The Intangible Investment Gap

High-growth companies invest more in intangibles – but use that investment to build a wide mix of capabilities

A new report from McKinsey & Company on company investment in intangible assets (Why intangibles are the key to faster growth in Europe) shows a wide gap between leading and lagging companies, especially in Europe. Globally high-growth companies invest 2.6 times more in intangibles that low-growth companies (4.4% of revenues in high-growth firms versus 1.7% of revenues in low-growth firms). The gap between high-growth companies and low-growth in firms in Europe is greater than the global average as high-growth European firms invest more than the global average (6.2% of revenues for European high-growth firms) and low-growth European firms invest less than the global average (1.4% of revenues for European low-growth firms). North American high-growth firms invest 6.5% of revenues in intangibles while North American low-growth firms invest 2.9%. This indicates that there may be ways of helping lagging companies improve their performance through increasing their investments in intangibles.

But before business leaders and policymakers rush to embrace higher levels of company investment in intangibles as the silver-bullet for economic growth, there are some complicating factors. As the report notes, “the most robust growth occurs when companies invest in different categories of intangibles simultaneously. Even among companies in the top quartile for growth, those investing in five intangible categories grew twice as fast as those investing in two or less.” And “the optimal mix varies depending on the company, sector, and competition.” In other words, the return on the investment in intangibles is highly context specific.

Along those lines, I found one part of the report particularly striking. According to survey results, there is a wide range of capabilities that companies seek to develop using intangibles – and the absolute lack of consensus about their importance. Only on area (“Personized customer experiences”) came even close to a majority of executives in agreement.

% Of Executive Who Strongly Agree In High-Growth Companies Strongly Agreeing That This Was An Important Capability (order based on ranking of gap between high-growth and low-growth firms, from Exhibit 5 of the report)

  • Personalized customer experiences: 50%
  • Unique value proposition attracts and retains talent: 35%
  • Search of disruptive innovation opportunities: 35%
  • Real time marketing spend allocation: 33%
  • Personalization at granular level: 33%
  • Disruptive innovation opportunities: 42%
  • Performance measures: 42%
  • Brand positioning: 37%
  • Relevant content for customers: 37%
  • Optimization of customer journey: 43%
  • Value proposition: 40%
  • Clear purpose and mission statement: 37%

Now, this may just be an artifact of the survey (where it seems that the questions were designed to probe the differences between high-growth and low-growth companies, not the differences among the important of the capabilities). But they do raise questions. For example, I would have thought that a clear purpose and mission statement, articulating the value proposition, and having performance measure would be universal among high-growth companies. At least that is want we hear repeatedly from the management gurus.

In any event, these results underscore the report’s narrative of results being context specific. Understanding the nuances of this context-specific characteristic will be key as we move forward to craft both public policies and business actions aimed at fostering the use of intangible for economic growth.

For more see the earlier McKinsey discussion paper Getting tangible about intangibles: The future of growth and productivity?

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