Intangibles: Measuring the Hard to Measure and the Hard to Value
Our previous entries have recommended collecting up to six types of data to evaluate any human resources project or program with the sixth type being the intangibles. This column will delve deeper into intangibles with specific emphasis on the measurement, analysis and value of this hard-to-value data.
By definition, from the guiding principles of the ROI methodology, an intangible benefit is a measure that is purposely not converted to money (i.e., if a conversion cannot be accomplished with minimum resources and with credibility, it is left as an intangible). Although they are not converted to monetary values, they are still an important part of the success profile. Table 1 lists common examples of these measures. Some measures make the list because of the difficulty in measuring them; others because of the difficulty in converting them to money. Others are on the list for both reasons. (Click on diagram to enlarge.)
Intangibles Are the Invisible Advantage
When the success behind well-known organizations is examined, intangibles are there. A customer-focused company attracts profitable customers. A highly innovative company develops new and improved products; a company with involved and engaged employees attracts and keeps talent. These intangibles (customer service, innovation, engagement) often don’t appear in cost statements and other record keeping, but they are there, and they make a huge difference.
For some, these intangibles are invisible, yet their presence is known. Trying to measure them, identify them and react to them may be difficult, but the ability to do this exists. These intangibles are transforming the way organizations work, the way employees are managed, the way products are designed, the way services are sold and the way customers are treated. The implications are profound, and an organizations’ strategy must deal with these intangibles.
Measuring the Intangibles
If it exists, it can be measured. Some intangibles can be counted, such as customer complaints. Most intangibles are based on attitudes and perceptions and are measured in several ways. One way is to list the intangible item and have the respondents disagree or agree on a five-point scale. The mid-point then becomes the neutral. Others define various levels of the intangible. For example, a five-point scale can easily be developed to describe the degrees of reputation ranging from worst case, with a horrible reputation, to best case, with an excellent reputation. Still other ratings can come through an assessment on a scale of one to 10 after reviewing a description of the intangible.
Converting Intangibles to Money
Figure 2 shows the typical approach of converting intangibles to monetary value. (Click on diagram to enlarge.)
The first issue is to try to locate an existing value, making sure that it is accurate, reliable, and reflects the concept. Much progress has been made to develop and publish the values. Next, an expert may be able to place a monetary value on the item based on experience, knowledge, credentials and previous track record. Stakeholders in the human resources program may provide their input, although the input should be factored for bias. Some stakeholders are biased in one way or the other—they want the value to be smaller or larger depending on their particular motives. These may have to be adjusted or thrown out all together based on the biased approaches. Finally, the data is analyzed using conservative processes, often adjusting for the error in the process. This approach connects the intangible to a measure that is easier to value, a tangible. Some typical relationships are customer satisfaction vs. sales, employee engagement vs. revenue per employee, and job satisfaction vs. employee turnover. Although this link can be developed through logical deductions and conclusions, having empirical evidence through a correlation analysis is the best approach.
Unfortunately, no specific rule exists for converting each intangible to monetary value. By definition, an intangible is a measure that is not converted to money. If the conversion cannot be accomplished with minimum resources and with credibility, it is left as an intangible.
Intangible measures can be taken from different sources and at different times in the program life cycle. They can be uncovered early in the process, during the needs assessment, or in the planning process.
Intangible measures may surface on a questionnaire, in an interview, or during a focus group. Questions are often asked about other improvements linked to a program, and participants usually provide several intangible measures for which no plans are available to assign a value.
For each intangible measure identified, some evidence of its connection to the program must be shown. For example, in a given list of intangibles, the participant (or other stakeholder) is asked this question: To what extent has this program influenced this measure? A five-point scale could be used for responses.
Intangible data often reflect improvement. However, neither the precise amount of improvement nor the amount of improvement directly related to a program is usually identified. Since the value of this data is not included in the ROI calculation, intangible measures are not normally used to justify continuing an existing program. A detailed analysis is often not necessary. Intangible benefits are often viewed as additional evidence of the program’s success and are presented as supportive qualitative data.
Jack and Patti Phillips