Read the DargeanGrix Business Scenario document. Read the following: Intangible

DARGEANGRIX BUSINESS SCENARIO  

DargeanGrix, Inc. is a fictitious international venture capitalist (VC) organization in a niche product

development market. The organization is very successful and has reported annual revenue averages of $250M

over the past seven years. A key element to their success is the warm relationships they build with their clients

and prospects.

DargeanGrix relies heavily on video conferencing and telepresence equipment for conference calls with

potential entrepreneurial investment opportunities worldwide, and for managing their portfolio of current

entrepreneur client investments. The goals for using the technology are to create a close facsimile of face-to-

face interaction to facilitate open communication, enable relationship nurturing, and foster a sense of

camaraderie among the team members while reducing both the stress and the costs of domestic and

international travel.

Company Details   500 combined domestic and international employees.

 10 offices in 10 states.

 250 remote employees and 250 on-site employees.

 Two overseas locations, each has 50 employees.

Current Issues   A mishmash of technology is used for videoconference tools in the current environment.

 There is wasted meeting time when troubleshooting frequent issues with the disparate and often

quirky video technology.

 The cost of maintenance for the aging video equipment is rising.

 Video calls are often full of dropouts and delays and have poor audio quality.

 Customer and employee satisfaction with video calls is low as the equipment is not reliable and the

video experience is poor.

 Issues with equipment and call quality means time spent in video meetings is not productive, making

the experience stressful and frustrating for those attending the video calls.

 Dissatisfaction with video calls has increased travel costs.

DargeanGrix’s Long Term Goals   Reduce maintenance costs.

 Reduce travel time and associated costs.

 Reduce client and employee call frustration.

 Provide a great client experience on every call.

 Increase call productivity and effectiveness.

 Increase bottom line.

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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.

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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,

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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

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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

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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.

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William Heitman is managing director at The Lab Consulting,

which has been implementing non-technology business

improvements since 1993.

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Selling Intangibles: How to Sell What the Customer Can't See

In these uncertain and cash-strapped times, how do you convince customers that buying green is smart and profitable? We asked four companies for their tips on selling the real value of green products and services.

By Sarah Terry-Cobo August 24, 2009 �Updated on July 24, 2024�

Improving environmental performance often takes place behind the scenes – for instance, energy efficiency measures are not always evident on the finished product. But these intangible benefits represent significant environmental upgrades — sometimes more than reduced packaging or other claims touted in labels or in ads.

So how do companies sell such abstract environmental benefits while keeping an eye on what customers want — and an eye on the bottom line?

Help Customers Connect the Dots

In trying to overcome the perception that greener things cost more, Dan Daggett has a tough job. But one tried-and-true method involves selling the customer on

DECARBONIZATION FINANCE & INVESTING INNOVATION LEADERSHIP SUPPLY CHAIN

Introducing Trellis | Read more about the new name for GreenBiz

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Four Keys to Selling the True Value

of Your Products

1. Help your customers connect the

dots: Emphasize the total cost of

ownership.

2. Encourage change by showing

success stories: Industry pioneers and

mission-driven companies show how

reduction of GHGs also leads to reduction

in costs.

3. Illustrate that green is a spectrum:

Greener purchases make employees

happier and help achieve environmental

goals.

4. Talk to the right person: the CEOs or

CSOs of a company can see the big

picture and make the connection with

long-term savings and environmental

benefits.

johnson diversey stride cleaner

a “total cost approach,” explained Daggett, the corporate sustainability manager for JohnsonDiversey.

As a company that sells cleaning products to businesses and institutions, Daggett said it can be a challenge for the customer to understand there is more value in a $50 gallon of environmentally friendly, concentrated cleaning solution compared to a conventional solution.

“Part of the overall selling proposition is the quantitative savings: energy efficiency, water conservation, reducing energy use, reduced injury rates, which decreases liability concerns,” he said. If the cleaning solution is less likely to cause respiratory illness to the janitor who uses it, the company does more than save money in the long run. Fewer illnesses mean increased worker productivity and increased operational efficiency, Daggett explained.

“How do we help customers become more efficient? That is a fairly typical discussion we have with our customers,” he said, but noted this type of conversation usually resonates the most among those who are able to “connect the dots” in an organization.

Daggett’s total cost approach may be a more effective way to calculate business transactions — especially in a world where corporate sustainability reports are becoming the norm. By focusing on energy conservation, water waste and health of the workers, JohnsonDiversey gives its customers a tool to improve their reporting and make total costs more tangible.

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stonyfield issue cup

But the idea of total cost is not new one, Daggett observed. It has long been used in the automotive industry to quantify how much a vehicle costs over its lifetime — rather than simply the sticker price — the total cost of owning a car includes the oil, gasoline, and maintenance needed to operate.

Similarly, total cost is factored into IT services: Do the costs above and beyond purchasing hardware make it a smarter investment to switch to cloud computing instead? While the needs vary from company to company and sector to sector, these types of calculations are helping businesses to make informed decisions about business operations. And an informed decision can also mean a more environmentally friendly decision.

JohnsonDiversey shows one way of selling the sometimes intangible values that highlight environmental performance in the long run: By explaining the total costs of purchasing products that normally don’t receive that kind of scrutiny. While there are some challenges to this approach, using examples from businesses that have already taken the plunge can make it an easier sell.

Encourage Change by Showing Success Stories

Stonyfield Farm is not your typical for profit company. It began in 1983 as an organic farming school, but now does far more than sell hormone and antibiotic- free yogurt and dairy products.

As its loyal customers probably already know, the company collects its #5 plastic containers to be recycled into toothbrushes, razors, kitchenware and much more. Stonyfield donates 10 percent of its profits to environmental organizations. And all of the company’s operations are carbon neutral through a combination of methane capture, energy efficiency and investment in offsets.

These examples show how, as a mission- driven company, Stonyfield sets the bar pretty high for reducing carbon emissions. But its work also highlights an opportunity available to any company: A good example is the work the organic yogurt firm did with Ryder System to improve transportation-related emissions.

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ryder rydegreen truck

“When we approached them about their supply chain, they said ‘we want to reduce our emissions’ and there was no mention of costs,” said Mark Swenson, vice president of business development in supply chain solutions with Ryder.

Since 2006, Stonyfield has achieved a double-digit reduction in greenhouse gas (GHG) emissions as well as a reduction in costs, Ryder reports.

“The two are not mutually exclusive, but truly correlated,” Swenson said. “And looking at that model, Stonyfield is a pioneer.” By partnering with the Environmental Protection Agency’s SmartWay program, Ryder was able to track and improve transportation-related emissions for Stonyfield by improving delivery routes, consolidating orders and using web-based reporting to track shipments, among other practices.

Swenson said he uses the yogurt maker as a case study to

persuade businesses that may not be convinced it is possible to reduce costs and GHG emissions at the same time. Onboard computers in Ryder’s trucks can identify drivers whose skills should be emulated.

“It is easy to understand how fuel consumption is impacted positively,” depending on how a driver shifts gears or how hard a driver brakes, Swenson said. These effects can ripple up the supply chain when efficient drivers are acknowledged and allowed to mentor their peers.

While these details may seem small, they are part of an added value that Ryder sells as part of its RydeGreen service. And these tiny details can save thousands per year in fuel costs; the RydeGreen hybrid trucks improve fuel efficiency by 30 to 40 percent in the city.

Making fleets more efficient signals a shift in public awareness, Swenson said. “Ten years ago it was all about decreasing costs. There was always a positive impact to the environment, but the translation wasn’t done because the demand wasn’t there.”

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“Although the initial capital investment is more, the total lifetime ownership costs takes the right data and gives it to the right folks to support these measures,” Swenson said.

Optimizing fleets is just one aspect of selling a value-added product. Sometimes environmental improvements come in the form of tangible goods, such as office supplies, but provide an overall benefit to a company’s sustainability goals.

Illustrate that Green is a Spectrum

“There is a green cost continuum. [Many customers’] base assumption is if its green it will cost more. That is a very flawed assumption,” said Yalmaz Siddiqui, director of environmental strategy at Office Depot. Part of his job is to show how a company can derive intangible benefits from tangible goods.

Some products may cost more up front, of course; examples include compact fluorescent light bulbs or dishes rather than disposable plates for the kitchen, which last longer and save costs in the long run. Other commonly used items, such as remanufactured ink and toner cartridges can provide up to a 10 percent cost reduction and provide the same quality as cartridges made with virgin plastics, Siddiqui said.

While these may seem like insignificant decisions in the face of the world’s larger environmental problems, an accumulation of these small steps do help a company shrink its overall environmental footprint, and are genuine signs of progress.

Siddiqui’s team provides hard data that can nudge a company to make the switch. For example, those remanufactured ink cartridges not only save 10 percent in costs, they also divert 2.5 pounds of waste from a landfill — for each cartridge.

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In addition to the economic and environmental benefits, Siddiqui emphasized there is another important value present with these decisions.

“Certain things will cost more money, but you will derive value from them from the customer engagement. You’re messaging that you are buying greener or that is part of your environmental policy.”

Those at Office Depot and Ryder know that aligning your company with trusted names in energy conservation or efficiency, or embracing a greener procurement policy does more than just reduce overhead costs. They form a body of work that shows your company takes the environment seriously, which has a positive effect on a company’s brand, according to Ryder’s Mark Swenson.

For example, Stonyfield won a manufacturer of the year award for the sustainability of their supply chain. “It doesn’t get any more intangible than that.” Swenson said. “It has a positive impact on the environment, creates more revenue and more customer loyalty.”

Using Energy Star calculators, Siddiqui said Office Depot has shown clients the savings from switching incandescent bulbs to CFLs. Despite upfront initial costs, Siddiqui said companies understand the longer-term benefits. “[T]he payback period is 6 months and return on investment is substantial,” he said. “It is worthwhile paying the extra.”

Talk to the Right Person

Companies face enormous challenges when it comes to selling value-added products and services: budget cuts, departments narrowly focused on one element of the business and an absolute focus