I recently read Capitalism without Capital which I thought was a great book. Here is my review. It turns out that I have read a number of research papers and books over the last few years on the same kind of thread: how intangibles are becoming more valuable to organizations than tangibles are when it comes to driving productivity and growth. Our history is littered with periods where our economies grow faster than previous periods and often times this is correlated with spikes or increases in capital investment, often offset with some variable time period. In other words, a leader takes a risk and invests in some plant, equipment or hardware (as in IT), and some time later reaps the rewards. There is a lot that is needed to make this happen (see Where You Spend Your Firms’ Capital Matters for an idea), but you get the idea.
What is really interesting is that if you look at broad, macro tends, the spending on intangibles in advanced economies has generally eclipsed the spend on tangibles. The early periods of rapid economic growth, stemming from the industrial revolution, are marked with rapid growth in investments tied to tangibles: hardware, equipment, plant, machinery and the like. Intangible spend in those early periods was minuscule if it was even noted. But sometime in the 20th century the spend on intangibles start to grow, and catch up with that of (ever increasing) tangible spend. Somewhere between the 1980s and 1990s, depending on whose data set you use, spending on intangibles became larger than spending on tangibles. Both tend to grow over time (bar recessions and so on) but intangibles are tending to grow faster than tangibles and now for a long period.
This is quite a dramatic shift and being frank, I am not sure there is adequate explanation anywhere for why this happens, or what it rally means as in causality to how organizations operate and perform. There are theories and ideas all over the place – and I am trying to do my best to read as many of them as possible. As I have blogged before, I do believe that the data suggests that software that is used to describe our business processes – ranging from unique one-off processes to standardized processes, coupled with the data that underpins the decisions every person takes, is at the toot of the value of intangibles. But try proving it!
Well I just read a paper – only 6 pages long – that does show a correlation between growth in intangibles, a decline in tangibles, yet a growth in productivity. The industry in question is retail and the paper is here: Intangibles, Investment, and Efficiency by Nicolas Crouzet and Janice Eberly from Kellogg. The notes brevity is refreshing and it also results in a much focused argument. Very interesting indeed, don’t you think?
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