The Conference Board on productivity and intangibles

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From a recent blog by The Conference Board - Blaming the productivity slowdown on measurement issues takes our eyes off the ball:

The key factor to drive productivity is investment. In the 1990s it turned out that, once we measured the price changes for investments in computers and software well, we did find their impacts on productivity growth. Today, more than at that time, we need to focus on the complementary investment in intangible investments. Concerns about measurement might as well focus on those types of investments which are only partially measured as investment to begin with. The capitalization of R&D and software in the National Income and Product Accounts is an important step forward. But only once the other spending on intangibles, including workforce training, organizational innovations and marketing and branding, is also treated as investment rather than expenditure, we will get a sharper view of where the productivity gains from new technology have ended up.

Amen.

Service economy?

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The standard image of the U.S. economy is one of two mega-sectors: manufacturing and services. This is both is outdated and misleading. It is still basically based on Colin Clark's 1940's division of the economy into primary, secondary and tertiary. Over the years this has been simplified to goods versus services as the extractive industries (primary) have been lumped with the manufacturing (secondary) industries. This classification has been commonly used to declare that the U.S. has become a service economy.

However, using this framework to measure employment shows that the U.S. has been a "service" economy for 100 years. Employment data on agriculture/fishing/mining (primary), manufacturing, construction and services shows the US jumped from directly from agriculture to services. We were never a majority manufacturing economy. Manufacturing peaked at around 27% of total employment in 1920 (30% for combined manufacturing & construction) with services at the same time comprising around 41% of total employment.

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That most people work in service industries tells us little about the structural changes occurring in the economy. This is why I am publishing employment data as tangible-producing and intangible-producing. See my see most recent posting and my new report Employment in tangible-producing and intangible-producing industries: Preliminary findings and methodology.

As readers of this blog know, I have been publishing monthly employment data in an alternative framework (see most recent posting). That framework divides employment into jobs in tangible-producing industries (including tangible services) and jobs in intangible-producing industries.

Today I am releasing a working paper describing the methodology in greater detail. The analysis attempts to translate the existing goods & services dichotomy into tangible & intangible.

Tangible activities are primarily physical; intangible are primarily mental. Cutting hair, ringing up a sale at a cash register, making a car, harvesting a crop--all of these are primarily a physical activity. The transaction involves the movement of atoms. Designing a poster, negotiating a deal, writing an article--these are primarily mental involving the manipulation of information bits.

Intangible, mental activities are more important than ever in this information economy. But tangible, physical activities are just as important. Some of those physical activities are captured by the current classification system as part of construction, agriculture and manufacturing. And some of those mental activities are correctly classified as services. But only some. For example, the construction sector contains many mental activities such as architecture, engineering and logistical planning. The service sector contains physical activities, such as truck drivers, barbers and gardeners.

I plan to refine the methodology and continue to publish monthly updates.

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Athena Alliance is pleased to release a new working paper on Intangible Assets as a Framework for Sustainable Value Creation.

To become and remain successful, companies have come to understand that they need to follow a strategy of seek sustainable value creation. As a recent report notes, "Sustainable Value Creation is a core business strategy focused on addressing fundamental societal issues by identifying new, scalable sources of competitive advantage that generate measurable profit and community benefit." The ultimate goal is for the company to achieve growth and high performance.

Intangibles are key value creating assets that need to be developed and utilized in order to achieve growth--and to successfully implement a strategy of sustainable value creation. This new paper explores the various frameworks for viewing intangible assets and the possible roles of the frameworks within a company.

There are five differing approaches and frameworks highlighted in this survey:
   • Accounting framework -- financial control
      including financial and value creation models
   • C-H-S framework -- macroeconomic growth accounting/theory, including productivity
   • Integrated reporting -- corporate reporting
      including Sustainable Accounting Standards
   • ICounts -- management
   • OECD Knowledge-based assets -- public policy

Different parts of an organization will utilize different frameworks. CEOs need to understand how various parts and functions within the organization look at and talk about intangibles. Otherwise, what the CEO will see will be a cacophony of concepts that will more resemble noise than information.

While the different frameworks have different uses, an overall high-level conceptualization is needed to guide CEO thinking. That high-level archetype might best start with an integration of the and ICounts frameworks and weave in the C-H-S framework (for understanding inputs and macroeconomic affects) and expanded accounting models (for financial controls). Putting together such a high-level view that operates with the more specific models would be a useful undertaking. For a CEO's perspective, it would be a valuable tool in creating and implementing a strategy of sustainable value creation.

[This paper was originally commissioned by The Conference Board for their use. It is published here in a slightly modified version with their permission. The author would like to thank The Conference Board for their financial support.]

What to do about training

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Training seems to be the policy du jour for what ails the economy. The President and presidential candidates visit training site to talk about its importance. Think tanks write papers and organize conferences. But most of these activities focus on only part of the issue. A few months ago, I did a short piece for the Progressive Economy on incumbent worker training. Bottom line is that government programs target displaced workers and new hires, leaving on-the-job training for the existing workers solely to the private sector. But companies are not training as many workers as they did in the past.

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Training is not a once-and-done activity. It must be on-going and on-the-job. More needs to be done building on new state and federal government initiatives to help companies keep their workforce competitive.

For the entire piece ("Trade and training the American Workforce: Enhancing on-the-job worker training") click here.


    Note: the views expressed here are solely those of the author and do not necessarily represent those of Athena Alliance.


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