Do Not Undermine Your Most Valuable Asset: The Soft Assets

A couple of decades ago software was provided almost as a possible freebie to encourage buyers to purchase computer hardware. Today both hardware and software are available for free. With services such as Google's App, IBM's Symphony Suite, Sun's Open Office, G.ho.st and others software applications and hardware platforms are available for free. The competitive difference between two organizations is not what assets (capital, resources, technology, etc..) they have but rather how they utilize these assets. In other words their capabilities and in particular their soft capabilities.

Soft capabilities is becoming increasing important. As discussed in a past blog entry soft skills of individuals are things like a person's interpersonal skills and emotional intelligence. The question on the table is what defines an organization's soft assets? We can state that soft assets of your organization include its agility, culture, values, alignment to its mission, sustainability. The reason they are soft is because we usually can not measure them easily. This might change in the future. Today we can measure an organization's performance through monitoring its financial reports and deriving some measures that reflect its level of success in managing its capital and financial resources. However this performance measure is very narrow-sighted, it only addresses one stakeholder of the business, the investor, and does not include all aspects of a business' mission, or maybe none of it at all.

Take for example a company whose mission statement is "preserving and improving human life". To effectively measure the delivery of its mission, measuring return on investment and debt / equity ratios will not provide a true picture. Rather measurements of soft aspects of the business are needed. Examples would be return on educating customers about diseases, adoption of good practices by patients, healing rates, impact of side-effects on the health of patients, economies and other aspects of human life, and the list goes on. Our lack of solid approaches and well-defined techniques makes measuring these performance indicators difficult, and hence we call them soft.

Businesses need to focus on these soft areas, whether they are soft outcomes of the business, soft assets, or soft capabilities; simply because this is where true value lies. True value of a business is its ability to achieve its mission. I consider any business metric that can not be measured in a standardized approach across business borders to be part of the soft side of the business. For example, a business' performance is a soft attribute, simply because true performance is not simply financial return on investment (which has very standard approaches of calculating and measuring), but could include customer satisfaction, and other metrics that most people today do not have standard way of measuring across autonomous domains. The first step of understanding a business's soft-side is to include it as part of the business architecture.

The concept of soft extends beyond businesses and organizations and is also considered at country level, an example is discussed on the Foreign Policy Blog which is seen to be an emerging component in valuation of nations.

In summary, (1) the soft-side is where value is located, and its is usually hidden simply because we do not attempt to measure it, and those who do attempt to measure do not have sound approaches. (2) anything that a business has difficulty in measuring will be defined as soft.

Strategy and its Role in Becoming Capable

Strategy is focused on the matching of an enterprise's opportunities and threats (external factors) to the enterprise's capabilities.

In some cases an organization might not have a capability in place that allows it to benefit from an opportunity. In such cases the capability will need to be realized otherwise the opportunity will be missed. The realization of such absent capability is part of the enterprise strategy, and will require enablers from across the enterprise such as technology, locations, roles, processes, intellectual property and more.

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Robert Grant, "Contemporary strategy analysis: concepts, techniques, applications", Blackwell Publishing, 2002.

Harvey Thompson, "The Customer-Centered Enterprise: How IBM and Other World-Class Companies Achieve Extraordinary Results", Mc Graw-Hill, 2000.

Getting Capable

Institutions vary widely in their capabilities to achieve their mission. You could find two organizations in the exact same line of business, with very similar strategies and business drivers, yet very different results due to the differences in their capabilities. Lets take an example of two airlines. Both airlines share the same mission, transporting humans across the globe safely and in an enjoyable manner. Airline A always takes off on time, lands on time and does not lose luggage. Airline B always takes off late and loses luggage.

Their business requirement is the same, yet their outcomes are very different, which is due to differences in their capabilities.

A capability is a realized requirement, it could also be said that a capability is a business requirement added to some value acquisition process. The value acquisition process should span the entire enterprise to ensure that is picked from all strengths of the enterprise and also did not bring along any unnecessary baggage.