Good morning. Thank you for giving me the precious opportunity. I am Yutaka Tanabe, a researcher and a social entrepreneur in Japan. Today I will give a presentation about my essay – Intangible Assets for Systemic Change in Social Entrepreneurship. Please note this essay is in progress. I hope my presentation would contribute to the discussion in this session.
First of all, actually we humans can see only 5% in the universe according to the researchers of physics. Over 90% of things are invisible.
This is the table of contents. This is organized by the research question, which I will explain you later.
The purpose of this essay is to introduce the relationship between intangible assets and systemic change as a qualitative study. My Research Question: What are the definitions of intangible assets and systemic change? Do intangible assets contribute to systemic change? If yes, why, and how?
By the way, here are quick examples of intangible assets, brand. IBM, Ben & Jerry’s, Canada, Montreal. These have brands for many people, and brands are one of intangible assets.
International Accounting Standards (IAS) defines “An intangible asset is an identifiable, non-monetary asset, without physical substance”. Haskel et al. (2017) define intangible assets as patent, copyright, design, intellectual property rights (IPR), trademark, training, branding, etc. Training improves human resources which are the most valuable asset in organizations (Chareonsuk et al. 2010). Mindset is shared through training (Zeeb 2020). Mindset creates culture (Romero 2017). Organizational culture is an intangible asset (Chareonsuk et al. 2008).
The value of intangible assets is amplified and visualized by information technology quickly (Haskel et al. 2017). Intangible assets, as Haskel et al. (2017) explain, now play a huge role in the world economy which is experiencing a fundamental shift. For example, the market value of Microsoft, a technology giant firm, was $250 bn in 2006. However, the traditional asset (e.g. plants and equipment) were only $3 bn, 4% of Microsoft’s assets and 1% of its market value in 2006. “Capitalism without capital” is emerging and spreading globally. Intangible assets in the S&P 500 account for $21.03 trillion in 2018 and 90% of the total assets in 2020. Intangible assets are now giant in the world economy.
Why have intangible assets expanded so much and rapidly? The four characteristics of intangible assets are responsible - (1) sunk cost, (2) spillover, (3) scalable, and (4) synergy.
(1) sunk cost
“Because the [intangible] assets are often context-specific, it is hard for markets to emerge to trade them, unlike a house. With no market, you have to find another way to value the asset, which is hard to do.”
“it is relatively easy for other businesses to take advantage of intangible investments they don’t themselves make.”
“The classic example is R&D: copying other people’s ideas is relatively easy, unless the law prevents it by means of patents or copyrights.”
“Consider Coke: the Coca Cola Company, based in Atlanta, Georgia, is responsible for only a limited number of the things that happen to produce a liter of Coke. Its most valuable assets are intangible: brands, licensing agreements, and the recipe for how to make the syrup that makes Coke taste like Coke.”
“A scalable asset, like Uber’s software or Starbucks’s brand, can be scaled across a very large number of locations.”
“The synergies between IT and intangibles work on a couple of levels. First of all, computer hardware has a direct, and in a sense trivial, synergy with one type of intangible: software. That’s the point of software. To put it another way, computers are physical devices that become useful and valuable when you fill them with useful, intangible information.”
Radonić et al (2020) propose ROIA (Return on intangible assets) as an evaluation metric.
For example, if the value of intangible assets is 1,097.7 and the net income is 138.4, the ROIA will be 12.61%. So, it would be assumed that we can calculate ROIA for managent accounting.
On the other hand, the concept of systemic change is based on systems thinking (Senge et al. 2007, Meadows 2008).
Senge et al. (2007) argue “True systemic change means enacting new ways of thinking, creating new formal structures and, ultimately, transforming relationships”.
Social systems are complex, so do social problems (Westley et al. 2009). Social problems arise from flaws in social systems. Therefore, it is safe to say that a social problem is a systemic problem (e.g. systemic racism).
Systemic change is achieved when the flaws in the social system are fixed through legal reform, behavioral change, and/or cultural change.
Buonomo et al. (2020) review intangible assets in nonprofit organizations and argue that intellectual assets are important in NPO management.
Castilla-Polo et al. (2020) state that intangible assets play an important role in cooperatives aiming for sustainable development.
However, these discussions do not go beyond how intangible assets contribute to systemic change.
How do intangible assets such as knowledge, mindset, and organizational culture contribute to systemic change? I propose a conceptual framework.
Cultural change derived from mindset change by social entrepreneurship leads to systemic change because culture facilitates “new ways of thinking, creating new formal structures and, ultimately, transforming relationships”(Senge et al. 2007). Culture fundamentally determines our way of life and how we live. Then, intangible assets are diffused by followership and experience sharing because these two invisible elements are easy to spread exponentially. Social entrepreneurs strategically foster followership and experience sharing to expand empathy among society; empathy plays one of the most powerful role for systemic change. The four characteristics of intangible assets - (1) sunk cost, (2) spillover, (3) scalable, and (4) synergy contribute to expand hugely. Social values or environmental values are invisible; non-monetary values are basically intangible. So, it would be inferred that there are a lot of intangible assets in social sector because it contains many invisible values.
Importantly, intangible assets are stock; the transactions of the intangible assets are flows. Experience sharing are flows from the intangible assets contribute to the systemic change because experience is one of the basis of culture. Experience matters because people value experience; sometimes people pay a lot of money to gain new experiences. So, intangible assets also create economic flows such as donation memberships and subscription models which share experience to generate not only social values but also economic values. Economic value facilitates scaling of social entrepreneurship. Therefore, intangible assets are driving forces for systemic change.
The research area of both intangible assets and systemic change is comparatively new and still widely unknown.
It is true that defining intangibles is difficult (Nichita, 2019).
However, intangible assets play a huge role in our society and have an important function for systemic change as introduced above.
The originality of this essay is to clarify how intangible assets contribute to systemic change qualitatively, and to share the importance of the concept of intangible assets for social entrepreneurship practice and research.