metrics intangibles

7/27/2019 Metrics Intangibles

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Creating Value with The Intangible Assets

Monitor

Karl-Erik Sveiby 1996, 1997, 2001, 2003. All rights reserved.

The !ta!gible Assets "#!it#r is a $eth#d %#r $eas&ri!g i!ta!gible assets a!d a 'rese!tati#!%#r$at (hi)h dis'lays a !&$ber #% releva!t i!di)at#rs %#r $eas&ri!g i!ta!gible Assets i! a si$'le%ashi#!. The )h#i)e #% i!di)at#rs de'e!ds #! the )#$'a!y strategy. The %#r$at is 'arti)&larlyreleva!t %#r )#$'a!ies (ith large i!ta!gible assets, s&)h as K!#(ledge *rga!i+ati#!s. #r a$#re )#$'rehe!sive dis)&ssi#! ab#&t the the#ry read the arti)le "eas&ri!g !ta!gible Assets -a! e$ergi!g sta!dard.

The !ta!gible Assets "#!it#r )a! be i!tegrated i! the $a!age$e!t i!%#r$ati#! syste$. The"#!it#r itsel% sh#&ld !#t e)eed #!e 'age. t sh#&ld be a))#$'a!ied by a! e'la!at#ry tet. *!lya %e( #% the s&ggested i!di)at#rs i! this )ha'ter sh#&ld be sele)ted. The $#st i$'#rta!t areas t#)#ver are gr#(thre!e(al, e%%i)ie!)y a!d stability. The '&r'#se is t# get a br#ad 'i)t&re, s# #!e #rt(# i!di)at#rs i! ea)h )ateg#ry sh#&ld be desig!ed.

The A" is a St#)k-l#( the#ry, sa$e as traditi#!al a))#&!ti!g the#ry. /he! &si!g the A" #!e'er)eives the three !ta!gible Assets as real assets. al&e is )reated i! the %l#(s, s# (e arei!terested i! i!di)at#rs that i!di)ate )ha!ge a!d k!#(ledge %l#(s a!d (e disti!g&ish bet(ee!%#&r $#des #% val&e )reati#! t# gr#( v#l&$e4, t# re!e( i!!#vate, t# &tilise e%%i)ie!tly a!d t#
http://www.sveiby.com/articles/KOS1.html#TheKnowledgeOrganisationhttp://www.sveiby.com/articles/EmergingStandard.htmlhttp://www.sveiby.com/articles/EmergingStandard.htmlhttp://www.sveiby.com/articles/EmergingStandard.htmlhttp://www.sveiby.com/articles/EmergingStandard.htmlhttp://www.sveiby.com/articles/EmergingStandard.htmlhttp://www.sveiby.com/articles/KOS1.html#TheKnowledgeOrganisation


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$i!i$ise risk. #r $#re #! k!#(ledge %l#(s a!d val&e )reati#!, see A Knowledge-basedTheory of the Firm to guide Strategy Formulation.)The idea is t# desig! i!di)at#rsthat )#rrelate (ith the ea)h #!e #% the %#&r $#des #% val&e )reati#!, the gr#(th #% the asset i!5&esti#!, its re!e(al rate, h#( e%%i)ie!tly (e are at &tilisi!g it, a!d the risk #% l##si!g it.

The A"s Eter!al Str&)t&re )#!tai!s )&st#$ers, s&''liers a!d #ther eter!al stakeh#lders

a!d #!e sele)ts the #!es that are releva!t. ! $#st 'rivate )#$'a!ies this (ill be &st#$ers.8&bli) Se)t#r #rga!isati#!s (ill &se #ther stakeh#lders, s&)h as )#$$&!ity $e$bers a!d $a!y)#$'a!ies have s# val&able allia!)es (ith their S&''liers that they $&st be i!)l&ded t##. !ter!alde'art$e!ts (ill have i!ter!al )&st#$ers, (hi)h (ill %#r$ their eter!al str&)t&re.

The i!di)at#rs bel#( are s&ggesti#!s a!d ea$'les, (hi)h $&st be ad&sted t# the reality #%ea)h )#$'a!y. They d# !#t %it all )#$'a!ies #r all )ir)&$sta!)es. The "#!it#r )a! be &sed t#desig! a $a!age$e!t i!%#r$ati#! syste$ #r t# $ake a! A&dit.

li)k #! the headi!gs i! the table bel#( %#r des)ri'ti#!s i! $#re detail: als# re)#$$e!d y#& t#read ea$'les #%"#!it#rs %r#$ the 'ra)ti)e. have e)l&ded the i!a!)ial i!di)at#rs %r#$ the ea$'les bel#(, si!)e they (ill !#t di%%er %r#$traditi#!al #!es.

Intangible Assets

External StructureIndicators

Internal StructureIndicators

CompetenceIndicators

Indicators of Growth*rga!i) ;r#(th.

Indicators of Growth!vest$e!t i! T

!vest$e!ts i! !ter!al Str&)t&re

Indicators of Growth#$'ete!)e !de

evel #% Ed&)ati#!.

#$'ete!)e T&r!#ver.

Indicators ofRenewal/Innovation

$age E!ha!)i!g &st#$ersSales t# !e( )&st#$ers

Indicators ofRenewal/Innovation

*rga!isati#! E!ha!)i!g&st#$ers.

8r#'#rti#! #% !e('r#d&)tsservi)es


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?ev#ted &st#$ers ati#.re5&e!)y #% e'eat *rders.

##kie ati#.Se!i#rity.

See ea$'les i! ele$iBsa!d/"-dataBsA!!&al e'#rts %#r 199C a!d ele$is A!!&al e'#rt%#r 1999.

Measuring Competence

Karl Erik Sveiby 1996, 2001

"rofessionals# $ost Important Component of Competence

The ter$ 'r#%essi#!al re%ers t# the 'e#'le (h# 'la!, 'r#d&)e, 'r#)ess #r 'rese!t the 'r#d&)ts#r s#l&ti#!s )lie!t asks %#r. The ter$ i!)l&des all th#se dire)tly i!v#lved i! )lie!t (#rk, (hether #r!#t they are 'r#%essi#!als i! the %ield #% )#$'ete!)e that )#!stit&tes the )#$'a!yBs b&si!essidea. The bl&e )#llar (#rkers i! the $a!&%a)t&ri!g )#$'a!y are als# i!)l&ded i! this )ateg#ry.

The ter$ e)l&des $e$bers #% the )#$'a!yBs s&''#rt %&!)ti#!s, i.e. th#se (h# (#rk i!a))#&!ti!g, ad$i!istrati#!, re)e'ti#!, et).. They are 'art #% the i!ter!al str&)t&re, a!d sh#&ld bea))#&!ted %#r &!der that headi!g. The 'r#ble$ #% grey areas (here e$'l#yees 'er%#r$ avariety #% d&ties, )a! be s#lved by i!)l&di!g #!ly that 'art #% their ti$e (hi)h is s'e!t (#rki!g %#r)lie!ts a!d )hargi!g the rest t# i!ter!al str&)t&re.

s !#t the %i!a!)ial )#!tr#ller a 'r#%essi#!al i! his, #r her %ieldD =es i!deed, b&t the (#rk #%

$a!y e$'l#yees like %i!a!)ial )#!tr#llers4 )#!sists largely #% 'reservi!g, $ai!tai!i!g a!ddevel#'i!g the i!ter!al rather tha! the eter!al str&)t&re. The (#rk is abs#l&tely esse!tial t# thel#!g-ter$ viability #% the #rga!i+ati#!, b&t it is !#t i!v#lved dire)tly (ith )&st#$ers.

*&tside e'erts, a!d s&''liers are als# i!v#lved i! 'r#e)ts. These reela!)ers )#!stit&te a!esse!tial 'r#d&)ti#! %a)t#r i! $a!y )#$'a!ies. #(ever, as they are !#t %#r$ally e$'l#yed bythe )#$'a!y, they sh#&ld !#t be )#&!ted as e$'l#yees. The disti!)ti#! bet(ee! e$'l#yed, a!d%reela!)e 'ers#!!el is, i! s#$e (ays, arbitrary b&t it is )#!siste!t (ith lab#&r la(s a!d statisti)si! $#st )#&!tries, s# it $akes )#$'aris#!s easier.reela!)ers are a! i$'#rta!t ele$e!t i! theeter!al !et(#rks that a k!#(ledge )#$'a!y b&ilds &', t# s&''#rt the 'r#)ess #% k!#(ledge
http://www.sveiby.com/articles/MeasureExternalStructure.html#Devoted%20Customers%20Ratiohttp://www.sveiby.com/articles/MeasureExternalStructure.html#Frequency%20of%20Repeat%20Ordershttp://www.sveiby.com/articles/MeasureInternalStructure.html#Rookie%20Ratiohttp://www.sveiby.com/articles/MeasureInternalStructure.html#Seniorityhttp://www.sveiby.com/articles/CelemiMonitor.htmlhttp://www.sveiby.com/articles/WMdata.htmlhttp://www.sveiby.com/articles/WMdata.htmlhttp://www.sveiby.com/articles/WMdata.htmlhttp://www.sveiby.com/articles/CelemiMonitor99.htmhttp://www.sveiby.com/articles/CelemiMonitor99.htmhttp://www.sveiby.com/articles/MeasureExternalStructure.html#Age%20Structurehttp://www.sveiby.com/articles/MeasureExternalStructure.html#Devoted%20Customers%20Ratiohttp://www.sveiby.com/articles/MeasureExternalStructure.html#Devoted%20Customers%20Ratiohttp://www.sveiby.com/articles/MeasureExternalStructure.html#Frequency%20of%20Repeat%20Ordershttp://www.sveiby.com/articles/MeasureInternalStructure.html#Staff%20Turnoverhttp://www.sveiby.com/articles/MeasureInternalStructure.html#Rookie%20Ratiohttp://www.sveiby.com/articles/MeasureInternalStructure.html#Rookie%20Ratiohttp://www.sveiby.com/articles/MeasureInternalStructure.html#Seniorityhttp://www.sveiby.com/articles/CelemiMonitor.htmlhttp://www.sveiby.com/articles/WMdata.htmlhttp://www.sveiby.com/articles/CelemiMonitor99.htmhttp://www.sveiby.com/articles/CelemiMonitor99.htm


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)#!versi#!, a!d are there%#re 'art #% the )#$'a!yBs eter!al str&)t&re. The i$'#rta!)e #%%reela!)ers $ay be)#$e s# great that the #rga!i+ati#! be)#$es virt&al, a!d it )eases t# be'#ssible t# see (here the )#$'ete!)e #% the #rga!i+ati#! e!ds a!d that #% its s&''liers begi!s.

%eep &ime Records

Ti$e is s&)h a! i$'#rta!t variable i! k!#(ledge #rga!i+ati#!s, that it $&st be re)#rded. The ti$e&sed )a! be )lassi%ied i!t# the )ateg#ries s&ggested

%nowledge Conversion. 8r#%essi#!als )#!vert k!#(ledge i!t# !e( k!#(ledge,ge!erally i! a! e'li)it %#r$. "#st k!#(ledge )#!versi#! #))&rs i! 'r#e)ts &!dertake!%#r eisti!g )&st#$ers. Ti$e s'e!t #! 'r#e)ts %#r eisti!g )&st#$ers F th#se (h# have'revi#&sly )#$$issi#!ed at least #!e 'r#e)t4 )a! be regarded as $ai!te!a!)e #% theeter!al str&)t&re. All a)tivities relati!g t# established )&st#$ers, i!)l&di!g 5tati#!s,l&!)hes, tele'h#!e )alls, letters a!d #ther )#!ta)t $ai!te!a!)e a)tivities, sh#&ld be)lassed &!der this head, eve! i% s&)h ti$e is b##ked &!der a se'arate a))#&!t )#de.

Grow/Renew External Structure A)tivities desig!ed t# e'a!d #r re!e( the eter!alstr&)t&re are th#se that are #ther(ise k!#(! as $arketi!g as (ell as th#se that i!)reasethe sta%% #% 8r#%essi#!als. e)r&it$e!t a)tivities are s# )r&)ial, that the )#sts i!)l&di!gti$e s'e!t are (ell (#rth $#!it#ri!g. "arketi!g )#!sists 'ri$arily i! a)tivities ai$ed at(i!!i!g !e( )&st#$ers. t !at&rally i!)l&des traditi#!al a)tivities like br#)h&res a!d'ers#!al selli!g, b&t i! k!#(ledge #rga!i+ati#!s #ther etr#verted a)tivities are 'r#bably$#re i$'#rta!t, s&)h as dra%ti!g 5tati#!s %#r !e( )&st#$ers, s'eaki!g at se$i!ars,(riti!g b##ks, #i!i!g )l&bs a!d eati!g '&bli)ity l&!)hes. The ti$e s'e!t #! the %irst'r#e)t %#r a !e( )&st#$er )a! als# be i!)l&ded here. &st#$er )ateg#ries (#rthy #%se'arate )lassi%i)ati#!s i! the ti$e re)#rdi!g are %#r ea$'le )&st#$ers (h# e!ha!)ethe )#$'a!yBs i$age, )&st#$ers (h# )a! give i!tr#d&)ti#!s t# #ther desirable)&st#$ers.

$aintain Internal Structure'"#st #% the ti$e re)#rded by the s&''#rt sta%% bel#!gs t#this )ateg#ry. 8l&s $#st #% the ti$e #% $a!age$e!t a!d t#' $a!age$e!t, &!less i!)&st#$er 'r#e)ts.

R() and Renewal of Internal Structure. Ti$e s'e!t #! G? 'r#e)ts, i!)l&di!g th#sethat are 'aid %#r by )&st#$ers.

Competence enhancement'Ti$e s'e!t #! trai!i!g a!d ed&)ati#!.

Classification by )egree of Responsibility

"a!y !#!-$a!&%a)t&ri!g )#$'a!ies, es'e)ially k!#(ledge )#$'a!ies, have a! i!%#r$al #r%#r$al hierar)hy de'e!di!g #! the degree #% res'#!sibility %#r )&st#$ers )arried by thee$'l#yees. ! a! advertisi!g age!)y, %#r ea$'le, (e )a! disti!g&ish three levels

Th#se (h# (#rk #! #!ly 'art #% a 'r#e)tH

Th#se (ith #verall res'#!sibility %#r a 'r#e)t #%te! )alled 'r#e)t $a!agers4H

Th#se (ith #verall res'#!sibility %#r a give! )&st#$er like a))#&!t $a!agers i! ad$a!Bs arg#!4.

The )#$'a!y #%te! strives t# devel#' a!d retai! as $a!y 'e#'le as '#ssible (ith #verall)&st#$er res'#!sibility, be)a&se they are i$'#rta!t key 'e#'le. *ther skills besides e'ert skills$ay als# be i$'#rta!t e!#&gh t# be (#rth kee'i!g tra)k #%. Ea$'les are (hat are #ki!gly)alled i!ders, "i!ders a!d ;ri!ders. The i!ders are the #!es (h# are g##d at $aki!g )#!ta)tsa!d bri!gi!g i! !e( )&st#$ers, the "i!ders are the se!i#r )#!s&lta!ts, a!d the ;ri!ders are the'##r &!%#rt&!ate &!i#rs (h# d# all the hard (#rk.


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The ?a!ish )#!s&lta!)y %ir$ 8>S-#!s&lt )lassi%ies its sta%% i! a s#$e(hat si$ilar $a!!er seeea$'le bel#(4 i!t# ;e!erat#rs )&st#$er $a!agers (h# are able t# ge!erate !e( )&st#$ers4H>eaders )#$'ete!t #% $a!agi!g $a#r 'r#e)ts4H Tea)hers (h# are skilled at 'assi!g #! their)#$'ete!)e t# #thers4.

Classification by Area

=#& )a! s&rvey the )#$'ete!)e that the )#$'a!y '#ssesses i! di%%ere!t areas. A! e!gi!eeri!g)#!s&lta!)y, %#r ea$'le, $ight divide its )#$'ete!)e bet(ee! the '#(er se)t#r, 'hysi)al)#$$&!i)ati#!s, i!d&strial )#!str&)ti#!, h#&si!g )#!str&)ti#!, et). A s#%t(are )#!s&lta!)y )#&ldset its )ateg#ries a))#rdi!g t# h#( $a!y are %a$iliar (ith di%%ere!t ty'es #% syste$. This )a! be'rese!ted i! diagra$s. Agai! (e are $#stly i!terested i! )ha!ges. s the )#$'a!y gai!i!g #r

l#si!g )#$'ete!)e i! its )#re areas, %#r i!sta!)eD

Growth

*umber of +ears in the "rofession

A si$'le a!d &se%&l $eas&re #% )#$'ete!)e is the t#tal !&$ber #% yearsthat 'r#%essi#!als have (#rked i! their 'r#%essi#!. Alth#&gh the $a!-years#% i!divid&al8r#%essi#!alsare !#t stri)tlys'eaki!gaddable, i!large gr#&'sthedis)re'a!)iesare s$##thed#&t e!#&gh t#

$ake )ha!ges i! the %ig&re (#rth

re)#rdi!g.The t#tal !&$ber #% yearsi! the 'r#%essi#! is a $eas&re #% theskill a!d e'erie!)e #% a )#$'a!yBs(h#le b#dy #% 'r#%essi#!als, (hereas 'r#%essi#!al e'erie!)e 'er 8r#%essi#!al is a $eas&re #%the average skill a!d e'erie!)e #% ea)h #% the$. % y#& divide the s&$ t#tal by the average!&$ber #% 8r#%essi#!als i! the )#$'a!y, y#& get a )#!tr#l %ig&re %#r )#$'ete!)e 'er8r#%essi#!al. These )#!tr#l %ig&res )a! be dis'layed #! a gra'h (ith 3-C )lasses. @y )al)&lati!gthe )ha!ge i! the i!di)at#r bet(ee! t(# years (e )a! als# i!di)ate h#( $&)h the average)#$'ete!)e is gr#(i!g. @est is a )hart )#veri!g several years b&t a table (ill d# %i!e. Ea$'lesee )ha'ter 1.9.C a!d ig&re 10 bel#(4.

,evel of Education

The level #% ed&)ati#! #% 8r#%essi#!als a%%e)ts the assess$e!t #% the 5&ality #% their )#$'ete!)ea!d th&s the k!#(ledge )#$'a!yBs ability t# a)hieve %&t&re s&))ess.

t is i!teresti!g t# kee' a hist#ri)al re)#rd #% this i!%#r$ati#!, b#th %#r i!ter!al &se a!d %#r'&r'#ses #% )#$'aris#! (ith #ther )#$'a!ies i! the sa$e %ield #% k!#(ledge. The reas#! (hy%#r$al ed&)ati#! is #% i!terest is be)a&se the $ai! )#$'ete!)e gai!ed by st&de!ts at a)ade$i)levels is h#( t# 'r#)ess vast a$#&!ts #% i!%#r$ati#!. Three ge!eral )lasses )a! be disti!g&ished8ri$ary, Se)#!dary a!d Tertiary. ! #rga!i+ati#!s relyi!g #! a 'arti)&lar 'r#%essi#!, like a&dit#rs,


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it is &se%&l t# disti!g&ish h#( $a!y are )hartered. A! average )a! be )al)&lated a!d the )ha!gei! the average i!di)ates (hether the )#$'a!y i$'r#ves its average level.

Competence Index

The @ig ive 'ige#!-h#le their )#!s&lta!ts #! %ive t# seve!-'#i!t s)ales a!d als# assess their

'er%#r$a!)e agai!st )riteria. I&ite a %e( )#$'a!ies, es'e)ially large $&lti!ati#!als, $akea!!&al 'er%#r$a!)e assess$e!ts #% their $a!agers a!d s&''#rt sta%%. S&)h assess$e!ts $ay%#r$ the %#&!dati#! #% a #$'ete!)e !de. A! i!de )a! be )al)&lated as

>evel J 8er%#r$a!)e F #$'ete!)e !de.

A si$'le #$'ete!)e !de e!tirely based #! de$#gra'hi)s #% )#&rse !#t as g##d as a#$'ete!)e !de based #! assess$e!ts4 )a! be )al)&lated as

=ears i! the 8r#%essi#! J Se!i#rity J >evel #% Ed&)ati#!.

=#& )a! the! &se statisti)al $eth#ds %#r a!alysi!g the !de. =#& )a! tra)e h#( the )#$'ete!)e

i!de devel#'s i! vari#&s %ields, h#( it )ha!ges (ith ti$e, a%%e)ts 'ers#!!el t&r!#ver, et).

Competence &urnover

@y )#$'ari!g the )#$'ete!)e #% 'e#'le (h# have le%t the )#$'a!y (ith th#se #% !e( re)r&its,y#& )a! derive a 5tie!t sh#(i!g h#( 'ers#!!el t&r!#ver a%%e)ts the )#$'a!yBs )#$'ete!)e asa (h#le. The )#!tr#l %ig&re )a! be )al)&lated as the )#$'ete!)ies #% th#se (h# have #i!ed the)#$'a!y divided by the )#$'ete!)ies #% th#se (h# have le%t it. #$'ete!)e $ay be a!yi!di)at#r, like ed&)ati#!, $arks #r years #% e'erie!)e. Table 3 sh#(s h#( )#$'ete!)e t&r!#ver)a! be )al)&lated i! a )#$'a!y that e$'l#ys 1C00 'e#'le. The )ha!ge i! years #% e'erie!)e isdivided i!t# three )#$'#!e!ts h#( $&)h has bee! gai!ed by !e( e'a!si#! re)r&it$e!t as#''#sed t# re'la)e$e!t4, h#( $&)h has bee! l#st by de'art&res, a!d h#( $&)h has bee!gai!ed #r l#st by re'la)i!g 'e#'le (h# have le%t.

Competence &urnoverass&$i!g t#tal sta%% F 1C 000 e'erie!)e years4

Experience +ears -.. 0 of &otal

=ears #% e'erie!)e gai!ed (ith gr#(th 1C0 1 L

=ears #% e'erie!)e l#st (ith leavers - 132 - 1 L

=ears #% e'erie!)e gai!ed (ith re'la)e$e!ts 330 2 L

*et increase in Competence 1 234 1 5 0

The table sh#(s h#( )#$'ete!)e t&r!#ver )a! be )al)&lated.

Renewal/Innovation

Competence6Enhancing Customers

Si!)e 8r#%essi#!als s'e!d $#st #% their ti$e (#rki!g %#r )&st#$ers, a!d si!)e )&st#$ers are the$#st i$'#rta!t s#&r)e #% )#$'ete!)e devel#'$e!t, y#& get val&able i!%#r$ati#! by $eas&ri!gthe 'r#'#rti#! #% )&st#$er assig!$e!ts that )#!trib&te t# )#$'ete!)e devel#'$e!t. t is &s&ally


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s&r'risi!gly easy t# )#$'ile a list by aski!g y#&r #(! 'e#'le (hat 'r#e)ts they %eel they lear!eds#$ethi!g %r#$, (hi)h #!es (ere #% G? ty'e, a!d s# #!. Ea$'le see ele$i4.

)iversity

;e!der diversity has bee! sh#(! t# e!ha!)e i!!#vati#!. #r ea$'le /"-data has %#&!d that

(ith (#$e! syste$s a!d 'r#gra$$i!g tea$s (ith a 'r#'#rti#! #% (#$e! te!d t# be $#rei!!#vative. The S#&th A%ri)a! $#bile !et(#rk #'erat#r "T


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@y $eas&ri!g val&e added 'er e$'l#yee a!d )#$'ari!g the res&lt (ith 'revi#&s years a!d #ther)#$'a!ies i! the sa$e i!d&stry y#& )a! get a %airly g##d a''re)iati#! #% h#( y#&r )#$'a!yBsability t# 'r#d&)e a!d ge!erate 'r#%its devel#'s.

7alue Added per "rofessional

! k!#(ledge )#$'a!ies, val&e added 'er 'r#%essi#!al )a! be regarded as the '&rest $eas&re#% ability t# 'r#d&)e e)#!#$i) val&e. t is the 'r#%essi#!als, by de%i!iti#!, (h# bri!g i! all thereve!&es. These reve!&es $&st the! )#ver all the )#sts i!)&rred i! kee'i!g a! 'r#%essi#!al i!the %ield travel, #%%i)e, se)retary, $a!age$e!t a!d ad$i!istrative sta%%4, a!d he hi$sel% #% )#&rseals# )#$$a!ds a $arket 'ri)e i! the %#r$ #% salary, 'e!si#! a!d #ther e$#l&$e!ts. /hat is le%t#ver $&st s&%%i)e t# %i!a!)e e5&i'$e!t a!d de're)iati#! #% the sa$e as (ell as $ai!te!a!)e #%k!#(ledge )a'ital trai!i!g4.

/"-data&ses the i!di)at#r as a! e%%i)ie!)y target.

/hat is le%t #ver a%ter th#se )#sts have bee! 'aid is the 'r#%it t# be distrib&ted as divide!ds t#shareh#lders #r &sed by the )#$'a!y %#r )#!s#lidati#! #r i!vest$e!t. al&e added 'er'r#%essi#!al i!di)ates the i$'#rta!)e #% the 'r#%essi#!als t# the )#$'a!y, a!d )a! be &sed %#rthe sa$e ki!ds #% )#$'aris#! as i! the %#reg#i!g se)ti#!. Si!)e the 'r#'#rti#! #% 'r#%essi#!als t#the t#tal !&$ber #% e$'l#yees $ay vary, the t(# $eas&re$e!ts val&e added 'er e$'l#yee a!d'er 'r#%essi#!al4 )a! give rise t# i!teresti!g )#$'aris#!s bet(ee! )#$'a!ies.

"rofit per "rofessional or per Employee

8r#%it 'er e$'l#yee is a &se%&l ter$ i% y#& )a! )#rre)t %#r e)ess salaries, et). t )a! be &sed t#$ake )#$'aris#!s bet(ee! st#)k$arket-5ted k!#(ledge )#$'a!ies be)a&se they arere5&ired t# re'#rt their 'r#%its $#re h#!estly. The adva!tage is that the %ig&res are easilyavailable. ! the l#!g ter$, it is %irst a!d %#re$#st the ability #% the 'r#%essi#!als t# ge!erate'r#%its that deter$i!es the $arket val&e #% a k!#(ledge )#$'a!y. 8r#%it 'er 8r#%essi#!al $ayth&s be a $#re i!teresti!g i!di)at#r t# !#te, es'e)ially %#r #&tsiders (h# d# !#t have a))ess t#the i!ter!al $a!age$e!t i!%#r$ati#!.

The 'r#%it-ge!erati!g ability #% 'r#%essi#!als de'e!ds #! the state #% the $arket, #! h#(e%%i)ie!tly the )#$'a!y is $a!aged, a!d #! h#( $&)h #% the val&e added is 'aid #&t dire)t t#e$'l#yees as salaries a!d be!e%its. The state #% the $arket #% their )&st#$ersB)&st#$ers is avery i$'#rta!t %a)t#r %#r $a!y k!#(ledge #rga!i+ati#!s.
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Ar)hite)ts, %#r ea$'le, get a very t#&gh ti$e (he! the )#!str&)ti#! a!d h#&si!g $arkets t&r!d#(!. As a res&lt the 'r#%it a!d val&e added4 'er ar)hite)t i! ar)hite)t&ral %ir$s g#es d#(! t##.! b##$ ti$es they regai! all they l#st a!d $#re, #!ly t# si!k agai! i!t# the de'ressi#!.

Advertisi!g age!)ies a!d s#%t(are )#!s&lta!)ies see$ t# have %#&!d it easier t# kee' &' theirlevels #% 'ay thr#&gh %l&)t&ati#!s i! the $arket.

Si!)e 'r#%essi#!als salaries are !#r$ally the biggest si!gle )#st ite$ i! a k!#(ledge )#$'a!yBsb&dget, 'r#%its are very largely i!%l&e!)ed by salary '#li)ies. ! 'art!ershi's salaries #% the'art!ers are #%te! &sed as 'r#%it reg&lat#rs, es'e)ially i! b&si!esses like la( %ir$s a!d s$all)#!s&lta!)ies, s# this yardsti)k is val&able #!ly i% the 'r#%it %ig&res )a! be '&rged #% s&)h ite$s.

Stability

Average Age

*lder 'e#'le are $#re stable tha! y#&!ger, that is they te!d t# stay a!d !#t leave the )#$'a!y.

A! #rga!i+ati#! (ith #! average #lder 'r#%essi#!als is likely t# be $#re stable tha! a y#&!ger#rga!i+ati#! i! the sa$e i!d&stry. The average age is a g##d i!di)at#r #% stability. t is als#, &stlike t&r!#ver a!d se!i#rity, a! i!di)at#r #% dy!a$i)s. A very high average age i!di)ates a stable)#$'a!y (ith $#re (isd#$ tha! drive. The average age has a habit #% )ree'i!g &'(ards, &!less$a!age$e!t is alert, s# a steadily i!)reasi!g average age #ver a l#!g 'eri#d #% ti$e is a (ar!i!gsig!. /ith the aid #% a deliberate re)r&it$e!t '#li)y, it is '#ssible t# $ai!tai! a stable agestr&)t&re, b&t kee'i!g the age a!d the e'erie!)e #% the sta%% i! bala!)e is !#t easy.

Seniority

Se!i#rity is de%i!ed as the !&$ber #% years e$'l#yed i! the sa$e #rga!i+ati#!. The se!i#rity #%'r#%essi#!als, )a! be &sed as a! i!di)at#r #% stability #% )#$'ete!)e. % )#$'&ted %#r the)ateg#ry #% ad$i!istrat#rs it )a! als# be &sed as a! i!di)at#r #% the stability #% the i!ter!alstr&)t&re. See als###kie ati#4.

Relative "ay"osition

"#st i!d&stries a!d 'r#%essi#!al b#dies kee' g##d statisti)s #% levels #% 'ay a!d the relative'#siti#!s #% i!divid&al )#$'a!ies. elative 'ay '#siti#! is &s&ally e'ressed i! ter$s like 97L #r
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11/17

103LH this has high i!%#r$ati#! val&e be)a&se it $eas&res relative )#st levels )#$'ared t#)#$'etiti#!. t )a! als# be ass&$ed t# i!%l&e!)e the attit&des #% 'r#%essi#!als #! the 'ayr#ll.elative 'ay '#siti#! is als# i!teresti!g be)a&se it gives a! i!di)ati#! #% (hether e$'l#yees arelikely t# l##k %#r (#rk else(here.

"rofessionals &urnover Rate

Sta%% t&r!#ver is ge!erally regarded as a! i!di)at#r #% stability. t is a g##d i!di)at#r be)a&se it iseasy t# )al)&late a!d t# )#$'are (ith #ther )#$'a!ies. A very l#( t&r!#ver bel#( CL4 s&ggestsa stable b&t !#t dy!a$i) sit&ati#!. A very high t&r!#ver rate ab#ve 20L4 &s&ally s&ggests that'e#'le are dissatis%ied. T&r!#ver sh#&ld be ke't i! a ba!d a!d s&dde! )ha!ges i! the t&r!#verrate is &s&ally a! i!di)ati#! that s#$ethi!g has )ha!ged i!ter!ally i! the )#$'a!y.

#$'a!ies )a! a)tively &se the t&r!#ver rate as a $a!age$e!t t##l t# s&stai! a s&%%i)ie!t level#% dy!a$i)s, see ea$'le /"-data4. The t&r!#ver rate )a! be $ade $#re #r less s#'histi)ated.t )a! be divided i!t# eter!al 'e#'le leavi!g the )#$'a!y4 a!d i!ter!al t&r!#ver #b-r#tati#!4 #ras here i!t# the t&r!#ver rate %#r 'r#%essi#!als a!d ad$i!istrative sta%%.

The t&r!#ver rate is &s&ally )al)&lated as the !&$ber #% leavers d&ri!g a year divided by the!&$ber #% 'e#'le e$'l#yed at begi!!i!g #% the year. The t&r!#ver rate %#r 'r#%essi#!als is a!i!di)at#r #% stability i! the i$'#rta!t gr#&' #% reve!&e )reati!g 'e#'le.

Measuring Internal Structure

Karl Erik Sveiby 1997, 2001

The $ai! a)tivity #% e$'l#yees (h# (#rk i! ge!eral $a!age$e!t ad$i!istrati#!, a))#&!ti!g,'ers#!!el, re)e'ti#!, %ili!g, et). is t# $ai!tai! the i!ter!al str&)t&re. They are re%erred t# here ass&''#rt sta%%. A)tivities like r#&ti!e $ai!te!a!)e #% )#$'&ter syste$s a!d databases sh#&ldals# be )lassed &!der this head, &!less they re%er t# a s'e)i%i) )&st#$er #r gr#&' #% )&st#$ers.

Growth

Investments in the Internal Structure

!vest$e!ts i! !e( s&bsidiaries #r !e( $eth#ds a!d syste$s are ea$'les #% )ash #&tlays thatare #%te! a))#&!ted as )#sts. S&)h i!vest$e!ts are i!di)ati#!s #% a b&ild &' #% the i!ter!alstr&)t&re a!d sh#&ld be $#!it#red a!d 'rese!ted #! a yearly basis. The i!di)at#r )a! be)al)&lated as a 'r#'#rti#! #% sales #r better4 a 'er)e!tage #% val&e added. See ea$'leele$i4.

Investment in Information "rocessing Systems

!vest$e!t i! i!%#r$ati#! te)h!#l#gy i!%l&e!)es the i!ter!al str&)t&re. ! $a!y i!d&stries it is als#regarded as a $eas&re #% 'r#gress i! a))#$'lishi!g the )#r'#rate $issi#!. A! i!s&ra!)e)#$'a!y (ith $#re adva!)ed T syste$s )a! s#lve its )&st#$ers 'r#ble$s $#re e%%i)ie!tly. A!airli!e (ith a s#'histi)ated ti)ket b##ki!g syste$ $ay e!#y a )#$'etitive adva!tage #ver #therairli!es. #$'a!ies (ith syste$s %#r i!%#r$ati#! retrieval a!d distrib&ti#! have a '#(er%&lstr&)t&re that s&''#rts the #rga!i+ati#!. Th&s T i!vest$e!ts, e'ressed as 'er)e!tages #%t&r!#ver #r i! abs#l&te %ig&res, )a! 'r#vide val&able )l&es t# h#( the i!ter!al str&)t&re is
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devel#'i!g. The !&$ber #% )#$'&ters a!d#r #ther T 'a)kages 'er 'ers#! )a! als# be &sed asa )#!tr#l %ig&re.

Renewal/Innovation

Customers that Contribute to Internal StructureThe 'r#'#rti#! #% assig!$e!ts dev#ted t# )&st#$ers that i$'r#ve the i!ter!al str&)t&re #% the)#$'a!y is a! i$'#rta!t variable, be)a&se it adds t# the gr#(th #% the asset. Ea$'les #%'r#e)ts that i$'r#ve the i!ter!al str&)t&re are large 'r#e)ts (here )#$'ete!)e is 'assed #! bytraditi#! t# several 'r#%essi#!als at #!)e. !!#vative 'r#e)ts i!v#lvi!g !e( $aterials, !e($eth#ds #% )al)&lati#!, !e( s#%t(are, et). )#$e &!der the headi!g #% G? a!d sh#&ld be)lassed as s&)h. &st#$ers $&st be )lassi%ied %#r this i!di)at#r. T(# )#$'a!ies that d# this ki!d#% )lassi%i)ati#! are 8>S #!s&lta!dele$i.

Sales of *ew "roducts and Services

The 'r#'#rti#! #% sales %r#$ !e( 'r#d&)tsservi)es is #!e #% the $#st )#$$#! i!di)at#rs i! high-te)h i!d&stries. *%te! )ited is 'r#'#rti#! #% sales %r#$ 'r#d&)ts y#&!ger tha! 3 years.


13/17

attit&des are %av#rable, they )#!trib&te )#!s)i#&sly #r &!)#!s)i#&sly t# e!ha!)i!g the )#$'a!yBsi$age a$#!g its )&st#$ers. @&t i% the e$'l#yees take a di$ vie( #% the )#$'a!y, this attit&de(ill &!)#!s)i#&sly r&b #%% #! )&st#$ers a!d )a! !&lli%y the arg&$e!ts i! the $#st elab#rateadvertisi!g )a$'aig!.

#( $&)h #% $arketi!g )#sts are !e&trali+ed by y#&r )#$'a!yBs #(! sta%%D "a!y )#$'a!ies,

es'e)ially big #!es, r&! reg&lar '#lls t# dete)t )ha!ges i! e$'l#yees attit&des. The res&lts #%s&)h '#lls are a! i!di)ati#! #% h#( the i!ter!al str&)t&re is devel#'i!g. The res&lts %r#$ attit&de'#lls sh#&ld be s&$$ari+ed i! a %e( i!di)es, (hi)h are the! %#ll#(ed &' #! a yearly basis. t isi$'erative that the statisti)al $eth#ds &sed are )#!siste!t %#r$ #!e year t# a!#ther, be)a&se (ea re $#re i!terested i! the )ha!ge, tha! i! the abs#l&te level.

The i!di)at#r is 'la)ed i! the iskStability )ell be)a&se a deteri#rati!g attit&de $eas&res areearly (ar!i!g sig!als %#r #rga!isati#!al tr#&ble ahead.

Age of the 8rgani9ation

A! #ld #rga!i+ati#! is ge!erally $#re stable tha! a !e( #!e. Sig!s like Est. 1NN7 are #%te!&sed by retailers t# i!di)ate t# %#reig!ers that the sh#' )a! be tr&sted. The age is easy t#)#$'are (ith )#$'etit#rs.

Support Staff &urnover

The s&''#rt sta%% a!d $a!agers are the ba)kb#!e #% the i!ter!al str&)t&re. t is vital %#r thes&rvival a!d e%%i)ie!)y that they %&!)ti#! (ell a!d a l#( t&r!#ver rate i!di)ates this. The t&r!#versh#&ld be ke't i! a ba!d, &st like the t&r!#ver rate %#r 'r#%essi#!als. @e)a&se the #be)tive #%s&''#rt sta%% is t# $ai!tai! the i!ter!al str&)t&re a l#(er t&r!#ver tha! %#r 'r#%essi#!als is're%erable. The ba!d is 'r#bably bet(ee! 3 - 7L. Ea$'le #% sta%% t&r!#ver )hart see /"-data.

:Roo!ie Ratio: and Seniority

##kie ati# is de%i!ed as !&$ber #% 'e#'le (ith less tha! 2 years e$'l#y$e!t. e)e!tlye$'l#yed 'e#'le are less stable tha! #ld. They are als# less e%%i)ie!t, be)a&se they have !#t yets#)iali+ed i!t# the traditi#! #% the #rga!i+ati#!, s# they d# !#t k!#( the $#st e%%i)ie!t (ayar#&!d. There is &s&ally a higher 'ers#!!el t&r!#ver a$#!g 'e#'le (ith less tha! t(# years #%se!i#rity i! #rga!i+ati#!s. A high 'er)e!tage #% r##kies i! the ad$i!istrati#! is there%#re a sig!that the #rga!i+ati#! is less stable a!d less e%%i)ie!t. ##kie ati# a!d se!i#rity are ea)h #therBs)#$'le$e!ts. @#th i!di)at#rs )a! be &sed. Ea$'les see /"-dataa!d ele$i.

Measuring External Structure

Karl Erik. Sveiby 1996, 2001

All the ti$e the e$'l#yees s'e!d (#rki!g %#r )&st#$ers re'rese!ts a '#te!tial %#r $ai!tai!i!g,b&ildi!g a!d devel#'i!g relati#!s (ith )&st#$ers i! dire)t 'r#e)ts %#r the$. The 'r#%essi#!alss'e!d $#st #% their ti$e - $aybe as $&)h as 90L - i! a very i!te!se )#-#'erati#! (ith the)&st#$ers, #thers i! $#re ba)k stage '#siti#!s. S#, the choice#% )&st#$ers is )r&)ial.

Intangible Revenues
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"#st )&st#$ers )#!trib&te $&)h $#re tha! $#!ey. They 'r#vide trai!i!g %#r e$'l#yees, they)a! be &sed as re%ere!)es, they talk t# ea)h #ther a!d s# s'read the (#rd a!d the i$age, a!dtheir %eedba)k is a s#&r)e %#r devel#'i!g !e( 'r#d&)ts a!d servi)es. These %l#(s )a! be )alled!ta!gible eve!&es be)a&se they i!)rease the val&e #% the i!ta!gible assets. !ta!gibleeve!&es )a! be divided i!t# $age e!ha!)i!g, *rga!isati#! e!ha!)i!g a!d #$'ete!)ee!ha!)i!g. ead $#re ab#&t i!ta!gible reve!&eshere.

The i$'#rta!)e #% )&st#$ers is s'e)ially evide!t i! k!#(ledge #rga!i+ati#!s. The big a&diti!g%ir$s, %#r ea$'le, &se their large )&st#$ers, t# trai! !e( re)r&its, by assig!i!g the$ the r#&ti!e'arts #% the a&dit.

Traditi#!al %i!a!)ial state$e!ts )a! be s&''le$e!ted (ith a state$e!t sh#(i!g h#( )&st#$ers)#!trib&te !ta!gible eve!&es gr#&'ed by )ateg#ries as8>S-#!s&ltill&strates. !%#r$ati#!ab#&t )ha!ges i! )&st#$er str&)t&re )a! 'r#vide very &se%&l i!'&t %#r a! assess$e!t #% the)#$'a!ys '#te!tial %#r devel#'$e!t.

Growth

8rganic Growth

*rga!i) gr#(th, i.e. i!)rease i! billi!gs (ith i!)#$e %r#$ a)5&isiti#!s ded&)ted, is a $eas&re #%h#( (ell y#&r b&si!ess )#!)e't is re)eived by the $arket.


15/17

#$'a!ies that $ake a! e%%#rt t# %i!d #&t the 'r#%itability #% their )&st#$er base, #%te! %i!d t#their dis$ay, that &' t# N0L #% their )&st#$er sales are !#t 'r#%itable. There is ge!erallys&r'risi!gly little i!%#r$ati#! i! )#$'a!ies #! the 'r#%itability #% )&st#$ers. This is be)a&se the)#sts are !#t a))r&ed t# )&st#$ers b&t t# 'r#d&)ts #r %&!)ti#!s. &st#$er 'r#%itability sh#&ld be$#!it#red as a r#&ti!e. =#& sh#&ld )ateg#ri+e )#sts a!d reve!&es t# e!able y#& t# )al)&late the)#!tr#l %ig&re 'r#%itability 'er )&st#$er. This is a $&)h $#re val&able )riteri#! tha! 'r#%itability'er 'r#d&)t #r $arket seg$e!t.

;in/,oss Index

#$'a!ies that $ake a l#t #% their b&si!ess %r#$ te!ders, )a! )al)&late a si$'le i!de by)#$'ari!g h#( $a!y #% their 5tati#!s that (ere s&))ess%&l (ith h#( $a!y that they l#st.#$'ared #ver ti$e this gives a g##d i!di)ati#! #% h#( their )&st#$ers regard the$. The i!de)a! als# be &sed %#r )#$'aris#!s (he! tryi!g #&t di%%ere!t 'ri)i!g strategies.

Sales per Customer

Sales 'er )&st#$er is de%i!ed as t#tal sales divided by the t#tal !&$ber #% )&st#$ers. Si!)e

selli!g $#re t# the sa$e )&st#$er is &s&ally easier a!d less )#stly tha! %i!di!g a !e( )&st#$erthis rati# tells h#( e%%i)ie!t y#&r )#$'a!yPs eisti!g !et(#rk #% )&st#$ers is. A! e%%#rt t# e'a!dthe sales 'er )&st#$ers sh#&ld there%#re be $#re 'r#%itable. Ea$'le see ele$i A!!&ale'#rt4.

Stability

Satisfied Customers Index

"eas&ri!g the degree #% )&st#$er satis%a)ti#! is 'erha's the best (ay t# get a! early i!di)ati#!#% (hether res&lts are ab#&t t# i$'r#ve #r deteri#rate. "a!y )#$'a!ies !#(adays $ake asyste$ati) e%%#rt t# a)5&ire i!%#r$ati#! ab#&t their )&st#$ers 'er)e'ti#!s #% 5&ality a!d #therattit&des t# the )#$'a!y. The res&lts #% these '#lls are &sed 'ri$arily i! $arketi!g, a!d hardly atall i! %i!a!)ial %#re)asti!g, b&t it is 'er%e)tly %easible t# a''e!d a! i!de #% )&st#$ers 5&ality'er)e'ti#!s a!d attit&des t# the %i!a!)ial state$e!ts. There are several $eth#ds #! the $arket%#r atte$'ti!g t# $eas&re )&st#$er satis%a)ti#!. A! i!de #% this ty'e !eed !#t be s#'histi)atedt# 'r#vide val&able i!%#r$ati#!. Si$'le attit&de '#lls )a! &s&ally tell y#& a l#t. The $ai!re5&ire$e!t is that they sh#&ld be re'eated at reg&lar i!tervals, al(ays (ith the sa$e 'r#)ed&rea!d the sa$e de%i!iti#!s, s# that y#& )a! $ake )#$'aris#!s a!d esti$ate tre!ds. es&lts %r#$'#lls sh#&ld be )r#ss a!aly+ed (ith 'r#%itability data #r e%%i)ie!)y i!di)at#rs as i! the ea$'le%r#$ 8>S #!s&lt.

"roportion of


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Age str&)t&re )a! als# 'r#vide i!teresti!g i!%#r$ati#!. The l#!ger )&st#$ers have bee! (ith y#&,the better y#&r relati#!s (ith the$ 'r#bably are a!d the easier it #&ght t# be t# kee' the$ as)&st#$ers. The age str&)t&re &s&ally )ha!ges #!ly sl#(ly.

)evoted Customers Ratio

#( $&)h #% the sales )#$e %r#$ )&st#$ers #lder tha! %ive yearsD This is a! i!di)ati#! #% h#(dev#ted the )&st#$ers are a!d there%#re a sig! #% stability. arge e%%e)ts #! the re'#rted 'r#%it %ig&res are #%te! d&e t# &!ide!ti%ied)ha!ges i! i!ta!gible assets. This $&lti'ly the 'r#ble$s eve! %&rther. 8r#%its are si$'ly !#t ag##d yardsti)k %#r )#$'ari!g )#$'a!ies (ith large i!ta!gible assets. The least hel'%&l 'r#%iti!di)at#rs are et&r! #! E5&ity #r et&r! #! Assets. "#re &se%&l are 8r#%it i! L Sales #r best48r#%it i! L al&e Added.

"rofit $argin

8r#%it $argi! is a key i!di)at#r that des)ribes the 'r#%it-ge!erati!g )a'a)ity #% the %l#( #% reve!&e.8r#%it $argi! is a! i$'#rta!t i!di)at#r #% h#( attra)tive it $ay be t# i!vest $#!ey i! a k!#(ledge)#$'a!y, b&t it d#es !#t tell $&)h ab#&t the a)t&al e%%i)ie!)y #% its e$'l#yees.


17/17

they $ay i!)l&de varyi!g 'r#'#rti#!s #% )#$$issi#!s, e'e!ses, hard(are sales, et). A better(ay #% e'ressi!g 'r#%it $argi! is there%#re t# &se the rati# #% 'r#%it t# val&e added.

Efficiency and Effectiveness

Alth#&gh #%te! &sed as sy!#!y$s, e%%i)ie!)y a!d e%%e)tive!ess $eas&re di%%ere!t thi!gs.E%%i)ie!)y $eas&res &tilisati#!, i.e. h#( (ell a! #rga!i+ati#! is &si!g its )a'a)ity, regardless #%(hat it 'r#d&)es. A )riteri#! #% e%%i)ie!)y, #%te! &sed by )#!s&lta!)y %ir$s is billable ti$eH ti$ebilled t# )lie!ts, as a 'r#'#rti#! #% ti$e available. This $eas&res h#( $&)h ti$e )#!s&lta!ts are'aid %#r. t is a si$'le a!d g##d i!di)at#r #% sh#rt ter$ 'r#%itability be)a&se it $eas&res )a'a)ity&sage, b&t it says !#thi!g ab#&t (hat the )#!s&lta!ts a))#$'lish i! that ti$e.

The !eeds #% the vari#&s 'arties )#!)er!ed $ay, #% )#&rse, di%%erH shareh#lders are i!terested i!divide!dsH )&st#$ers are i!terested i! servi)e levels, a!d 5&ality. ir$s sh#&ld, there%#re, e$'l#ydi%%ere!t e%%i)ie!)y $eas&res, %#r di%%ere!t a&die!)es. * ret&r! #! i!vested )a'ital4 is a)riteri#! #% e%%i)ie!)y '#'&lar i! %i!a!)ial )ir)les. t $eas&res 'r#%it ge!erated by the )a'itali!vested i! a )#$'a!y, #r a 'r#e)t a!d is th&s a very i$'#rta!t i!di)at#r #% e%%i)ie!)y, t# b#th)redit#rs a!d the #(!ers #% the i!vested )a'ital. #r shareh#lders, the $#st i$'#rta!t %ig&re is

(hat they ear! a%ter ta, i! the %#r$ divide!ds #! the )a'ital they have '&t i!t# the )#$'a!yH theret&r! a%ter ta #! their #(! e5&ity, #%te! sh#rte!ed *E.

The $a!age$e!t $&st als# tra)k the ret&r! #! the %ir$Bs t#tal )a'ital, a!d #! 'arti)&lari!vest$e!t 'r#e)ts, s# that they )a! )#!tr#l their all#)ati#! #% )a'ital. Q!%#rt&!ately, thiste)h!i5&e )a!!#t be a''lied t# i!ta!gible assets, s# vari#&s i!)#$e state$e!t, a!d !#!-$#!etary $eas&re$e!ts, $&st be &sed i!stead t# )al)&late e%%i)ie!)y.

E%%e)tive!ess $eas&res h#( (ell a! #rga!i+ati#! is satis%yi!g the !eed #% th#se it serves. t is$#re di%%i)&lt t# $eas&re als# be)a&se #!e $&st #%te! g# #&tside #!eBs #(! #rga!i+ati#!."eas&ri!g )&st#$er satis%a)ti#! %#r i!sta!)e, a! i$'#rta!t i!di)at#r #% a! #rga!isati#!se%%e)tive!ess, relies #! )&st#$er '#lls. There%#re e%%e)tive!ess is seld#$ $eas&red. Eve! i% it is!#t 'ra)ti)ally '#ssible t# $eas&re e%%e)tive!ess, it is !ever-the-less val&able t# thi!k i!e%%e)tive!ess ter$s. /hat gives the $#st reveali!g 'i)t&re #% 'er%#r$a!)eD T# %#)&s #! the )#sts#% 'e#'le #r #! the reve!&es they bri!g i!D #st %#)&s is e%%i)ie!)y #rie!ted, reve!&e %#)&s ise%%e)tive!ess #rie!ted.

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