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The new New Economy Analyst
Report – Febr. 6, 2005
Juergen Daum’s new New
Economy Best Practice service
©2005 Juergen Daum. All rights reserved.
Deutsche Version
Intangible Assets and Value-Based Network
Control in the Automotive Industry. Part 1: The role of a intangibles-based
analysis of the value creation system – the example of Toyota
News categories: The
New Economy Economics, strategy / strategy management, Performance management
and controlling, Investor and Stakeholder Relations
This article is an outcome of the work of the author
for the German roundtable “Network-Based Management/Network Value Added in the
Automobile Industry” founded by the European Business School,
Oestrich-Winkel/Germany, and several German car manufactures and automotive
suppliers. This article has been published in German in: Gleich, Ronald
(editor): Network Value Added – Planung und Steuerung von Netzwerken in der
Automobilindustrie, Forschungsbericht aus der Reihe General Management der
Supply Management Group, St. Gallen/Switzerland, 2004,
p. 123-182
Introduction
to the topic of the article: The need for an intangible-assets perspective
Significant differences between companies exist with
respect to both their internal business logic and their resource or asset
structure. From the financial perspective of cash flows and balance sheets, two
companies could look exactly alike: the same revenues, margins, and balance
sheet structure. The differences only become apparent from
the perspective of intangible assets, which reveal how a company actually
creates value. With an intangible assets perspective you can identify the key
competencies, resources, and assets, and show how they are converted through
processes and structural capital to generate customer value and the revenues
and cash flows that result from it. It also helps to indicate how fit the
company is for the future and which risks it carries. Only with the intangible assets perspective is it
possible to judge how efficiently a company creates value added, and the
probability that it can maintain this capability in the future.
The
intangible assets perspective is therefore the foundation of a new, enhanced
enterprise model that goes beyond the traditional accounting-based approach.
While a financial or accounting perspective measures the actual situation of a
company from a financial point of view (financial inputs in the form of
investments and expenses versus financial outputs in the form of profit or free
cash flows), the intangible assets perspective adds to this the understanding
of the complex interrelationship between resources and conversion processes so
that management can better understand their true value drivers and value
creation processes in order to in order to manage and control future financial
performance. Only with such an approach can the true drivers and processes of
value creation be optimized and the enterprise total factor productivity
continuously improved.
This
is discussed in this article taking the example of Toyota.
In
the face of the success of Toyota, the American journalist and expert on the
automotive industry, Micheline Maynard, predicts in her book The End of Detroit that the
dominance of American companies in the automotive industry is coming to an end
and that at least one of the Big Three will have disappeared from the scene by
the end of the decade.
What
is the reason for Toyota’s success and for the failure of the American Big
Three?
In Micheline Maynard’s view, the Big Three’s troubles
have come about mainly because they no longer understand customer needs (as
Toyota does) and because they focus too much on short-term financial results. It is indeed possible to see this development as one of
losing the understanding, sensitivity, or “nose” for intangible customer values
and how they arise in the value creation system, and instead managing from
purely a financial perspective even though financial results are simply a
delayed reflection of how customers value the product. US manufacturers are no
longer able to maintain a balance between customer value and financial returns,
which endangers their competitiveness and long-term survival. What they neglect is the intangible assets
perspective and an intangible assets-based strategy.
This article takes Toyota as an example to discuss the
implications and insights an intangible assets perspective based analysis can
provide to management and investors alike in order to either judge or manage
sustaining competitive advantage and shareholder value.
Abstract of the
article
In addition to continue to come up with
technical innovations such as the development of environmentally friendly cars,
one of the biggest challenges for the automotive industry in the coming years
and decades will be to create value by significantly enhancing the individual
experience that customers have with its products, i.e. to move to a
comprehhensive customer value-based aproach. For car manufacturers (OEMs), two
factors will play a crucial role in this endeavor. First, their ability to
create value while continually increasing productivity in the entire enterprise
network (together with suppliers, development partners, distribution partners,
service partners, and so on). And this means that they have to find new ways of
collaboration in order to better
control the complex value creation system engendered by a comprehensive
customer value-based approach. Second, their ability to increase their value
potentials and those of their partners, which simply means being able to manage
the company or network in such a way that makes best use of their intangible
assets and those of partners. This is the only way to sustainably create
customer value and generate adequate financial returns. Intangible assets,
however, can only develop their power to create value for customers,
shareholders, and other stakeholders within a specific enterprise value
creation system and therefore should not be considered in isolation within
enterprise management. The present article will illustrate these points,
provide an introduction to Intangible Assets Management, and establish an
initial point of departure for enterprise management in the automotive industry
taking intangible assets into account (from the perspective of an OEM), based
on the example of the value creation system of Toyota Motor Corporation. The
second part of this article, which is planned for the next research report of
roundtable "Network-Based Control/Network Value Added in the Automotive
Industry" will then investigate how the insights gained in this article
can be developed into a comprehensive model of network management based on
intangible assets.
Read
the full article
(requires
Acrobat Reader) 
About the Author
Juergen
H. Daum is
Management Advisor, Finance & Enterprise Control Expert, and Chief Solution
Architect of the Business Solution
Architects Group EMEA of SAP (based at
the SAP headquarters in Walldorf/Germany). For the CFOs, controllers and
other finance professionals of many
European companies he acts as an idea generator and catalyst for redesigning
the finance organization and the enterprise control system. He regularly
publishes articles in journals, speaks at conferences on enterprise management
and finance topics, and runs workshops with finance profesionals. He is the
author of Intangible Assets and Value Creation (Wiley,
2003). Before joining
SAP in 1992 he was the CFO of a midsized German company. Website: http://www.juergendaum.com
Additional Resources:
Interview with Baruch
Lev: Accounting, Reporting and Intangible Assets
Why a new Management System ? – article by Juergen H. Daum
Juergen H. Daum's groundbraking
book: Intangible Assets and Value Creation, Wiley 2003
J.D.’s Best Practice Channel – Finance
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More about New New Economy Economics and
Management Best Practice in general, and about other related topics will be
continued here in this new New Economy Analyst reports.. To
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