“Intangibel Assets and Value Creation” – English version of Juergen H. Daum’s book is now available!

The first book on the market that summarises in a synopsis all relevant aspects of intangible assets management and that comes up with precise suggestions for an improved accounting, corporate performance management and corporate reporting and communications model is “Intangible Assets and Value Creation” by Juergen H. Daum. It is now available in English. While the official book launch is planned for February 2003, the book can be ordered already for example at www.amazon.co.uk or directly at www.wileyeurope.com (or at www.amazon.de and www.amazon.com)

Information about German Version

“The increasing importance of the so-called knowledge economy, which is often associated with industries such as software, pharmaceuticals, the media, and financial services, will continue to change our image of the economy and of value creation. Factories and assembly lines will no longer form the wealth of a company; instead it will be the creativity and capacity for learning of the employees, innovation, and the ability to maintain long-term customer and business partner relationships.

But there is no exclusive "either-or" between industrial and knowledge economy. Many products will continue to be manufactured industrially. However, the share of intellectual capital and therefore of intangible assets that flows into the development and design of new products and that forms the basis for modern competitive production and supply chain processes will increase.

But to convert their knowledge capital into a measurable performance and results, companies require appropriate instruments for control. A combination of "old" and "new" is also valid here - for example, efficient cost management in combination with effective innovation, market, sales, and customer relationship management. Here we need to catch up, both with regard to business science and theory as well as the practical aspects. This book covers exactly this subject, and represents therefore a valuable contribution towards making the intangible assets that are so valuable to a company today more manageable by integrating them into a comprehensive enterprise management and control system.”

Dr. Werner Brandt

CFO and member of the executive board of SAP AG

(quoted from the book’s foreword)

Editorial reviews of the German edition:

This book aims at a paradigm change in management and names good reasons and arguments for it. It belongs into the management discussion of today. Juergen Daum proves great thought leadership.
(Controller Magazin, issue 5/2002)

A comprehensive collection of material and a rich source for ideas around the topic of intangible assets management.
(is-report, issue 9/2002)

A really COMPLETE controlling and management system is outlined. And I found many good ideas for my practical work [as a consultant]
(amazon.de customer review, August 2002)

The call for improved controlling and reporting systems is growing louder. Juergen Daums suggestion for a Tableau de Bord [as controlling and reporting tool, as described in the book], which unites the best concepts available in the market, is brilliant and typical for times, when business science is not any more held together by one unifying model.
(Accounting, issue August 2002)

Short version of the thought leader interviews from the book: Interview with David Norton | Interview with Leif Edvinsson | Interview with Baruch Lev

Article (PDF): "Value Drivers Intangible Assets" | More Information about the book |

Intangible Assets: The Art of Creating Value – An Interview with Juergen H. Daum*

author The success of companies no longer depends upon production facilities, financial capital, and ownership, but more and more upon immaterial values, known as intangible assets. Such assets include not only relationships with business partners, brand awareness and new business ideas, but also know-how, corporate culture, and the ability to innovate. Today, identifying, valuing and managing immaterial assets is becoming increasingly important for companies. How can companies recognize and use the potential offered by intangible assets? In a conversation with sapinfo.net, Juergen H. Daum, the former director of program management at SAP AG for mySAP Financials, explains the function of intangible assets in enterprise management. Daum previously played a crucial role as product manager in creating the SAP Strategic Enterprise Management solution and is now working as a senior business consultant to CFOs, executive management and specialists in corporate controlling, finance, IT and organizations development. He is the author the book “Intangible assets and Value Creation”.

Q: Despite the increasing importance of intangible assets for companies, too little attention is given to these values in practice and in economic theory. Why?

Daum: You’re right. The importance of intangible assets, the immaterial value of companies, has greatly increased – especially in the last decade. One clear indication of the trend is that the portion of a company’s total market value that exceeds its book value has increased from 40 percent of in the early 1980s to over 80 percent at the end of the 1990s. That means today only 20 percent of a company’s market value is reflected in its accounting system. For knowledge-based companies, such as SAP, it is often under 10 percent. And that’s exactly the problem: accounting, controlling, and management instruments have not kept pace with the economic realities of the last few decades. The largest portion of companies’ economic activities, with which they create value for stockholders and stakeholders, is no longer captured systematically. Accordingly, it is not transparent internally or externally, so its importance can easily be overlooked.

Q: What preconditions must be in place for immaterial values to attract the attention they deserve and be used more advantageously for the success of a company?

Daum: Intangible assets have to find a place in accounting, controlling, management reporting and external corporate communication. These disciplines must expand their systems so that they truly represent economic reality. We’re at the beginning of a new economic age, in which the industrial activities of a company create value, but no longer create added value. Our service-oriented and knowledge-based economy creates added value, that is returns beyond the costs of capital, primarily through innovative work in strategic management, product and market development, and by creating unique relationships with customers, business partners, and other stakeholders, such as employees. At the beginning of the 20th century, industrial mass production served as the motor to generate value; this required more complex cost accounting, beyond the abilities of previous accounting practices, to enable management to control and optimize these new value creation processes. In the same way, we must now expand accounting and controlling systems to a new level, to enable companies to optimize, manage and report on today’s new value creating activities and processes.

Q: How can accounting be improved to provide the information required for the use and optimization of intangible assets?

Daum: The value of intangible assets comes into existence and develops only in a concrete context. Investments in human resources, such as training, generate financial value through lower costs or higher revenues only when they are combined with other factors, such as improved business processes and the availability of the right information systems. You really have to look at the entire system that generates added value, because it’s the context that creates intangible value and more important, allows the effective exploitation of available intangible assets. Only a consideration of the entire system enables you to decide if, for example, you can post investments in product development as assets in accounting. Baruch Lev, an expert in accounting for intangible assets and a professor at the Stern School of Business of New York University, recommends that you capitalize such expenditures as soon as you have information confirming that they lead to positive and secured economic results. But you can do so only when in the framework of the product development process information on marketing and customer relationship processes can be accessed, analyzed, and verified with tests as early as possible . Accordingly, accounting must become more closely geared to these new value creation processes, just like classic industrial cost accounting is closely linked to production processes.

Q: How do you have to set up controlling and management systems to enable managers to optimize value creation based upon intangible assets?

Daum: As a controlling instrument, an information system is needed which provides a holistic, but nonetheless concentrated view on all the areas critical to the success of a company today: the successful implementation of a new strategy, the status of the product development pipeline and time to market of new products, and performance in operations and in management of basic resources, such as human resources, financial capital, or, more important, intellectual property, such as patents. I call such a system of key performance indicators a tableau de bord in my book. This system allows systematic monitoring of performance and risk in the company’s overall value creation system and is an important building block for the management system. In addition, companies need management processes that permit quick and efficient exchange of knowledge between individual managers to ensure optimal usage of this information. Such processes include a strategic management process that establishes continuous, strategic dialog throughout the company and thus ensures that the company remains a nose ahead of external developments that could harm its intangible assets based competitive position. Companies must also have a process for performance management that optimizes the exploitation of existing assets in order to achieve short term income goals. Both processes need to be linked with each other to enable management to manage for growth and for short term results at the same time.

Q: What challenges do you see for companies and their management in the new decade?

Daum: Companies will experience ever-harder competition for best practices in all areas. Innovation cycles will accelerate massively. These challenges demand optimization and improvement of all value-adding processes in the company: continuously and simultaneously. Companies must make the appropriate adjustments as quickly as possible, but nonetheless successfully. Managers must therefore have a broad and deep understanding of all the important value-adding areas in the company. They must learn to apply systems thinking so that they can estimate the dynamic interactions in the system and their overall affect on long-term success of the company. General management will therefore become an even more demanding task.

* with sapinfo.net, 18. February 2002

Additional Information:

Approaching the next level of shareholder value management (part 1) by Juergen Daum

Intangible Assets: a central topic at the mySAP Financials conference in Strasbourg by Juergen Daum

Performance Management and Business Controlling in the 21st Century Presentation held by Juergen Daum at SAP's European mySAP Financials Conference, June 2001, Strassbourg / France

Performance Management Beyond Budgeting: Why you should consider it, How it works, and Who should contribute to make it happen by Juergen Daum

Corporate Performance Management: Managing profitability and growth in the new environment – article by Juergen Daum

The new FASB rules for reporting on Intangible Asset - The U.S. versus the European way by Juergen Daum

How accounting gets more radical in measuring what really matters to investors – article by Juergen Daum

Today’s #1 management challenge: How to better exploit intangible assets to create value – article by Juergen Daum

Short version of the thought leader interviews from the book: Interview with David Norton | Interview with Leif Edvinsson | Interview with Baruch Lev

Article (PDF): "Value Drivers Intangible Assets" | More Information about the book |

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