In an age where intangible value outstrips tangible by 4:1, and where new technology is forging some of the world’s biggest companies, it makes sense to invest in assets that can both enhance intangible value and provide quick process resolution to compete. Add to this the low cost of borrowing and you have the perfect recipe for investing in software solutions.
Growth through adding intangible value
Company value is still determined by the subjective calculations offering the accumulation of net present value from future cash flows, adjusted in real time for the fluctuations in the market in which the company trades or is traded.
But the key driver of future cash flows is now intangibles rather than tangibles. Legally based intangibles such as patents are still present in this category (and on the balance sheet), but moreover, this space is dominated by the competencies of the staff, brand acceptance by customers and corporate responsibility in the eyes of stakeholders.
Growing these intangibles requires efficiency and effectiveness in corporate processes and cultures linked to real-time data sources that assess stakeholder sentiment and direction.
Riding a global economy
The global economy affects everyone and is no longer the plaything of a few multi-national corporations, although according to a recent Forbes study, the biggest companies in the world have become bigger, more profitable and more valuable than ever during 2016.
But it is global economic growth in total, or rather the stagnation of it since 2008, that is forcing national financial institutions to try and bolster growth through offering low rate debt as monetary stimulus. In some areas such as Scandinavia, Eurozone and Japan, interest rates have even fallen below zero. In the UK, the interest rate has been just above zero since 2009, and according to The Guardian, is likely to stay there for more years to come.
This all equates to financial capital being abundant and cheap both now and for the foreseeable future. A recent Harvard Business Review article, “Strategy in the Age of Superabundant Capital,” outlines how this changes traditional financial strategic thinking, as WACCs have fallen reducing the hurdle rates for investments from 16% in 1980 to 5% today.
Investments that create intangible value
With the hurdle rate for investments being so low, and increasing intangible value being the biggest bang for the investment buck, how does investment in software solutions bring the two together? It comes down to streamlining processes, which reduce the cost and time of transacting and frees up time to analyze market data, hone skills, innovate new products, plan and adapt quickly to potential situations. Process enhancement and the activities this frees up can all be facilitated by investing in the right software solutions.
Enterprise resource planning (ERP)
Having the right ERP solution for your business will provide for data, transacting and reporting to be available to appropriate people throughout operations. A robust and intuitive solutions suite, tuned with industry experts and supported by a customer-centric organization, will be key to unlocking efficient processes now and in the future.
Internet of Things (IoT)
Streamlining processes even further may involve further automation between the tangible asset base and the operations. Employing IoT solutions can provide intelligent decision-making based on pre-determined algorithms to reduce the time taken from asset communication to action.
Enterprise operational intelligence (EOI)
Ensuring your business has the right strategy in all areas, and monitors the strategy in real time through to operations, is key to effectiveness. Employing EOI solutions can facilitate staff buy-in and understanding of the strategy. It can also assist in tracking performance and markets using multi-faceted information sources.
Investing for growth
Staff, shareholders and wider stakeholders alike demand ethical, sustainable, long-term growth. With cheap capital at our disposal and available technology at our fingertips, growth could just be a connection away.
I welcome comments on this or any other topic concerning finance, HCM, CSR and business strategy.
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