The System’s Unseen Value

What is Goodwill?

Goodwill refers to the intangible assets that make a business valuable beyond its tangible assets like equipment, patents, people, or inventory. It includes elements such as brand reputation, market position/share, company culture, and customer relationships. Goodwill matters because it influences the market’s perception of a business’s worth, often adding significantly to its valuation.

Does the System Matter?

While financial experts readily acknowledge the importance of goodwill, the “way the work works” (a.k.a. “the system”) almost never gets its due attention. But just as goodwill contributes to a company’s valuation, the way the work works can significantly affect an organisation’s effectiveness, costs, profitability, and employee satisfaction.

Why Overlook The Way the Work Works?

Goodwill gets its importance primarily because it appears on a balance sheet and contributes to a company’s market valuation. The way the work works doesn’t have such a direct presence in financial reporting, making it easier to overlook. This lack of visibility largely renders it irrelevant. In fact, the way the work works often acts as an intangible asset that can yield long-term benefits. Or as a boat anchor that produces significant dysbenefits.

How to Measure the Way the Work Works?

While it’s challenging to quantify the value of effective work methods, metrics like productivity, quality, employee retention, and customer satisfaction can serve as indicators. Businesses might choose to identify Key Performance Indicators (KPIs) that align with their objectives to assess this aspect accurately. Assuming that the way the work works is even on businesses’ radar at all.

Can Intangibles Translate to Tangibles?

The way the work works can absolutely translate into tangible results, similar to goodwill. Effective work methods can lead to higher productivity, better quality of output, staff morale, and increased customer satisfaction—all of which, in turn, improve a company’s financial performance.

Is It Time to Take Action?

The onus lies on business leaders to recognise the importance of the way the work works and implement strategies for its improvement. Companies that take this aspect seriously will find themselves better equipped to meet challenges and seize opportunities in the market.

In a nutshell, the way the work works may not feature on a balance sheet, but its impact on business success is undeniable. By understanding and optimising the way the work works, organisations can enhance an intangible asset that has long-lasting, tangible benefits.