Celemi's Intangible Assets Monitor

The following text and tables are extracts from Celemi´s Annual Report 1995. Only the hypertext links have been added.
Celemi's annual report 1996 is available from their web site.

Celemi`s Intangible Assets

"Celemi`s 'Invisible' Balance Sheet contains intangible assets that can be classified under three main headings:

Our Customers, are an external structure of relationships with customers and suppliers, brand names, trademarks and reputation or im age. This structure is constantly being created by Celemi´s employees. The value of customer relations is primarily influenced by how well Celemi solve customers' problems. Some of these structures are Celemi´s legal property, but most bonds are not so strong because investments in customer relationships cannot be made with a full degree of confidence.

Our Organization, is a corporate internal structure consisting of patents, concepts, models, and computer and administrative systems, including general management. Also this structure is a creation by Celemi´s employees and its com ponents are generally owned by Celemi. Decisions to develop or invest in the organization can be made with some degree of confidence, because the work is done in-house, or bought from outside.

Our People, is the combined competence of Celemi´s employees, such as their ability to act in a wide variety of situations. The value of people is that they are the only true agents in busi ness; all assets and structures, whether visible or invisible, are the result of human action and depend on people´s competence and energy for their continued existence. People are however not a corporate "asset" like the two structures above, because people can not be owned.

Even if the value of intangible assets in money terms can only be estimated with a great degree of uncertainty, Celemi´s Invisible balance sheet is much larger than the visible one.

What is of great interest to know for Celemi´s stakeholders is therefore whether the intangible assets are increasing in value and whether they are utilized efficiently. This can be established with more certainty, and this is the aim of Celemi´s Intangible Assets Monitor.

Invisible Revenues

Just as visible revenues improve the tangible equity, invisible revenues (see also PLS Consult) improve the efficiency and the value of Celemi´s intangible assets. By canvassing such customers, rather than those that merely contribute money, Celemi is able to actively improve its intangible assets. One way to capture the impact of customers is to calcu late the proportion of revenues from three categories of customers:

Image enhancing customers who improve Celemi ´s potential to find new customers or reduce the marketing costs involved. Such customers are well regarded in their industry and references or testimonials from them are very valuable. They improve the external structure.

Organization enhancing customers who demand state-of-the art solutions, which are new to Celemi and thus contribute to Celemi´s R&D, or who have very large projects which involve many Celemi experts and thus enable transfer of tacit expert competence. Such custom ers improve the internal structure.

Competence enhancing customers who bring learning to Celemi´s employees, because the projects challenge their skills. These cus tomers are valuable because they improve the individual competence of the people.

Our Customers (External Structure)

Image enhancing customers contributed 40% of Celemi ´s revenues in 1995. These customers are large and very well known multinational cor porations, with a very high potential for further growth.

Colour codes: Black= Normal, Red= too low or too high, Green= very good, Blue= excellent, but probably not sustainable in the long term.

The customers are loyal, and buy more of Celemi´s services. One indicator is the level of repeat orders. No less than 66% of the revenues in 1995 came from customers who had been with Celemi also in 1994. Considering the rapid growth in revenues, this is a very high propor tion indeed. A high level of repeat orders also indicates that canvassing costs can be kept low.

The most cost efficient way to grow is therefore to improve the sales per customer. In 1995 it grew by only 4%, which is too low.

The five largest customers account for 41% of the revenues which is a large proportion. Celemi does not want to become too dependent on a few key customers, so the indicator sgould not be allowed to be much higher.

Summarizing, Celemi´s external structure is probably the most valuable part of the intangible assets. It seems stable and with a large potential to generate intangible revenues in the future.

Our Organization (Internal structure)

Celemi is changing from a small firm, depending on a few highly skilled and very efficient sen ior individuals, to a larger corporation with an internal structure that can support a larger number of experts and which can take on larger projects on a global basis. To achieve this goal Celemi invested no less than 33% of the value added in new products, IT and new subsidiaries in 1995. It is an ambitious goal and one that marks 1995 as the first year of transition for Celemi.

Customers contributed to this transition by trusting Celemi with some very large projects and support for new products. Management estimates that some 44% of the revenues in 1995 came from customers enhancing the structure, which is a very high proportion. One effect of rapid growth is low seniority of admin. staff, at present only 3 years. Another is the Rookie ratio (proportion of all people employed less than 2 years), a very high 64%. Both numbers indicate high costs for recruiting and developing new people in 1995. If the new people stay with the company, the numbers will improve in the coming years, re flecting improved stability.