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Getting tangible about intangibles: The future of growth and productivity?

McKinsey & Company | Jun 16, 2021

intangible growth and productivity - Getting tangible about intangibles: The future of growth and productivity?Companies that master the deployment of intangibles investment will be well positioned to outperform their peers.

Investment in intangible assets that underpin the knowledge or learning economy, such as intellectual property (IP), research, technology and software, and human capital, has risen inexorably over the past quarter century, and the COVID-19 pandemic appears to have accelerated this shift toward a dematerialized economy. Are we seeing the start of a new stage in the history of capitalism based on learning, knowledge, and intellectual capital? As economies recover from the pandemic, could a wave of investment in intangible assets breathe new life into productivity and unlock more growth potential?

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The research takes the broader definition of intangibles outlined by economists Jonathan Haskel and Stian Westlake, who include economic competencies such as advertising and brands, marketing research, organizational capital, and training. This more expansive definition of intangibles appears more relevant to the role they increasingly play in companies, sectors, and economies.

Over the past 25 years, the investment share of intangibles has increased by 29 percent

Looking in more detail at the different types of intangible asset, a clear picture of higher growth driven by effective deployment and use of intangibles emerges (Exhibit 4):

high vs low growth use of intangibles - Getting tangible about intangibles: The future of growth and productivity?

  • Innovation capital. The share of top growers that reported using data as the basis of decision making was nearly double the share of low growers. Likewise, more than twice the share of top growers said that they have rigorous processes in place to measure the impact of R&D and design, enabling them to build rapidly on successes and abandon failures. Similarly, twice as many top growers are more willing to disrupt their own business models proactively (rather than waiting to be disrupted) and actively search for opportunities to invest in disruptive innovation.
  • Data and analytics capital. Only top growers say that they have taken the next steps needed to implement their digital strategy, including making effective use of proprietary data, investing in flexible architecture to avoid being held back by legacy systems—so-called tech debt—and ensuring that they can leverage the full power of intangibles through real-time analytics.

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  • Human and relational capital. Both top and low growers agree on the importance of attracting talent, but top growers are 2.6 times more likely than low growers to strive to retain that talent by offering a unique value proposition. Top growers are twice as likely to define performance measures for all parts of the organization, and 1.7 times more likely to put in place talent-management processes to foster diversity. Our survey indicates that top growers are 3.0 times more likely to make investment decisions holistically, to do so on a systematic and regular basis, and to maintain agility.
  • Brand capital. Only top growers are already deploying this type of intangible to ensure that they can leverage brands effectively by not only listening to the voice of consumers but listening in a tailored way to serve them with personalized offerings backed by real-time data analytics and tailored pricing and promotion.

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