments made to increase competitive- ness in the manufacture of physical products.
The principles of business manage- ment have long emphasised the significance of understanding cus- tomer needs. Finland’s international sector, which has largely focused on the process industry and production of capital goods, is perhaps adopt- ing in-depth customer-orientation later than comparable countries. The notion that the significance of
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services is minor to any products larger than a horse and that intangible customer values are unsuitable as sources of value added in Finland may spring from this emphasis on production. However, the times and the ways of thinking are changing.
The pioneering companies see the opportuni- ties in intangible value creation to turn the de- velopment of prices in the global economy to their advantage. The outline by Petri Rouvinen illustrates how the prices of physical and intan- gible products may be contradictory.3 Value cre- ation is globally less connected to physical cap- ital, such as assembly plants, than to intangible operation such as customer service, internal processes and intellectual property rights.
However, statistical practices still primarily monitor the physical flow of goods. Statis- tics on intellectual property rights helps to