Current Intangible Business Costs [WLOs: 1, 2] [CLO: 4] Prior to beginning work on this assignment, Review the weekly lecture. Review the DargeanGrix Busi

 

Current Intangible Business Costs

[WLOs: 1, 2] [CLO: 4]

Prior to beginning work on this assignment,

Using the DargeanGrix Business Scenario document, evaluate the current costs of the situation to the organization. Provide a breakdown of the costs and the risks to the organization in the situation. Remember that costs are not only hard costs or dollar related; consider the intangible costs of reputation, perception, and lost productivity due to inefficiency, frustration, stress, mental health, workarounds, and any other kind of intangible cost. Remember that these intangible costs may not be readily quantifiable. However, you can include a narrative with examples that support these aspects. Your goal is to develop the ability to think beyond return on investment (ROI) and traditional costs as justifiers for new ideas.

In your paper,

  • Analyze at least three intangible costs associated with the DargeanGrix Business Scenario.
  • Explain the aspects that comprise the intangible elements.
  • Evaluate the impact of each of the intangibles to DargeanGrix and to DargeanGrix’s business processes and assign a cost to each.
    • The cost may be a monetary one or it may be another form of valuation.
  • Justify each of the assigned costs with a narrative explaining your rationale for each element.
    • Although not required, a table may be useful for visualizing the aspects.

The Current Intangible Business Costs paper

What are intangible benefits? 

Intangible benefits are benefits from your Lean Sigma program that are not explicitly measurable; being even more specific, intangible benefits are benefits that cannot be directly or solely attributed to the results of the project or process improvement. Examples of intangible benefits are reduction in employee stress or increased employee engagement; however, these are not the only examples of intangible benefits. Other benefits may include customer perceptions of your organization or competitors viewing your organization as  world-class . 

Intangible benefits are sometimes referred to as “ soft benefits ,” but I would challenge this definition because benefits such as capacity or time savings can be quantified and reported to stakeholders. Intangible benefits are benefits that cannot be consistently measured or solely attributed to process improvements, such as employee morale. 

Two sides of the same coin 

Documenting or communicating intangible benefits have both a distinct benefit and drawback for your Lean Six Sigma program. As you know, a goal of any process improvement program is to create a culture or environment of ongoing continuous improvement. Using intangible benefits to describe the benefits of the project can both help and harm ongoing continuous improvement efforts. 

Pro: Intangible benefits engage employees

Emotions are the lowest level of cognition and create powerful associations for people. Employees who associate Lean Six Sigma with decreasing stress, process complexity, training time, etc., will be more inclined to participate in ongoing improvements. Associating Lean Six Sigma with “good” things is a great way to get employees excited and talking about the amazing work the LSS teams are doing!

Con: Intangible benefits are unquantifiable

The very nature of intangible benefits means that practitioners are not able to clearly and confidently attribute these benefits to the project outcomes. 

While this may not seem like a bad thing when you are recruiting team members, a central component of Lean Six Sigma is  data-driven decisions  with continuous data as the gold standard. Intangible benefits are at best a form of discrete,  qualitative data , and at worst highly subjective and non-repeatable. This means that by using intangible benefits to describe the project outcomes, we are introducing subjectivity into our Lean Six Sigma (debating subjectivity in project outcomes sounds like an excellent ice-breaker for a LSS happy hour). 

Why are intangible benefits important to understand? 

When we are calculating the total benefits, or  ROI (return on investment) , of our Lean Six Sigma investment, we want to evaluate not just the single project, but also the impact the project has had on the organization. In order to understand this big-picture view of the project outcomes, we need to also understand the impact of intangible benefits.

1. Intangible benefits create goodwill

I know that “goodwill” is a nebulous concept (much like intangible benefits), but I remember from my business school strategy course that assessing an organization’s or brand’s goodwill is a major indicator for customer engagement and ultimately, the organization’s valuation. Intangible benefits create goodwill for your Lean Six Sigma efforts that may help the program’s long-term sustainability. 

2. Intangible benefits show the “softer” side of Lean Six Sigma

One of the (often unfounded) criticisms of Lean Six Sigma is the focus on  efficiency  and data diminishes the employee contributions. While not generally the case (respect for employee contributions is a cornerstone of the philosophy), probing into work behaviors and processes can incite anxiety and resistance in employee participation. Reporting and sharing the success stories that may not be linked to an organization’s strategic goal demonstrates the organization values the employees as well as the performance. 

3. Gauging validity

ROI is a very popular performance metric that measures the efficiency or effectiveness of an investment. Implementing a Lean Six Sigma program (or even a single project) is an investment of employee resources, time, and potentially initial cost to update the processes. 

Given these are investments, organizations often like to compare performance of initiatives. That being said, intangible benefits are often not included in the ROI formula (there are a couple of companies that have a modified approach to quantifying and reporting intangible benefits), which means that the practitioner will need to understand intangible benefits to discuss as additional contributions from the Lean Six Sigma investment.  

Does this bring you joy? 

I was having a Netflix binge session and ended up watching “Tidying Up” with Marie Kondo. For those of you unfamiliar with her work, Marie Kondo is a minimalist, decluttering, tidying expert who helps her clients gain peace of mind by decluttering their home and, thus, bringing joy. 

What struck me while I was watching this is that Kondo’s process is a pop-culture example of applying the  5S  tool. The steps Kondo follows to declutter and tidy her client’s homes parallels the sort, set in order, shine (or scrub), standardize, and sustain steps of 5S. Kondo clearly identifies the intangible benefit of applying this practice to a living space by focusing her work on bringing joy to her clients. 

While Lean Six Sigma practitioners are not generally associated with bringing joy to their projects, the intangible benefits of decreased stress, increased morale, or increased employee engagement can be seen as a form of joy in the workplace.  

4 best practices when thinking about intangible benefits 

I am a strong advocate of including intangible benefits in Lean Six Sigma program development because I believe this adds fullness to understanding the impact of the team’s efforts. 

However, there are a couple of things you need to keep in mind when you are considering adding intangible benefits to your benefits conversations. 

1. Do explain what an intangible benefit is from the start

Hard and soft benefits are intuitive to understand from an efficiency perspective: There is either more money (hard, bottom line benefits) or more time (soft, capacity benefits). Intangible benefits are less easily understood from a business perspective, which means the practitioner needs to clearly explain what an intangible benefit is before discussing whether this project may have intangible benefits. 

2. Do not lead with intangible benefits

It is easy to throw the intangible benefits blanket over a project and claim that is the main benefit. Heck, in my younger and less-experienced days, I wrote a project charter that claimed the main benefit was employee satisfaction with their role. Of course, that project was not considered a success because there are more factors than processes that go into employee role satisfaction. 

It is certainly important to discuss the potential for intangible benefits resulting from this project, but the team should focus on the quantifiable objectives first and follow with the potential additional benefits. 

3. Do provide an explanation for how you determined a benefit exists

Just because a benefit is intangible doesn’t mean you don’t have a way of capturing the information. If you are reporting “lean program awareness” and going to capture this during your gemba walks, document that you are going to record employee feedback gathered during gemba walk. It is important that all measurement systems (including those for subjective data) be captured for the project documentation. 

4. Do agree on reporting benefits

Lastly, or probably first, get buy-in from your sponsors and champions on including intangible benefits. This is an overarching, not just one project, level decision that will require alignment and commitment as intangible benefits tend to decline over time, compared with hard and soft benefits that should compound. 

Frequently Asked Questions (FAQ) about intangible benefits

1. If the benefit is intangible, how do we know it exists?  

This is where intangible benefits get tricky: assessing for intangible benefits can be done in two ways: 

1. Debriefing/post-mortem/post-project follow ups. Because intangible benefits are benefits perceived by employees, the best way to gauge if these benefits resulted from the project is by asking for the employee’s feedback on the process. Practitioners need to be careful they do not ask leading questions when soliciting feedback on employee impressions of the improvement. 

2. Comparative analysis or a pre- and post-assessment. This type of identification is generally done with larger Lean Six Sigma implementations or done in conjunction with employee satisfaction surveys. A large-scale assessment such as an employee satisfaction survey limits the specificity for an individual project’s benefits. 

2. How do I convince champions and sponsors? 

When I have discussed using intangible benefits with leaders, I position the message from the culture of continuous improvement aspect, where to be successful, Lean Six Sigma programs need: voice of customer, employee engagement, and data-driven decisions. Intangible benefits are helpful for bolstering employee engagement. 

The other tactic I have used is completing the first project and including a side note for intangible benefits. After I introduce the idea, I discuss the concept in more detail when we are chartering our next project. 

3. What are some examples of intangible benefits? 

We already discussed employee morale and mental wellbeing, but other examples of intangible benefits are customer goodwill, employee and customer loyalty, Lean Six Sigma program goodwill, and encouraged participation. 

All things in moderation 

I generally advise my mentees and teams to limit themselves to declaring one intangible benefit from the project and to list this benefit last in the project benefits report. Listing this last doesn’t diminish the contribution to the project, but it does keep the focus on the hard and soft (capacity) benefits that can be quantified (fostering the data-driven culture).

,

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

https://www.cfo.com/news/intangible-assets-theyre-not-what-you-think-they-are/661486/ 1/6

William Heitman

Intangible Assets: Theyʼre Not What You Think They Are Published July 19, 2016

By William Heitman

CFO Editorial Staff

For centuries, executives expertly managed the total productivity

of tangible assets, such as plants and equipment. They monitored

both efficiency and effectiveness because tangible assets, or

“things,” historically accounted for more than 80% of business

value.

But in the last 40 years, tangible

assets have declined to 15% of

business value, while intangible

assets now generate 85% of value.

These are the job activities, or

“tasks,” performed by knowledge

workers. Formerly known as white-

collar employees, these people now

comprise a majority of the U.S.

workforce. But accounting rules

require their activities to be recorded as expenses. And executives

currently manage those as costs to be contained and reduced.

Productivity measures of efficiency and effectiveness are rarely

applied.

That’s why the newest, most valuable business assets remain

underproductive, performing far below their potential.

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

https://www.cfo.com/news/intangible-assets-theyre-not-what-you-think-they-are/661486/ 2/6

CFOs are ideally positioned to capitalize on this valuable

opportunity. They can lead the transition from managing the

productivity of “things” to managing the productivity of “tasks.”

White-Collar Assets: Underproductive “Competencies”

The composition of these intangible assets is not what you might

think. Executives perceive them to be mostly patents, trademarks,

and goodwill. But those are only 25% of the total. The other 75%

are the job activities that economists call “competencies,” which

generated more than 60% of S&P market value in 2015.

In business, competencies are concentrated in white-collar

functions, recorded as selling, general, and administrative (SG&A)

expense. Finance, R&D, and product engineering are

competencies, as are the relationships between customers and

suppliers (marketing/sales). Databases and information systems

are also included (IT).

At first glance, it’s tempting to think that managing the

productivity of intangible “competency organizations,” such as

marketing or finance, is fundamentally different and more difficult

than managing a conventional factory. But CFOs can adapt many

of the methods honed over the past century in the course of

successful tangible asset management. That’s because factories, as

well as intangible assets, are managed with budgets.

The major difference between intangible asset budgets and factory

budgets is that the latter are derived and evaluated with

quantitative productivity measures.

Inefficiency: Adopt Productivity-Based Budgets

Knowledge workers squander an average of 40% of their typical

work day performing avoidable tasks, such as error correction,

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

https://www.cfo.com/news/intangible-assets-theyre-not-what-you-think-they-are/661486/ 3/6

rework, and over-service, our research shows. Without

productivity management, these inefficiencies pass unnoticed and

cause over-spending for costly knowledge work. This is how

Fortune 500 knowledge workers squander 15% of hard-won

earnings before they reach the bottom line, based on our

experience and calculations using public data.

For example, the world’s largest lightbulb maker manufactures

products in automated plants that are nearly labor-free. But when

the bulbs are sold through the world’s largest retailer, the invoices

are manually reconciled by knowledge workers, resembling a

modern-day Dickensian counting house. A group of 2,000

employees who process invoices is supported by a team of 600

lower-cost reconcilers. They correct inconsistencies, contact store

managers and vendors, and return goods. Vendors complain of

their high costs, delays, and the inconvenience related to invoice

processing.

Nobody at the retailer notices the wasteful rework, however,

because the invoice-processing organization routinely meets its

operating budget.

When CFOs help develop operating budgets for executives who

manage tangible assets, such as factories, they begin with forecasts

of productivity. Output volumes are estimated and applied to

productivity metrics: cost per unit, labor efficiency factors for

tasks, and cycle times for processes. Starting with productivity

performance goals, they work backward to generate budget line

items and totals. These are productivity-based budgets.

Consequently, many CFO organizations already possess the

capability to manage the productivity of the intangible assets

known as competencies. They can introduce productivity-based

budgets to these knowledge work organizations at the simplest

level. In the example above, the invoice-processing organization

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

https://www.cfo.com/news/intangible-assets-theyre-not-what-you-think-they-are/661486/ 4/6

can be budgeted and managed starting with only two metrics:

invoices processed and invoices that arrive “not-in-good-order”

(NIGO).

Ineffectiveness: Manage the Root Causes of Results

It is impossible to reliably estimate the business value lost to

ineffective knowledge work, but the results often appear as

unintended consequences (direct losses) and opportunity costs

(indirect losses). Most knowledge-work organizations incur both

types of value losses.

The good news is that CFOs can adapt “root cause analysis” from

their manufacturing colleagues to better manage the results of

unintended consequences.

Consider a global credit card issuer that maintains an average

backlog of more than 50,000 consumer claims. The company’s

contact centers are flooded with customer demands for unfulfilled

marketing campaign promises: bonus points, rebates, free gift

offers. Most result from the marketing organization’s failure to

coordinate the details of well-intentioned consumer campaigns

with the company’s fulfillment operations capabilities and the

requirements of its regulatory compliance organizations.

These are unintended consequences that generate substantial,

direct costs of remediation. In fact, the high costs of remediation

render more than 10% of the campaigns “business value negative”

at the design stage, based on our analysis. These should never be

launched. But because such costs fall in organizations other than

marketing, such as customer contact centers, visibility is low and

it’s considered business as usual.

However, the loss of business value is not limited to remediation

costs. It includes greater losses of value, such as the continuous

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

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drag on marketing effectiveness and the ongoing erosion of the

global brand.

Eliminate the remediation costs, and you also eliminate the brand

erosion.

In the factory, industrial engineers document each step of

production. They analyze the “root causes” and the

interdependencies that result in consequences, both intentional

and unintended. It is a ceaseless effort.

The CFO: Industrial Engineer of Intangible Value

Now that knowledge workers comprise the majority of employees

in advanced economies, their costly, inefficient tasks are

increasingly subject to external scrutiny. Activist investors have

caught on. They want to simply downsize knowledge workers. And

digital upstarts want to disruptively automate them away. But

businesses and CFOs remain best positioned to capitalize on this

growing class of undermanaged, intangible assets.

CFOs might even take a page from Henry Ford, a century ago, as

the moving assembly line was being born. Keenly aware that the

most valuable asset in the newly emerging plant was know-how,

the company immediately built a dedicated office on the factory

floor. It was devoted to documenting, standardizing, and

distributing the rapidly growing body of knowledge — the

competencies — essential for productively managing the massive

investment in the tangible assets of automated plant and

equipment. Those working in that office on the factory floor were

the industrial engineers for tangible asset value.

Knowledge work today represents a similarly massive investment

in intangible assets. CFOs should begin to think of their finance

organizations as the industrial engineers of intangible asset value.

8/19/2024 Intangible Assets: They’re Not What You Think They Are | CFO

https://www.cfo.com/news/intangible-assets-theyre-not-what-you-think-they-are/661486/ 6/6

William Heitman is managing director at The Lab Consulting,

which has been implementing non-technology business

improvements since 1993.

,

8/19/2024 97 Examples of Intangible Things – Simplicable

https://simplicable.com/life/intangible-things 1/12

A-Z Popular Blog Culture Search »

Economics

top » life » things » intangible things

97 Examples of Intangible Things John Spacey, updated on September 09, 2023

Intangible things are entities that have no physical form. The following are common examples. Reputation Social status Identity Software Digital platforms Talent Literacy Ideas Intuition Knowledge Patents Trademarks Copyrights Trade secrets Style Trust Emotions Mood Intuition Concepts Family Friendship Brand image Brand recognition Well-being Digital media Digital messages Digital advertising Digital marketing Virtual reality Artificial intelligence Broadcasts Podcasts Video games Music Films Videos Social media Stories Fictional characters Humor Freedom Rights Privacy Safety Security Ideology Democracy Capitalism Rule of law Civility Citizenship Nationality Data Customer lists Reviews & ratings Strategies Goals Discipline Leadership

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