Intimacy of Relationships Allows Knowledge to Be Developed

PrinceK

Knowledge of the environment guides the firm in choosing which entities to align with, how to do so and when. Relationships with and knowledge of specific entities are often developed by the same set of individuals. Customer service personnel, because of the relationships they develop with multiple distinct sets of customers, often generate unique insight into their background, behaviors and propensities. Relational and intellectual market-based assets also share a number of common characteristics. Both assets are intangible; they can not be inventoried or physically divided into specific portions. Yet, both can be assessed in terms of their stock and flow. Stock refers to a specific amount or extent of brand equity, or knowledge of customer’s purchasing criteria, possessed by a firm. Flow refers to the extent to which a stock of a particular asset is augmenting or decaying. Thus, a firm may strive to augment its knowledge of a corporate customer’s buying processes, the individuals involved in it, and the organizational systems supporting them. The Central Task of Management The central task of management, we argue, is to identify, measure, develop, and leverage the firm’s market-based assets to increase shareholder value. The identification and measurement of market-based assets involves using cross functional teams to list such assets and to begin a dialogue across organizational boundaries about the impact of market-based assets on shareholder value. The development of market-based assets requires managers to make a case, in the language of finance and top management, for investments in such assets. Finally, managers must grapple with the task of leveraging market-based assets by using them to accelerate and enhance cash flows, to reduce the volatility and vulnerability of cash flows, and to increase the residual value of cash flows. In my next column, we’ll explore the contribution of these market-based assets to the financial performance of the firm. I’ll outline the framework my colleagues and I came up with to link market-based assets to shareholder value.