Innovation in metrics

Measuring the role of intangible assets in generating value

 

 

We live in a new economic era, one in which organisations no longer compete solely on financial variables, but strive to win the respect, trust and support of their main stakeholders – employees, clients, potential clients and society in general – as it is they who guarantee their long-term survival.

Numerous studies demonstrate the growing importance of intangible assets in generating value. And with good reason – more than 50 per cent of the total value of an organisation lies in its intangible assets and resources, reaching 80 per cent in some sectors1. As a result, it is equally important to measure the impact of this kind of resources and assets and to include non-financial indicators on scorecards, promoting their use and acceptance on a par with traditional financial indicators.

One of the most promising indicators for business management is corporate reputation, although in order to adequately manage and measure this indicator, it must be understood as an attitude which allows the theoretical foundation for the relationship between collective opinions and behaviours to be established. People express their attitudes towards something – it could be a company, an institution, a person or even a country – through positive or negative evaluations made about aspects that are relevant to them. Aggregation of these attitudes enables the calculation of an integrated generic indicator that reflects trends and overall favourable or unfavourable sentiment regarding the object under evaluation.

Progress in reputation metrics

Significant efforts have been made to move forward in this field, demonstrating the growing importance of reputation. One of the most widely-accepted indicators, which is equally used by corporations, analysts, investors and regulators, is the RepTrak Pulse Index, created by Charles Fombrun, CEO and founder of the Reputation Institute in collaboration with the member companies of Foro de Reputación Corporativa2. Although Pulse has a total semantic equivalence, Pulse’s metric equivalence had not been evidenced as a unique metric for global reputation in the scorecards of the companies until 20153 when the usefulness and statistical validity of the global reputation indicator RepTrak® Pulse was demonstrated.

From that moment, we can say it has total semantic and metric equivalence, and summarises the global reputation of a company regardless of the gender, age or social class of the respondents, and of the country and industry sector (population invariance).

Reputation is the most influential aspect in determining purchase intent and recommendation. A brand which stands out based on the values mentioned previously is the primary driver in activating purchase intent; this effect multiplies when accompanied by a good reputation and an open, transparent communication policy.

However, managing reputation is a highly complex task demanding a global perspective which, at the same time, requires a specific approach for each interest group. Basing its stance on the experience of its member companies, we argue for the importance of developing reputation alongside the principal KPIs of the organisation in a transversal manner.

One of the most promising findings presented in this field, in which we will see significant progress in the coming years, is the quantification of the economic value of reputation. There is already an initial model on the market with the capacity to determine the financial value of corporate reputation, a new model that sets the economic value of reputation from the following variables: market price, brand strength index and reputation index. This model allows identifying how these variables contribute to create economic value and find key risk areas for the company.

Progress in brand metrics

Among the latest progress made in brand metrics, it is important to highlight the development of a new tool for measuring corporate brand strength. There are many indicators of brand strength – Millward Brown, Ipsos, GFK, Reputation Institute and so on – which are based almost exclusively on the Customer-Based Brand Equity Model (CBBE) developed by Kevin Lane Keller. However, it was necessary to integrate an indicator demonstrating its metric validity and direct relationship with business in order to include it on the organisations’ scorecards. This is how the Triple E Brand Management Model came into existence, aiming to become an international standard for measuring corporate brand strength with a direct impact on valuable attitudes and behaviours.

This new brand indicator has been empirically tested in the banking sector and named Triple E after the initials of each of its three components – Energy, Essence and Experience – which refer to the rational, emotional and experiential elements defining a brand. This way of understanding a brand calls for a transversal management approach, which goes beyond interdepartmental silos and redefines the role of managers of intangible assets, whose primary mission is to provide the company with a unique, distinctive platform to implement its identity through corporate values and valuable relationships with stakeholders.

Whereas 2015 showed that RepTrak Pulse could be used as a unique tool for synthesising overall attitudes held by all sectors of the population, 2016 is the year in which the Triple E Brand Management Model has been empirically validated as the best tool for measuring brand strength which can be integrated into company scorecards.

“This way of understanding a brand calls for a transversal management approach.”

Progress in internal branding metrics

Until now, models for managing corporate reputation have focused exclusively on measuring or evaluating the reputation earned by an organisation among its stakeholders. However, there is one interest group, which stands out from the rest: employees, who are highly influential in shaping a company’s reputation. One of the biggest findings in this field was the creation of an Employees and Reputation Model that allows an understanding of how to activate employee dedication and prompt favourable behaviour towards the organisation.

For all these reasons, reputation must be included in the internal communications agenda, with an inclusive approach promoting employees’ responsibility and contribution to the company reputation. Using an attractive, sincere narrative, employees should be informed of the advantages of a good reputation for the success of the organisation, and for themselves. Besides, if the company’s brand promise is adequately communicated, employees will identify with the values championed by the organisation and engage with it proactively.

Progress in digital ecosystems metrics

We are living in a period of technological and cultural change which has already created a new way of building relationships. To adapt to this social transformation, companies must introduce profound changes to their structure if they wish to maintain their relevance. Among the various indicators and management models developed in this area, the Balance of Online Expressions (BEO) is one of the most significant. The BEO is an international standard for managing reputation online, which emerged as an RDI project and is now an internationally-proven methodology which analyses the impact of expressions made online regarding the various elements of corporate reputation: proposal (products and services), innovation, finances, workplace, citizenship, leadership and governance.

This methodology (one of the finalists at the Digital Communications Awards in 2013 in the Digital Monitoring and Evaluation category) allows the best and worst sectors, issues, stakeholders and spaces to be identified in terms of notability (how they are evaluated) and notoriety (how often they are evaluated), providing strategic insights which can shape internet positioning strategies.

Another significant breakthrough in digital ecosystems concerns the ability to demonstrate the direct impact of the emotions, experiences and attitudes expressed on digital media on the stock exchange value of companies, and subsequently, on the success of the business. Confirmation of the causal link between emotions expressed by the public in digital ecosystems and share price has been made by the Chair of Metrics and Management of Intangible Assets led by Malaga University in Spain and by Corporate Excellence using the GE2AN Model, which explains the management of intangible assets and their impact on companies through five stages.

In the first stage of the model, companies implement management policies (G), which influence the way in which stakeholders relate to the company, creating experiences (E). These experiences then generate emotions (E), which motivate a specific attitude (A) among stakeholders towards the company and impact upon business (N).

Progress in balanced scorecards

Scorecards allow many departments to work collaboratively through transversal committees, making progress towards shared goals. When they include both financial and nonfinancial indicators, they represent a unique tool for managers of intangible assets, who can become agents for change and catalysers of the transformation needed by the company.

Lessons learned

In summary, it is evident that management of intangible assets and value creation are directly linked: reputation and corporate brand motivate support or rejection of a company by its stakeholders. For this reason, it is essential that companies include non-financial indicators such as reputation, brand strength, customer satisfaction, employee commitment and propensity to recommend in their highlevel scorecards. Integrated measurement tools play an important consolidating function which is necessary to determine the degree of support among a company’s key stakeholders. In this sense, an integrated approach is the most appropriate way of identifying the degree of commitment among the various company stakeholders.

This is merely a small contribution to the debate surrounding innovation and development of new standards for measuring intangible assets which is occurring around the world, but in which progress must continue to be made. More than ever, rigorous standards and models are necessary in order to demonstrate the returns and contribution to value generation made by intangible assets.

1 As Brand Finance’s Global Intangible Financial Tracker show.

2 Foro de Reputación Corporativa is now Corporate Excellence – Centre for Reputation Leadership, a think tank specialising in intangible assets, supported by companies such as Abertis, Bankinter, BBVA, CaixaBank, Coca-Cola, Correos, Danone, DKV Seguros Médicos, El Corte Inglés, Gas Natural Fenosa, Ibercaja, Iberdrola, MAPFRE, Popular, Renfe, Santander, Suez Water Spain (Agbar), Telefónica and Grupo Volkswagen.

3 PhD dissertation: Global Corporate Reputation and Metric Equivalence of its Indicators: an Empirical Approach Based on the Analysis of the RepTrak® Pulse Index.


Executive summary

• Intangible assets and value creation are directly linked

• Companies should include nonfinancial indicators such as reputation, brand strength, customer satisfaction, employee commitment and propensity to recommend in their scorecards


Angel Alloza

Angel Alloza is CEO and general secretary at the Corporate Excellence Centre for Reputation Leadership. He  has led the Madrid-based Centre since June 2011. He is also co-author of the handbook Corporate Reputation and professor at various business schools and universities where he teaches intangible assets and business management. Previously, Angel was global director of communications strategy, reputation, brand and metrics at banking group BBVA for more than 10 years and before that director of strategic analysis at Argentaria Corporación. He has also worked as managing director of Millward Brown Spain, an international market research firm.