Beware of “Intangibles”

“Intangible(s)” is an interesting word. When it’s applied to people, it’s almost always a compliment – short-hand for positive personality characteristics that can’t be easily defined or described similar to Je ne sais quoi. In business, it can refer to someone who possesses leadership or other skills – “she has great intangibles!”

You hear the word used a lot in sports media. There, interestingly, it’s used to describe skills that *are not* specific and quantifiable to the sport yet it’s still meant to be positive. Basically, you’re really good at this thing that we can’t define or directly connect to winning. There’s one caveat to this – it can be seen as a red flag especially if it’s used *in place* of describing an athlete’s (or teams) specific abilities or talents.

Finance has its own concept of an intangibles called “goodwill.” Goodwill is *created* when a buyer purchases an existing business for more than the sum of the fair market value of its identifiable assets. It sits on the balance sheet but can’t be spent short of selling the company. Essentially it recognizes that there’s value but it can’t be broken down into tangible assets and, more importantly, it can not be connected directly to any line of the income statement.

Businesses are filled with what I term “intangible” activities and they’re, in general, not positive. They may have value but their connection to value creation is tenuous or hard to define. These activities take place inside all departments and at all levels. Managers know they exist because these activities are inevitably the first to be cut when budgets tighten or resources need to be re-allocated. They are tolerated (for no good reason) during ‘peace-time’ and excised when a company feels threatened and needs to tighten its focus.

Regardless of the company’s macro position, these activities waste time, resources and mindshare and subtly and sometimes directly, erode employee trust and morale. Here are some of the scenarios I’ve run across – perhaps you’ll recognize a few in your current company.

Bad Hires, Bad Projects
Failed projects or hires that were allowed to live on until business performance turned south due to a desire to avoid tough decisions and conflict – ie the business/manager didn’t want to do the hard thing. Meta downshifting away from the Metaverse in response to their dipping stock price and the rise of AI is a recent example. See recent Disney strategy pivots as well. Employees are the first to recognize when things aren’t working and if management doesn’t act, employees will begin to lose faith.

No Proof
Admittedly this is a tougher category. These activities haven’t been shown to bear fruit for a number of reasons; one, the activity is too far upstream from a desired KPI to make a clear (aka believable) connection to downstream metrics; two, any activity that is not able to be properly measured; three, activities labeled “strategic” because a short-term benefit is illusory.

As an aside, this isn’t an atypical management tactic – pushing an initiative through without subjecting it to the same rigor as other ideas during the planning process. I’ve seen this referred to by many names – HIPPO, the Lion’s Roar, etc. – and it has many negative consequences. First, when leaders do not take the time to communicate and justify their actions, it introduces top-down discretion into the culture. Second, employees become frustrated and lose motivation when executive action becomes unpredictable – how will they know what is important to the business? Lastly, and this purely anecdotal, these initiatives usually fail due to lack of employee buy-in which leads to poor execution and general indifference.

Value Mirage
These can be trickier to identify but they live in every part of the business. These are activities that are adjacent or related to clear value-generating activity so they create a mirage of value but they’re not impactful. These require diligent management to sniff out and remedy – employees will not have the visibility into each department and managers will avoid creating conflict.

There are other variations on this theme but I hope the point is clear – activity doesn’t equal value. Well-intended and busy employees do not guarantee value. They’re required but it’s management’s job to make sure they’re efforts are aligned, measured and reviewed on a consistent basis.