Businesses of all sizes have been unable to measure their actual values because of the number of intangible assets and liabilities in today’s knowledge economy. But the balanced scorecard could be changing all that.

Today’s businesses have been struggling to calculate their own true financial values because they can’t measure an increasing list of intangible assets and liabilities. But the balanced scorecard could be providing a solution, says the New York Times.

In the September 2007 article, headlined “When balance sheets collide with the new economy”, the newspaper said, “Today’s sophisticated knowledge economy is stuck with the equivalent of an abacus for measuring the actual financial value of corporate assets and liabilities. At issue is a growing collection of crucial resources known as intangibles: assets or liabilities that have no obvious physical presence, but that represent real value or vulnerabilities.”

In the world before balanced scorecards, when companies focused almost exclusively on financial measures at the expense of metrics like customer and employee satisfaction, and sustainability, their intangible assets were literally unmeasurable.

From balance sheets to balanced scorecard

The New York Times mentions “Patents, trademarks, copyrights and brand recognition” as the most commonly recognised (and most common) intangibles. But it points out that, “The most valuable assets of an innovation-based company today – its intellectual property, software investments, staff and managerial expertise, research and development, advertising and market research, and business processes – have no natural home on the balance sheet.”

One of the article’s suggested remedies is the balanced scorecard. “According to the consulting firm Bain & Company, a more recent approach to valuing intangibles, called the balanced scorecard, was being used in about 57 percent of international companies by 2004,” it says.

Early adopters of balanced scorecard-style processes

Such practices have yet be adopted as standard by official accounting bodies – but the article notes that leading companies recognised the value of a balanced scorecard-style process some time ago (it names Wal-Mart, United Technologies and McDonald’s).

The founding partner of a firm specialising in non-financial valuing methods says, “”I would put money on it, that within a generation this will be a commonly accepted management practice,” with its own standards body like the Financial Accounting Standards Board that maintains, updates and oversees enforcement of best practices for valuing intangibles.

Anyone frustrated by things they can’t measure will be pleased to hear it.