The marketing discipline is responsible for the creation and management of some of the largest and most important assets of the firm. Most of these assets are intangible, that is, they are assets that are not physical. Rather, intangible assets are identifiable and discreet resources that have value, but no physical substance. The best-known examples of such assets are brands, but they also include such things as computer software, licenses, patents, copyrights, and franchises, among others. Numerous sources in disciplines ranging from economics, accounting and marketing suggest that the value of today’s firms disproportionately resides in their intangible assets; by some estimates more than 80% of the value of firms lies in their intangible assets.
While brands are clearly an important asset, a potentially more valuable intangible asset, and one that is often overlooked and undervalued, resides in the people who work for the firm. Employees often possess knowledge and skills that is costly to replace (because doing so requires training and experience) and that creates value for the firm and its customers through efficiencies, higher quality, greater and faster responsiveness, and reduced frustration by co–workers and customers. Employees also establish relationships with suppliers and customers. These relationships often have value to the firm because they are valued by customers.
A Simple Example Illustrates This Point:
My wife and I have had a standing date night since before we were married. We are creatures of habit, so we tend to find a small number of restaurants that we frequent regularly. While the food, location, and ambience are important in our selection, over time we also get to know the wait staff and the wait staff comes to know us. As a result, the wait staff knows us by name, knows our favorite wine selections and preferred seating, and knows our menu preferences. They also became friends, and our visits were often marked by conversations about current local events, family members, and friendly banter. In short, they were an integral part of our dining experience. Then came Covid and the closing of the restaurant for a period of time. When we were finally able to return, our friends were no longer there. After a couple of visits without seeing our friends or wait staff, my wife and decided that perhaps it was time to try some new places. The food and location had not changed, but the draw of our friends, which created loyalty to the restaurant, was missing. This change was just enough to motivate us to break a habit and explore other options. We have not returned to this restaurant since. So, what was the value of the wait staff? Yes, they served us, but the relationships maintained our loyalty and made us a dependable, predictable weekly source of income for the restaurant.
This restaurant scenario is not unique. There are millions of points of customer interaction every day across a wide variety of businesses. In many, and perhaps most of these interactions, a relationship plays a role, and that relationship adds value for the customer and the firm.
Sadly, an assembled work force is not considered an intangible asset under extant accounting rules, though certain derivatives of members of the work force, such as intellectual capital, can be counted as intangible assets. Accounting rules not withstanding individual employees and collections of employees do have value and contribute to the value of businesses. In many organizations it really is the case that employees are the most valuable assets. Next time you consider or hear a manager consider the reduction of employees as a “cost saving” measure, it would also be useful to assess how much might be lost in the short term from the loss of knowledge, expertise, experience, and relationships and what the long–term cost will be to replace these intangible characteristics of a labor force. Employees may not show up on the balance sheet or the income statement, but they are integral to producing cash flow. Smart managers recognize what creates value – it is not the building, which is considered a tangible asset, but the people inside the building.
Contributed to Branding Strategy Insider by: David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.
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