The beyond budgeting concept

The Beyond Budgeting Round Table (BBRT)4 of the Consortium for Advanced Manufacturing International (CAM-I) is an international program funded by more than 50 global companies. The BBRT developed the Beyond Budgeting concept, the objective being to analyze companies that no longer use budgets and to investigate the restriction of budgets in companies that do. The Beyond Budgeting concept5 is designed to overcome the barriers of the traditional budget-based enterprise management systems and to...

Ciscos management and enterprise culture

Morgridge ran the company on trust and hard-nosed spirit at the same time. The culture he created was a combination of open doors and direct communication, financial discipline, and customer focus. Customer input has had an enormous effect on Cisco's actions.31 Morgridge was known to say exactly what was on his mind - not only internally but also in negotiations with other CEOs and he was totally against elite executive behaviour.32 With this philosophy, he was able to strengthen the culture of...

Interview with Professor Baruch Lev A new accounting model that recognizes intangible assets

Baruch Lev is the Philip Bardes Professor of Accounting and Finance at New York University, Stern School of Business, the Director of the Vincent C. Ross Institute for Accounting Research and the Project for Research on Intangibles. He earned his MBA and Ph.D. degrees from the University of Chicago. He has served on the faculty of the University of Chicago, University of CaliforniaBerkeley (jointly at the business and law schools) and Tel Aviv University, where he was dean of the business...

The concept of real options valuation

An interesting concept for valuing an enterprise's possible strategies or individual investment projects is the concept of real option valuation. It enables companies to value more precisely real (business) options, which might be created through a possible new strategy path or new investment project and to analyze them in more detail and to optimize therefore the overall value of such an investment. This becomes possible because the real options valuation concept takes explicitly the decision...

The Saatchi Saatchi case

In the 1980s Saatchi & Saatchi was the most successful advertising firm in the world with a 10-year story of uninterrupted success on the stock exchange -from 1976 to 1986, when market capitalization peeked and Saatchi & Saatchi became the largest advertisement group in the world. But the 1986 results also recorded the group's first-ever profit decline. The disregard of intellectual assets by management and by the London business community and Wall Street led to a continuous decrease of...

The new ABB

ABB was one of the first corporations to come up with a new model for a modern organization and corporate culture. After more than a decade of experience with a matrix organization it was time in 1998 to renew the system. When Percy Barnevik moved to the supervisory board as the chairman and Goran Lindahl took over as the new CEO in 1998, he decided to push ABB even further and to leverage what his predecessor has created and to transform ABB into a new economy company. Lindahl's mission was to...

Generating value through intangible assets in RD

But much more important is the new focus especially on value creation from R& D and product innovation. Value-creation principles also drive ABB's research and development. ABB spends worldwide some 2.5 billion a year for R& D, some 8 of its revenues, a high level for this type of industry. The goal is to grow ABB's intangible assets and intellectual capital and leverage it for its customers on a global level. ABB is expanding in businesses where it can combine its knowledge of the...

Case study ABB

The ABB Group Asea Brown Boveri is the world's largest electrical engineering group, with revenues of over 23 billion and with 161,000 employees in more than 100 countries and a history that spans more than 100 years.6 ABB, in serious trouble today, was throughout the 1990s one of the best examples of how the creation of structural capital enables businesses to become more innovative and adaptive and to leverage intellectual capital on a global scale. ABB was for three years running in the...

Limitations of cost accounting and traditional management accounting

Even in the industrial age, financial or general accounting was not sufficient to provide useful and relevant information for management. This led to the invention of cost accounting at the beginning of the 20th century, mainly in the 1920s. Its main purpose was to allocate expenses and costs - which up to then had only been reported on a total basis for the entire company through the general ledger - to single products and to allow management to calculate more adequately product costs and to...

The concept of knowledge capital earnings

A concept presented by Baruch Lev for measuring general performance - that is, the total performance of an enterprise - is to calculate its knowledge capital earnings and its knowledge capital in addition to earnings resulting from financial and physical assets.10 The calculation of knowledge capital earnings according to Lev's concept, starts with a company's or a business unit's reported results - with the profit reported 10 This concept is described in detail in the study by Feng Gu and...

Interview with Leif Edvinsson

Juergen Daum The subtitle of your book Intellectual Capital which you co-authored with Michael Malone in 1997, is ''Realizing Your Company's True Value by Finding its Hidden Brainpower''. What is this invisible brainpower of an organization and why is it important Leif Edvinsson It is intellectual capital or intangible assets the word intellect, derives from the Latin words inter, meaning ''between'' and implying relations, from lectio, meaning ''reading'' and ''acquired knowledge'', and from...

Intangible Assets The Foundation of a New Economy

Information and knowledge are the thermonuclear competitive weapons of our time. Knowledge is more valuable and more powerful than natural resources, big factories, or fat bankrolls. In industry after industry, success comes to the companies that have the best information or wield it most effectively - not necessarily the companies with the most muscle. In the last two decades of the 20th century an almost unnoticed by the public revolution in the corporate world took place the transition from...

Assessing an organizations core competencies

The assessment of an organization's core competencies is done in two steps first they are systematically identified and second they are valued. One way to identify an organization's core competencies is to study today's company management disciplines and functions and to check if the organization owns specific competencies and capabilities in these areas in comparison to similar organizations. The competencies and capabilities of an enterprise in all value-creating areas have to be examined....

How to create value from intangible assets

The fundamentals of corporate value creation can be described in a generic way as invest in business areas, that is in market and product segments and related assets, which yield the highest financial and nonfinancial return from a company's stakeholder point of view manage these investments by maximizing benefits and overcoming limitations and negative effects and control operations and business processes as efficiently as possible by generating maximum revenues and profits for the company....

Discovery and learning

Workforce training and development Organizational capital, processes Patents, trademarks, and copyrights Clinical tests, food and drug administration approvals Revenues, earnings, and market share Patent and know-how royalties R amp D alliances and joint ventures Supplier and customer integration Product pipeline and launch dates Expected efficiencies and savings Expected breakeven cash burn rate_ Figure 6.5 Baruch Lev's Value Chain Blueprint.8 6 ''Innovation revenues'' is Baruch Lev's term...

Case study Cisco Systems

Cisco Systems was founded in 1984 by two Stanford University students, Sandra Lerner and Leonard Bosack. Different networks at the university could not exchange information due to different network protocols. Their solution was the invention of the router - a special network device that connects different networks with different network protocols and which has formed the basis for Cisco's business success up until today. The company is headquartered in Silicon Valley at San Jose California and...

New Value Drivers Require a New Management Approach

Twenty years ago we had the tools that were needed to manage strategy based on tangible assets. The management toolbox was filled with financial tools that were designed to manage tangible things. Now we have a different world. Strategy and value is being created from intangible assets. We need a new toolbox for management. Organizations understand strategy and how to compete in the new economy. But they do not have the management tools that allow them to do this. As a result we find that 7 out...

Interview with David P Norton

Kaplan and management consultant David P. Norton first introduced the ''Balanced Scorecard'' concept in 1992 with an article in the Harvard Business Review - presenting a management system which does not only rely on financial information but also on nonfinancial key performance indicators KPIs . Kaplan and Norton's system is based on extensive research into successfully managed companies. Their research revealed that these companies had developed a systematic...

Lessons learned

The main lesson from the ABB case is the importance of the organizational capital and culture for the productivity of a business corporation. Any large organization tends to suppress personal initiative. The organization structure and culture created by Percy Barnevik at ABB has proven that large global organizations can go together with small local entrepreneurship, which is typical for small organizations. The key to this has been the matrix organization, which allows a high degree of...

The advantages of an entrepreneurial culture and open dialogue

Sumantra Ghoshal and Christopher Bartlett have described their visit to ABB's relays business in the USA at Coral Springs as one of the most influencing of the hundreds of visits they made in the course of the research for their book The Individualized Organization. The reason is that they studied a very unusual turnaround story at ABB's relays business 19 ABB's relays business at Coral Springs was historically part of Westinghouse's Power Transmission and Distribution business and the unit had...

How to value and measure intangible assets

For top management tasks, IT has not been very helpful to date. Top executives have often not used the new technology, because it has not provided the information they need for their own task. The data available in business organizations are still largely based on the 19th century theorem that lower costs differentiate businesses and make them compete successfully. This theorem is the basis of traditional accounting, and ERP enterprise resource planning and MIS management information systems...

Introduction

Today's companies have become the least transparent organizations ever, and the status of their production and risk factors and the economic performance of their business systems are difficult to grasp. For managers, investors and economists this situation is alarming. We risk our companies being unable to exploit their full economic potential to create value-added and wealth. A large portion of their activities that create value-added for shareholders and stakeholders is no longer recorded in...

The end of industrial capitalism and of traditional management

Knowledge-worker productivity is the biggest of the 21st century management challenges. In the developed countries it is their first survival requirement. In no other way can the developed countries hope to maintain themselves, let alone to maintain their leadership and their standard of living. Industrial capitalism, which emerged in the 19th century as a new economic structure, gave rise to the business corporation and its basic management techniques - such as financial accounting - and was...