CRACKING THE

VALUE CODE
How Successful Businesses Are
Creating Wealth in the New Economy
RICHARD E.S. BOULTON
BARRY D. LIBERT
STEVE M. SAMEK

RICHARD BOULTON is Arthur Andersens worldwide managing partner for strategy and planning. He is
responsible for the companys global service offerings and Internet based knowledge businesses. Mr.
Boulton is a graduate of Oxford University and is based in London and Chicago.
BARRY LIEBERT is an Arthur Andersen partner who consults and lectures on value creation in the New
Economy and how that impacts business models, corporate investment and technology strategies. He is a
graduate of the Columbia Business School and is based in Boston.
STEVE SAMEK is managing partner of Arthur Andersens U.S. Operations. He manages more than 25,000
professionals, and has a 26-year career with the company, and is a member of the firms Board of Partners.

The authors have established a Web site for their ideas on value creation at www.arthurandersen.com/value.

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 Cracking The Value Code - Page 1

MAIN IDEA
Successful organizations are creating value in completely new
and original ways today which take advantage of the opportunities Design your business model
The 1
of the New Economy. tangible & intangible assets
The four realities of creating value in the New Economy are: Value
Creation Master risk
1. New business models are needed which combine tangible 2
Process learn to use it productively
and intangible assets together in different combinations.
2. These new business models use risk proactively, 3 Manage your asset portfolio
harnessing it to accelerate the creation of value. with new tools & systems
3. Long-term success requires the asset base to be increased Measure and report all assets
4
and enhanced. To achieve that, businesses need new tools information transparency
and processes for setting strategy, running operations,
managing risk and using information effectively.
4. The old preference for proprietary, internal information is being superceded by real-time access to all information by stakeholders
in the creation of value process -- that is, transparency and disclosure.
In short, companies today are racing to find the right combination of tangible and intangible assets that will create the greatest
amount of value in the New Economy. Managers that succeed in cracking the creation of value code for their own businesses have a
great opportunity to create significant value during a time of rapid change.

Design your business model

1
tangible & intangible assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 2 - 3
In its purest form, a business is simply a collection of assets (tangible and intangible) which are connected
and leveraged by the organization using technology.
The first challenge of succeeding in the New Economy is to create a business model with the right mix of
assets which will enable you to create added value rather than being locked into what worked in the past.

Master risk
2
learn to use it productively
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
Any time a new business model is created, it also creates new risks. But in the New Economy, risk carries
with it upside opportunity as well as a downside threat.
The second challenge of succeeding in the New Economy is to understand that if you build a business that
doesnt take any risks, you wont make any money. Therefore, figure out how much risk youre able to
handle.

3 Manage your asset portfolio

with new tools & systems
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 5 - 6
If you put in place a new business model and take new risks, youll need new tools and processes to
manage both.
The third challenge of succeeding in the New Economy is to develop the new tools and systems that will be
needed to manage your unique portfolio of assets.

Measure and report all assets

4
information transparency
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 7 - 8
The successful business models of the future will create value with assets that are measured and reported
openly and in great detail.
The fourth challenge of succeeding in the New Economy is to understand how to use information to create
value, with the goal of ultimately being able to measure and report what matters internally and externally.
 Cracking The Value Code - Page 2

Value Dynamics suggests that companies generate value by

Design your business model leveraging different classes of assets. In that way, they put
1
tangible & intangible assets together entirely different business models.
Take, for example, the companies that succeed by leveraging
each of the five classes of assets:
Main Idea
Physical Assets
In its purest form, a business is simply a collection of assets
(tangible and intangible) which are connected and leveraged by Financial Assets
the organization using technology. Value
Dynamics Organizational Assets
The first challenge of succeeding in the New Economy is to
create a business model with the right mix of assets which will Customer Assets
enable you to create added value rather than being locked into Employee/Supplier Assets
what worked in the past.
Supporting Ideas These businesses use their physical assets (land, buildings,
A businesss assets are all the resources it has available for use equipment or inventory) to generate revenues more efficiently
in the value creation process. Historically, this only included than other companies can match. For example:
tangible assets, but intangible assets are starting to take on n The Walt Disney Company owns 29,500 acres around Disney
greater importance in the New Economy. World in Florida. This land was purchased for $200 an acre
Traditionally, companies measured their results using these and today is worth more than $1 million per acre.
financial tools: n Southwest Airlines Company has standardized on one model
Financial Reports of airplane (the Boeing 737) to become more profitable than
other airlines with multiple model fleets.
n Dell Computer Corporation carries no inventory but only
Balance Cash Income assembles machines when it has the order reducing costs
Sheet Flow Statement and increasing profitability.
n Wal-Mart combines buildings and inventory together in their
Assets Revenues Revenues own business model which has been hugely successful
Liabilities Disbursements Expenses accounting for $1 out of every $5 spent in U.S. retail stores.
This approach, however, leaves out the value creating potential
of the intangibles such as knowledge, customer relationships Physical Assets
and information. Financial Assets
Therefore, a new framework, called Value Dynamics, is Value
Dynamics Organizational Assets
proposed which more accurately represents the asset classes
which create value in the New Economy. From a Value Customer Assets
Dynamics perspective, the most significant assets fall into five
classes: Employee/Supplier Assets

Physical Assets
(Land, buildings, equipment, inventory)
Financial Assets
(Cash, receivables, debt, investment, equity)
Organizational Assets
Value (Leadership, strategy, structure, culture,
Dynamics brands, know-how, systems, processes,
knowledge, intellectual property)
Customer Assets
(Customers, channels, affiliates)
Employee/Supplier Assets
(Employees, suppliers, partners)
Note that from a Value Dynamics point-of-view, assets:
n Are both tangible and intangible.
n Are defined as sources of future value.
n Need not necessarily be owned and controlled by the
company to have the potential to create value.
n Must be managed through their life cycles.
These businesses use their financial assets (cash, cash flow,
receivables, investments and relationships with providers of
debt and equity) in such a way that creates a sustainable
competitive advantage. For example:
n Microsoft has around $19 billion in cash allowing it to make
acquisitions quickly.
n Dell Computer Corporation receives payment for its products
before paying its suppliers allowing it to fund growth itself
rather than bringing in more equity capital.
n Lucent Technologies Inc. has created a $100 million venture
capital fund which, in turn, has increased Lucents own
market capitalization by much more.
n Amazon.com Inc. is financing its own growth through $1.5
billion of high-yield convertible bonds allowing it to postpone
interest payments for 5-years.
n Cisco Systems Inc. uses its own stock to make acquisitions
rather than cash thereby creating a company with a still
higher market capitalization.
n The General Electric Company derives a large proportion of
its value from GE Capital Services, the largest equipment
lessor on earth.

Physical Assets
Financial Assets
Value
Organizational Assets
Dynamics
Customer Assets
Employee/Supplier Assets
Organizational assets are both structural and intellectual
(strategy, culture, processes, systems, brands, the ability to
innovate and proprietary knowledge). As well as providing the
glue to hold a business together, these assets can generate
substantial wealth in the New Economy. For example:
n International Business Machines Corporation has seen its
market valuation increase from $29 billion in 1993 to $195
billion at the end of 1997 through strong leadership.
n Johnson & Johnson used a decentralized business structure
with 33 lines of business to generate $3.5 billion of income in
1999 generating a market value of $130 billion.
n Pfizer Inc. excels at bringing new drugs to the market
generating revenue growth of 20-percent a year.
n Starbucks Corporation succeeded in transforming a cup of
coffee into a brand which now generates more than $1.7
billion a year.
n Idealab! has, since 1996, started more than 25 Internet
businesses and generated significant amounts of value.
Physical Assets
Financial Assets
Value
Dynamics Organizational Assets
Customer Assets
Employee/Supplier Assets
Businesses that use their customer assets (end users, affiliates
and distribution channels) focus on creating wealth by owning
the chain that runs from the originator of goods and services to
the ultimate consumer. By controlling this dimension of
business, impressive value can be created. For example:
n Gap Inc. uses a variety of distribution channels to reach its
customers. The companys market capitalization of $39
billion reflects that expertise.
n Duracell Inc. works closely with the developers of consumer
electronics to ensure its batteries end up in their products. As
a result, Duracell has an impressive market share and
corresponding valuation.
n Autobytel.com Inc. operates an online matchmaking service
between car buyers and car dealerships. It now generates in
excess of $1.6 million an hour in car sales and has a market
capitalization exceeding $300 million which is impressive
for a 5-year old company.
n The Charles Schwab Corporation has more than 6.4 million
customers who have appointed the company to oversee $700
billion in assets. The company generates in excess of $10
billion in securities transactions each week. That translates to
$4.3 billion in annual revenues for the company, and a market
capitalization of $31 billion.
Cracking The Value Code - Page 3
Physical Assets
Financial Assets
Value
Dynamics Organizational Assets
Customer Assets
Employee/Supplier Assets
Employee and supplier assets (all the members of the supply
chain including partners as well as employees) harness the
elements of their inbound supply chains to generate value better
than their competitor. For example:
n DaimlerChrysler AG works closely with its suppliers to reduce
the cost of manufacture of its entire product line.
n Virgin Group Ltd. uses its 25,000 employees and numerous
joint venture arrangements to build a conglomerate that now
generates more than $5 billion in annual revenues.
n Psion PLC saw its stock price increase from $3.30 a share to
$16.00 a share when it announced it was partnering with
Nokia and Ericsson to generate a new generation of mobile
communication devices.
In creating the ideal business model for creating wealth in the
New Economy, there are three key questions that must be
addressed:
1. What assets are you currently using to create value and
how much value is each asset currently contributing?
In other words, from the Value Dynamics perspective, what
assets are currently being used to generate the bulk of your
current revenues?
2. What assets will you need to succeed in the New Economy?
Now, looking down the road, where do you expect the
greatest possible returns will be generated in the future, and
what assets will you require to prosper in that type of
business environment? What would be your ideal asset mix
for the competitive realities of the New Economy?
3. How will you take your asset mix from where it currently is
now to where you want it to be in the future?
There are several strategies available:
Build the new assets needed.
Enhance the value of your current assets.
Connect to the assets offered by strategic partners.
Turn nonperforming assets around.
Block competitors from duplicating you.
New business models are emerging all the time. There is a
particular need to redesign business models at present to bring
them into shape for the upcoming demands of the new
Economy.
In summary, designing a new business model simply means to
create a different combination of assets. Any business is defined
and ultimately judged by its assets both tangible and
intangible.
Those companies that succeed in securing the optimum
combination of assets position themselves advantageously in
the marketplace. They provide an in-built opportunity to secure a
competitive advantage since the best business models will
outperform all others in the conditions of the New Economy.

2 Master risk
learn to use it productively
Main Idea
Any time a new business model is created, it also creates new
risks. But in the New Economy, risk carries with it upside
opportunity as well as a downside threat.
The second challenge of succeeding in the New Economy is to
understand that if you build a business that doesnt take any
risks, you wont make any money. Therefore, figure out how
much risk youre able to handle.
Supporting Ideas
New Economy businesses face three broad types of risk:
Risk
Environment Process Information
1. Environment risk are the uncertainties that may affect the
profitability of your new business model. These are risks
beyond your ability to control. For example:
Changes in competitor capabilities.
Government regulation and deregulation.
The volatility of financial markets and political trends.
Demographic or cultural shifts in preferences.
2. Process risks are uncertainties in the execution and
implementation of your business model. These risks are to
the fore when youre in the process of acquiring, developing,
managing or disposing of assets of any kind. Examples:
Processes that become obsolete.
The need arises to adopt new processes to compete.
3. Information risks are the uncertainties that may arise over
the accuracy and relevance of the information youre
gathering to support decisions. Since information is the basis
on which all business decisions are made in the New
Economy, this type of risk becomes far more important.
Markets ultimately value a business today on the basis of what
its future projected cash flow is worth. Therefore, mastering risk
deals with reality and perception. The company must deal with
reality by mastering the risk - reward ratio. At the same time, it
must also create the perception among investors a good risk
management strategy exists.
Some examples of how companies are managing the risks
associated with developing New Economy aligned business
models:
n Environment Risk Merrill Lynch & Company Inc.
As online share trading became more popular, Merrills
network of 14,000 brokers and branch offices became less
and less of a strategic asset. To respond, Merrill has
completely redesigned its business model since mid-1999
and embraced Internet delivered services to investors for a
flat fee of $29.95 per trade. The company is also moving to
emphasize online trading and new customer acquisition while
altering its relationship with its brokers.
Cracking The Value Code - Page 4
n Process Risk The Gillette Company
Gillette had reluctantly entered the disposable razor market in
the 1970s to respond to new market entrants. From 1989
onwards, however, the company stopped promoting
disposables and started selling its new Sensor product at
the premium end of the market. It also increased research
and development expenditure to support the marketing
initiative, and aligned all its resources to executing the new
business model well. By 1999, Gillettes market capitalization
had increased nine-fold to $44 billion.
n Information Risk Chase Manhattan Bank
Chase has introduced information systems which identify and
forecast the needs of customers and the best time to make an
offer based on past transactions. The company also develops
scenarios on the optimum way to respond to significant
developments in international markets. By having more
accurate information available, the companys employees
have increased their productivity more rapidly than any
competitors have achieved.
To master risk in the New Economy, companies need to:
1. Identify the environment, process and information risk levels
for all their tangible and intangible assets.
2. Link each risk with a source or root cause.
3. Set up monitoring processes to keep track of those sources
and root causes.
4. Broaden management capabilities in risk management by
acquiring the appropriate blend of people, technology and
know-how.
5. Make a decision on the best strategy for managing risk,
which may include:
Risk avoidance by divestiture or restrictions.
Risk retention through insurance and deductibles.
Risk reduction by putting in place controls.
Risk transfer through hedging and insurance.
6. Looking at opportunities for risk exploitation by entering
new markets, introducing new products, acquiring another
business or exploiting a market opportunity.
Historically, risk was considered to be predominantly financial
and focused on fixed assets. In the context of the New Economy,
however, risk management is an integral element of the process
of creating value. As such, it must be mastered to become one of
the future success stories of the New Economy.
Key Thoughts
We are all paid to take risks.
Lawrence Bossidy, CEO, AlliedSignal Inc.
The revolutionary idea that defines the boundary between
modern times and the past is the mastery of risk.
Peter L. Bernstein, author
If you want to do something new, you have to stop doing
something old.
Peter Drucker
Sometimes what counts cant be counted and what can be
counted doesnt count.
Albert Einstein
Successful business models are fleeting, because asset values
do not last forever.
Richard Boulton, Barry Libert, Steve Samek

3 Manage your asset portfolio
with new tools & systems
Main Idea
If you put in place a new business model and take new risks,
youll need new tools and processes to manage both.
The third challenge of succeeding in the New Economy is to
develop the new tools and systems that will be needed to
manage your unique portfolio of assets.
Supporting Ideas
Successful companies acquire, manage, renew and ultimately
dispose of individual assets in ways that create value for the
business as a whole. Value creation is directly and inescapably
linked to asset management the best business model will be
rendered ineffective if the company does not execute this step
well.
To manage assets effectively, managers must know and
understand the life cycle of each type of tangible and intangible
asset. To put it simply, every assets economic life has a
beginning, middle and end. Smart managers create value by
acquiring assets at the right time, by applying them well while
owned and then by disposing of them at the optimum moment.
For example, consider the life cycles of various types of assets:
n Buildings are constructed or purchased, utilized, renovated
and ultimately torn down.
n Computer equipment is purchased, used, possibly upgraded
and then replaced by the next generation.
n Customers are acquired, nurtured, served and ultimately
replaced by new customers.
n Employees are recruited, trained, promoted, reassigned and
ultimately retire or leave to seek other employment.
While these types of life cycles are well known, the New
Economy has also generated a whole new set of life cycle
constraints on assets. For example:
n Fixed assets
At one time, location was paramount. The Internet has
changed that entirely, and in the New Economy, physical
location is irrelevant if products and services are delivered
electronically.
n Telecommunications
At one time, whoever owned the wires around a city held the
key to customers. Today, satellites and cellular systems have
rendered the telephone poles unnecessary. Internet
telephony will go even further, adding value to some
telecommunication assets while making other redundant.
n Employee Skill Sets
Many employees have spent years training to develop job
related skills only to find new technologies have completely
transformed the work environment making old skill sets
irrelevant.
n Customers
The Internet has dramatically increased the availability of
options for consumers in virtually everything they need.
Customers are in the driving seat today, using information
technology to make better informed choices. Customer
loyalty in the New Economy almost becomes a contradiction
in terms.
Cracking The Value Code - Page 5
n Business Models
The Internet has allowed new business models to spring up
all over the New Economy effectively reducing the life span
of the business models which have historically been used.
One industry after another has seen dramatic new business
models emerge only to be superceded by still newer models
as the Internet moves forward.
Against that background, it becomes increasingly clear being
able to know when to acquire, when to manage, when to renew
and when to dispose of assets is a critical skill in the New
Economy.
To add to the challenge, each class of asset requires a different
management process aligned to the life cycle specifics:
Assess needs and acquire
Physical
Assets Manage
Enhance
Dispose
For example, Priceline.com Inc. is creating value by disposing of
any inventory assets of its own. It links the assets owned by its
suppliers with customers through virtual auctions. As more and
more consumers use the service, Priceline becomes more and
more valuable to its suppliers by efficiently disposing of their
excess inventory. This business has created a market value of
$6.9 billion on the strength of a business model which could not
exist outside the New Economy.
Evaluate options & structure offers
Financial
Assets Manage finances
Restructure financial operations
Dispose or divest redundant assets
Assess needs and design structure
Organizational
Assets Develop & maintain systems & processes
Codify and share knowledge
Redirect assets
For example, consider FDX Corporation. Most people assume
the main asset of the company is its 600 aircraft and 40,000
vehicle delivery system. In reality, however, the companys most
valuable asset is an organizational asset its package tracking
system which can determine electronically where a package is at
any point of its journey. This asset has become a key competitive
advantage and efficiency driver.

Another business which exemplifies the use of organizational
assets to generate value is AT&T Corporation. In this case,
AT&T created a huge amount of value (and increased the value
of itself) by spinning off two parts of itself into standalone
companies NCR and Lucent Technologies Inc.
In other words, value can be created both ways:
1. By acquiring assets that are critical to your business model
and managing them through their life cycle.
2. By divesting of assets at the appropriate time in their life
cycle.
Understand needs and make offers
Customer
Assets Deliver products and provide services
Develop new products and services
Conclude customer relationship
For example, take the case of LinkExchange Inc. This Internet
start-up was founded in 1996 to help clients advertise on other
Web sites. Within 18-months, it had 800,000 clients, 21 million
online users and more than 100 staff. The company excelled at
using Internet marketing to acquire active customers.
LinkExchange was acquired by Microsoft for $265 million in
late-1998 on the basis of those customer assets.
Assess needs, recruit and hire
Employee
and Develop and manage relationships
Supplier
Assets
Support and reward performance
Redefine ongoing relationships
For example, Cisco Systems, Inc. has grown at an impressive
rate by excelling at acquiring employee assets. The companys
recruiters are innovative, and a Web based system is also used
which allows prospective employees to build a profile quickly
and efficiently. These tools have allowed Cisco to build a high
quality workforce.
Similarly, Calyx & Corolla, Inc. Of San Francisco has built a $20
million business shipping flowers directly from the grower to the
consumer as soon as theyre picked. Interestingly, the company
built its business not by acquiring its own assets but by
understanding how to leverage the assets of its suppliers like
FedEx and the growers themselves.
Also, take the example of Mary Kay, Inc. This company excels at
renewing its employee assets on a regular, ongoing basis. The
company has 500,000 consultants, each of whom can buy
products at the same price and can earn the opportunity to move
up to added levels of responsibility. As a result, there are now
500,000 Mary Kay salespeople generating more than $1 billion a
year in sales revenue in 29 different countries.
Cracking The Value Code - Page 6
The key principle is that not only must a business bring together
the major assets which contribute value to its business model
but each of those assets must be managed well. Part of that
management process involves taking into account the life cycle
of each. And another part is to understand how each asset
supports the business model as a whole.
Key Thoughts
In the past several decades, there has been a dramatic shift, a
transformation, in what economists call the production functions
of companies the major assets that create value and growth.
Intangibles are fast becoming substitutes for physical assets. At
the same time, there has been complete stagnation in our
measurement and reporting systems. Im not talking only about
financial reports and Internet investments, but also internal
measurements accounting and reporting inside companies.
Baruch Lev, director,
Vincent C. Ross Institute for Accounting Research
Companies create value, and incur risk, by assembling unique
combinations of assets. It is this portfolio which we call the
business model, and it determines a companys economic
success. Since the dawn of the Industrial Age, great
entrepreneurs have found new ways, and used the latest
technologies, to combine assets into business models of unique
power. This is what distinguished entrepreneurial giants like the
18th-century English potter Josiah Wedgwood, automaker
Henry Ford and industrialist John D. Rockefeller.
Richard Boulton, Barry Libert, Steve Samek
Companies that alter their business models in response to the
New Economy are taking risks, to be sure. But so are companies
that elect to do nothing but stick with the tried-and-true.
Richard Boulton, Barry Libert, Steve Samek
Book value is meaningless as an indicator of intrinsic value.
Warren Buffet
All the data we have so far, including those provided by the new
tools, focus inward. But inside an enterprise indeed, even
inside the entire economic chain there are only costs. Results
are only on the outside.
Peter Drucker
Few managers fully understand that companies are built from
essential building blocks of assets, the processes used and the
measurement system that records success. Its important to see
how assets relate to processes, how processes connect to
outcomes and how measurements relate to market results.
Otherwise, companies can become unrelated collections of
assets and processes. They lose track of their own basic
building blocks, their companys economic DNA.
Richard Boulton, Barry Libert, Steve Samek
We exist to provide value to our customers. Nothing happens
until a customer walks into a store with a purpose, buys
something and walks out.
Sam Walton, founder, Wal-Mart
Companies can thrive or languish based on their allocation of
resources among tangible and intangible assets. Our conclusion
is that companies need to see what matters (all of their assets)
and invest in what matters (the optimal combination of assets).
Richard Boulton, Barry Libert, Steve Samek
 Cracking The Value Code - Page 7

2. Where will that information be sourced?

Measure and report all assets
4 Traditionally, companies have relied on internal sources
information transparency
Main Idea
The successful business models of the future will create value
with assets that are measured and reported openly and in great
detail.
The fourth challenge of succeeding in the New Economy is to
understand how to use information to create value, with the goal
of ultimately being able to measure and report what matters
internally and externally.
Supporting Ideas
Information is at the very core of who you are and what you do to
create value in the New Economy. Therefore, companies will
need to continuously measure and report on all their assets to
succeed.
The concept of information transparency raises eight key
questions:
1. What will companies measure in the New Economy?
The value of all assets tangible and intangible which are
part of the business model. Companies can only manage
what they measure consistently. Unless an asset can be
tracked, it will be impossible to tell whether value is being
created or lost.
Therefore, the running market value of each asset (as
determined by open, efficient markets which are springing up
all over the New Economy) must be quantified and recorded
in an ongoing database.
alone for financial information. In the New Economy, both
internal and external data will be gathered and analyzed.
External data will allow the business to benchmark its
performance against those of peer group companies, and
against the market in real time. This data will include the
trading activities of markets for various types of assets.
In the New Economy, new markets are rapidly being
established for every type of asset imaginable. These
markets will bring a vast amount of transparency and
efficiency to the process of establishing the market value of
all assets integrated in the companys business model.
3. Specifically how can companies measure and report on the
performance of different types of assets?
Todays financial reporting systems tend to value assets at
their historic costs, adjusted for other factors. At best, this is a
rear-view mirror approach to asset valuation.
The New Economy, by contrast, will value all assets at their
current market value which will be able to be determined in
real time and updated continuously.
How can intangible assets be valued? Most likely, key
performance indicators will be required. These are the
factors that drive success in creating value using one or
another class of assets. In other words, a key performance
indicator measures whatever drives the creation of value for
any specific asset.
For example, key performance indicators may include:
Stock a measure of the quantity or value of the asset.
Flow the rate of change of the assets value.
Effectiveness efficiency of achieving outcomes.

Key Performance Indicators

Stock Flow Effectiveness
Physical Inventory carrying costs
Inventory on hand Inventory turnover rate
Assets Return on assets
Investments in fixed assets Depreciation of fixed assets
Machine utilization rates
Amount of office space Growth in office space
Occupancy of office space

Financial Current market value

Assets Free cash flow generated Return on capital investment
Cash in liquid investments
Receivables Cash flow per employee
Debt / equity ratio

Organizational Licensing income

Assets Number of patents Expenditure on R&D
Revenue from new products
Other intellectual property Succession plan
Success of strategy

Customer
Assets Number of customers Customer satisfaction
Customer retention rate
Market share Revenue per customer

Employee/ Revenue per employee

Supplier Procurement costs
Number of employees Employee retention rate
Assets Ability to recruit employees
Number of suppliers Suppliers meeting criteria
Employee quality
Ability to swap suppliers

4. Where will that information be delivered?
This information will be delivered, in real time, to the desktop
of everyone who can participate in the value creation
process.
The information may be generated by the business itself, or
various Enterprise Information Portals may be launched with
the capacity to deliver real-time market data personalized
and customized for each individual business model.
5. What time lapse will there be between preparing and
delivering that information?
Continuous, ongoing measurement will become the
standard rather than the periodic reporting practices of past
generations.
To manage a global business which operates 24 hours a
day, 7 days a week across numerous time zones, real time
data will be required. To settle for anything less would be
handing a key competitive advantage to someone else.
6. What formats would make sense for the delivery of asset
performance information?
Whatever format best facilitates the ability of managers to
conceptualize exactly whats happening in the business. In
other words, it may be a mix of numeric, textual and graphic
information. Most likely, new forms and formats of graphic
visualization will become widespread.
7. To whom will New Economy companies report on their asset
performance?
Historically, information about a business was highly
confidential, and very few people ever had the chance to see
the larger picture. In the New Economy, all stakeholders
participate in the value creation process and thus, all
stakeholders need access to all the information.
In short, data transparency and complete disclosure of all the
information available will become the norm. Only then will all
stakeholders be able to make informed decisions and
choices.
8. How will that information transparency create value?
Every company is really an information business at heart.
For example, when GM and Ford announced they were
setting up global forums for purchasing all their goods and
services, they created two standalone entities that were
immediately worth billions of dollars each simply because of
the amount of business that will flow through them each year.
Information transparency will:
Help the business manage risk.
Allow management to identify risks.
Help management see threats.
Increase investor confidence, lowering the cost of capital.
Enhance strategic decision making.
Allow a business to move faster hopefully first.
Track all the assets that matter most.
In short, information transparency will open another channel
by which businesses can create value in the future.
Copyright 2000 All Rights Reserved Summaries.Com
Cracking The Value Code - Page 8
In the final analysis, the coming together of new technologies
and communication systems to create the New Economy allows
the economic power of intangibles to finally be unlocked and
harnessed. That has profound and far reaching effects on the
types of business models that will succeed in the future.
The five basic building blocks of value in a New Economy
business physical, financial, employee & supplier, customer
and organizational assets are the business equivalent of DNA
which, in turn, forms the essence of the human genetic code.
Understanding how those assets can and should be combined in
a companys business model will be essential to the process of
creating value in the New Economy.
Key Thoughts
Information capabilities are the corporate, digital equivalent of
the human nervous system, providing a well-integrated flow of
information to the right part of the organization at the right time. It
is distinguished from a mere network of computers by the
accuracy, immediacy and richness of the information it brings to
the knowledge workers and the insight and collaboration made
possible by the information.
Bill Gates, co-founder, Microsoft Corporation
The new dot.com companies of today are the fireflies before the
storm all stirred up, throwing off sparks. The real story thats
arriving the real disturbance in the force is when the
thousands and thousands of institutions that exist today seize
the power of this global computing and communications
infrastructure and use it to transform themselves. Thats the real
revolution.
Lou Gerstner, CEO, IBM
The next information revolution largely underlies the new
definition of the function of business enterprise as the creation
of value and wealth.
Peter Drucker
To my mind, there must be, at the bottom of it all, not an
equation but an utterly simple idea.
John Archibald Wheeler
Insistently, persistently, relentlessly, the new manager must
ask, What for? What is it that were in business for? What is this
process for? This product? This task? This team? This job?
What are we doing here anyway?
James Champy, author
The Value Dynamics Framework is a beginning. We hope that
our research and insights into what creates value, the tools to
visualize it and the processes to enhance and sustain it, will
inspire you to look at your companys portfolio of assets and its
value code in a new light. We hope it will help you see, invest in
and manage the assets that count most in the New Economy.
We hope it will help you create a greater store of corporate
wealth and personal worth in the years ahead.
Richard Boulton, Barry Libert, Steve Samek