Reviving keynes animal spirits for your business

Reviving Keynes Animal Spirits for your business - Measuring by Return on IntangibleAn IBCM© Research - Management Consulting Services

IBCM© Research Management Consulting - Management Rating - by Return on Intangible

Table of ContentsIBCM© Research Management Consulting - Return on Intangible..................................3

1. The Principle:.............................................................................................................32. Balance Sheet........................................................................................................... 33. Return on Intangible.................................................................................................. 54. Rationale for adopting Return on Intangible..............................................................55. Plan of Action.............................................................................................................66. Executive Summary ..................................................................................................77. Recommendation...................................................................................................... 98. Services - IBCM© Research Management Consulting:..........................................11

IBCM© Research 2012 Page 2 of 14


IBCM© Research Management Consulting - Return on Intangible

1. The Principle:

1. Convert a n-dimensional problem into n problems of one dimension, optimising company's capability, facilitating decision making.

2. Balance Sheet

2. Companies are stuck up, for too long with Balance Sheet, a convoluted process of exhibiting self-deception. Book-keeping is essential, so is a daily calendar.

3. Companies continue to search for beneficial ways in which to disclose information about themselves with or without formal sanction. In fact, it is not clear that the so-called GAAP standard is even particularly meaningful anymore: They are letting the markets inform them about what constitutes value.i

4. Corporates do jump from one jargon to the other, corporate planning to business ethics to corporate governance to corporate social responsibility to sustainability, and with equal speed dump them to seek a fresh one.

5. The reason why companies are stuck up with Balance Sheet because of it being the only instrument they can construct with an abacus, an instrument of structured chaos that everyone can read but no one can decipher, for it conceals more than it reveals.

6. Companies need to measure jargons.

• Corporate Social Responsibility : In a survey of 558 global companies on Corporate Social Responsibility by KPMG International in co-operation with Economist Intelligence Unit on Corporate Sustainability - KPMG – EIU a Progress reportii – there is a stunning statement – Many firms are grappling with the problem of deciding exactly what and how to measure - page 16; Deciding how to measure is more difficult than deciding what to measure. - (EIU report findings).



• Sustainability : Aman Das in Vault.com reports: "At a recent breakfast hosted by the Global Reporting Initiative (GRI) and NYSE Euronext, the Conference Board’s David Vidal asked an insightful question: What are the top three reasons for your company’s reluctance to embrace sustainability—and to adopt sustainability reporting? The responses that came from an audience representing the glitterati of the corporate social responsibility world might surprise. What these responses point to, however, is the continued sense of reluctance across senior leadership toward combining the social and environmental with corporate. The 11 challenges indicated were:

i. Doubtii. Liabilitiesiii. Denialiv. Resourcesv. Causalityvi. Lack of Global Standardsvii. Benchmarkingviii. Lack of comparative credibilityix. Uncertaintyx. Fear of the unknownxi. Fear of the known

• KPMG report on survey of 558 global companies stating Deciding how to measure is more difficult than deciding what to measure, is the crux of the matter that IBCM© Research criticises Balance Sheet as an instrument of self-deception while offering a solution of how to measure the jargons in use.

7. What is crucial is to bring the abstractions into reality, acknowledge value where value is due, and deconstruct what is valueless. Balance Sheet fails the test, so are a number of management jargons. Ethics is subtler than the subtle.

• Intangible is the resultant empirical study of Nature that IBCM© Research applies as evidence for bringing abstractions into reality by measuring terms such as Business Ethics that are used loosely.

8. Measure what is measurable and make measurable what is not so. If you are one of the Companies that continue to search for beneficial ways in which to disclose information about themselves with or without formal sanction, then take the first step towards measuring qualitative elements of management.



3. Return on Intangible

9. Return on Investment vs. Return on Intangible

• Return on Investment one is accustomed to is between two inanimate objects that IBCM© Research classifies as non-pulsating energies, whereas Return on Intangible is the result of effort exerted by the people within an organisation, classified as Intangible i.e. pulsating energy.

• Every matter possesses non-pulsating energy whereas management capability is never brought into limelight that Return on Intangible brings to the fore.

• Inanimate objects do not by themselves release the energy without Intangible colliding with the matter, called as material event.

• Return on Intangible for Balance Sheet and Profitability items (i.EPS) would be insufficient without the same is calculated for:◦ ii. Management Quality, ◦ iii. Corporate Governance, ◦ iv. Accounting Quality, ◦ v. Risk Management - the five criteria set by SEBI for mandatory

grading for IPOs.

• IBCM© Research Management Consulting for Return on Intangible shall address the issues that 558 global companies could not fathom, that glitterati of Corporates found perplexed as well as resolve internally the self-deceiving Balance Sheet that one tends to hold on ad infinitum for decision making.

4. Rationale for adopting Return on Intangible

10. For an investment decision for People-Soft 8 in the year 2005 by Return on Intangible <note: Return on Investment was 0) it surprised the then CEO John Hugh of MBT on under utilisation of a truly great package.

• Return on Intangible looks at the capability and the optimal usage.• Application of the principle Return on Intangible for Balance Sheet and

Profitability would bring out the inactive elements that could be energised and made best use of for productivity.



11.Double entry book-keeping creates a Balance Sheet differentiating an asset and a liability. It is not the case for Return on Intangible calculation. All such elements that occupy a Balance Sheet are considered non-pulsating energy and assessed how they are made use of by a single entry observation of binary value 0 or 1, the absence or presence of pulsating energy.

• This is a major advantage for companies, converting a n-dimensional problem into n problems of one dimension, optimising company's capability, facilitating decision making.

• A substance yoked with another perform independently each uniquely defined by its quality.

12. Return on Intangible analyses creative process and action process, the sub-atomic levels of management in a structured manner, that several risk measurement tools have a specific slot in the process area. Strategies, policies, practices, Projects, Budgets are monitored by one and the only resource area - Intangible i.e pulsating energy (as against non-pulsating energy within each inanimate object) - by dBudget/dT where dBudget are a series of KPIs accomplishing the tasks in dT - in respective Time.

• Non-pulsating energy varies between one inanimate object to another whereas pulsating energy is constant between a potter or a nuclear scientist.

• Creative process that ends up as a substance has quality embedded. Creative process is identical to every object be it a policy statement or a diamond or a child.

• Action process is unique to the respective quality of the substance.

5. Plan of Action

13. Let IBCM© Research Management Consulting shall assist you in developing an internal rating system.

14. A comprehensive Return on Intangible for Profits, Policies and People <main stay of Intangible - pulsating energy> shall consolidate all process areas of your company and consolidate group companies arriving at a single digit - Return on Intangible.

15. IBCM© Research Management Consulting shall assist you with



calculation of Return on Intangible, corporate training and development of Intangible as the energy force of your organisation.

6. Executive Summary

16. Make it easy running an organisation for yourself first, converting n-dimensional problem to problems of one dimension.

17. Balance Sheet/ Profitability is the outcome of reactive release of non-pulsating energy. Make it proactive, monitoring real-time release of effort put in, measuring by Return on Intangible.

• To be proactive consolidate policies and value system, foundation for sustainability of profits.

18. Of all the jargons in use none played as much economic havoc as 'intangible assets'. It gained entry into a Balance Sheet surreptitiously by IAS 38 without even defining the term Intangible. Besides toxic assets and impaired assets Balance Sheets are heavily loaded with Intangible Asses estimated in 2007 of USD4.1 Trillion in US alone. In effect qualitative elements of an asset are altogether ignored for a company which are presented in a Balance Sheet that IBCM© Research refers as exhibiting self-deception. In order to confirm quality, measuring policies and value system of a company is a must.

19. CSR and sustainable living plan are used by MNCs loosely as another marketing gimmick. IBCM© Research has given the primary place for CSR as the main mover of energy force - Intangible for an organisation, by incorporating CSR in every set of 5 KPIs.

20. Fiscal and Ethical Responsibility: IBCM© Research classifies, a team of four: Group 1: i. Managerial Force, ii. Operating Force, iii. Technology, and iv. Finance representing Fiscal Responsibility. Added to the fiscal group is People (society) representing Ethical Responsibility that make a single team seen in every block of corporate structure irrespective of a traditional nomenclature of departments - be it R&D, Marketing or Production.

• Fiscal and Ethical Responsibility groups have the same goal - create an Intellectual platform such as IPR, Policies, Value System - Human Rights, Anti-corruption etc. and use the platform to collide with the inanimate objects in a Balance Sheet to release the non-pulsating



energy.

21. Pension funds allocation to public equities declined significantly compared to past years.iii OECD-area pension funds experienced negative rates of return in more than half of the OECD countries in 2011. Rates of return averaged -1.7% on investment of USD20.1 trillion and in US it was -3%.

• Investment by Pension Funds managers and investment into selected market equities is a war of Balance Sheet vs. Balance Sheet compounded by self-deception.

• With nation after nation competing with each other to get into a junk grade status the options for a fund manager is narrowing day-by-day.

22. People constitute the biggest chunk of the real assets, by way of shareholdings, by way of lifetime contribution to pension funds, by way of life insurance, by way of savings etc. IBCM© Research Corporate Critical Density identifies 3 Ps - Policies, Practices and People as the protons, electrons and neutrons of an organisational atom respectively.

• People do not influence the identity of a company but they add mass to it. Policies and People form a nucleus while practices spin around the nucleus.

• The three criteria set for corporate critical density identified as 'just right' are profits, policies and value system.

• With no knowledge on the policies and value system of a company any quantitative prediction models would result in a rate of return of negative -1.7% if not more in 2012 for such huge funds of USD20.1 trillion.

23. CSR Manager within a company, one of the five members team heading ethical responsibility group, will act as a modem - modulator ~ demodulator between management, who needs understanding of the 11 challenges and 'how to measure' conceptualisation, and the people who need confidence measures needed for market revival.



7. Recommendation

24. Decision making Process:

• Currently decision making process, heavily dependant on Balance Sheet, is like the legendary Dutch boy plugging holes in a dike with his fingers.

• Contrarily Return on Intangible is the other way, like the boy St.Augustine found emptying the sea into a hole, emptying n-dimensional inanimate objects to a one-dimensional hole of Intangible.

• Whereas Balance Sheet displays static non-pulsating energy of an inanimate object, Return on Intangible observes and records establishing causality of material events.

• Material energy is responsible for cause and effect. Balance Sheet displays the effect whereas Return on Intangible highlights the cause.

• By a series of material events from a state of non-existence to conceptualisation to communication to formation to formulation an idea becomes a substance that is tangible. In every state of creative process material energy is the only triggering device.

• Based on the platform created i.e. IBCM© Research Intellectual Value Capital, series of material events take place in infinite succession of finite purposes towards task accomplishments - i.e. Action Process, IBCM© Research Emotional Value Capital - to derive - Return on Intangible - i.e. IBCM© Research Intangible Value Capital.

• In every state of action process too, material energy is the only triggering device. Pulsating energy is the only material energy triggering creation and action, which is Intangible.

• Decision making is based on identifying the material energy whether present or absent in every material event.

25. Animal Spirits: John Maynard Keynes: Quote: "Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral



or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."Unquoteiv

• In the Subject - Object distinction of Corporate Management, ERP - Enterprise Resource Planning, Budgets, Balance Sheets are the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities, representing the object characteristics.

• Return on Intangible is the outcome of spontaneous urge to action rather than inaction, measured by IBCM© Research assigning a binary value of 1 or 0 for the presence or absence of the spontaneous urge.

• Absence is what one should watch out and make it happen - an activity has a cost incidence whereas inactivity a cost consequence. Acronym IBCM stands for Inactivity Based Cost Management where inactive elements are measured and then material energy is triggered for optimal rating of Return on Intangible.

• Material energy rests with men and women adding mass to the corporate building block.

• Corporate Building blocks move linearly upwards from 0 to 5 of Return on Intangible.

• The process of change from 0 to 1, 1 to 2, 2 to 3, 3 to 4, 4 to 5 when reflected in everyone's monitor is a cause for celebration by all, like holding a world cup aloft.

• Currently it is compartmentalised to inanimate objects that team spirit is muted. Return on Intangible brings the human spirits of achievement a common platform of 5 KPIs by one and the only resource available to the corporate - Intangible.

• Four fiscal and one ethical responsibility group are present in every department that the matrix status of process areas bring the team together towards goal congruence.

• Material energy of each person within the organisation that Keynes calls as Animal Spirits is visible, evident energising the organisation that is vibrant with pulsating energy.

• the instability due to speculation that Keynes observed continues and is responsible for declining pension funds allocation to public equities. Speculation is on account



of non-availability of qualitative granular data of the companies that Return on Intangible is set to correct.

26. Return on Investment is passé, Return on Intangible is for Market Revival:

• IBCM© Research Management Consulting assist companies, Investors and fund managers bringing company's capability in sustainable profits, sustainable policies and sustainable value system to the fore.

• Pension Funds of USD20.1 trillion with a negative return averaging -1.7% warrants quantitative analysis supplanted by Return on Intangible as the primary criteria measuring qualitative elements of an organisation.

• Companies with higher Intangible Value Capital are bound to attract investment from Pension Funds, Private Equity, Hedge Funds sans insider trading and the public for mutual benefits of win-win situation.

8. Services - IBCM© Research Management Consulting:

27. Animal Spirits: John Maynard Keynes was spot on to say, i. the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, ii. a spontaneous urge to action rather than inaction, iii. not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

• i. spontaneous optimism: • IBCM© Research Management Consulting addresses the issue

by integrating in each block CSR function as the primary source of energising your organisation. People as the most influential group for your products as well as for Investments.

• ii. action and inaction: • IBCM© Research by assigning binary value of 1 or 0 for action or

inaction respectively, the granular data by each block rates the spontaneous urge providing your company the status of energy force within.

• iii. quantitative vs. qualitative:



• Your company will be stable when qualitative elements of your company are measured. IBCM© Research is the only organisation globally that systematically measures and rates qualitative elements of management. Return on Intangible based on empirical study of Nature will remain unchallenged.

• iv. Human spirits: Keynes dismisses the quantitative benefits multiplied by quantitative probabilities as secondary to human nature that a company is dependant on spontaneous optimism, within as well as outside its own four walls. Inanimate objects have made companies lacking vibration, compartmentalised in an insentient cocoon. IBCM© Research has brought the concept of pulsating energy in every block of the corporate structure that achievements are shared by all and the human spirits vibrant.

• v. Fund management: IBCM© Research Rating of a company encompasses three dimensions - Profits, Value System and Policies that fund managers are looking towards for Investment. The traditional Balance Sheet Return on Investment will be replaced by Return on Intangible. IBCM© Research shall collaborate with outside funding, based on the rating.

• vi. n-dimensional problems: IBCM© Research brings in all problems to a single dimension. Coupled with the integrated rating system on real-time, delegation of authority works towards management excellence.

• vii. Creating Policies: Innovation, CSR, Management Quality, Corporate Governance, Accounting Quality, Risk management, Risk Appetite, Risk Culture, Human Rights, Labour Rights, Anti-Corruption, Environmental, Business Ethics are all part of the Intellectual Value Capital of your company. IBCM© Research will assist you in developing, practicing and measuring the Policies created.

• Indian companies are expanding globally that they could use Intangible Value Capital as a launching pad for Government, World Bank contracts worldwide, besides attracting Investment through Private Equity.



• viii. Training: Corporate Training imparted on Planning and Budget, creating policies, practices, CSR development, real-time monitoring, rating , fiscal and ethical responsibility, accountability etc.

• Software: IBCM© Research will undertake to provide for an integrated rating system.

For further understanding on the subject of Intangible Value Capital:

1. Planning And Budget Measuring By Return On Intangiblev 2. Investment Decisions For Pension Funds by Intangible Value Capitalvi

3. DIY Corporate Rating (Banking and Finance inclusive)vii

and Author profile, Book Preview, Research Papersviii.

Jayaraman Rajah Iyer

IBCM© ResearchKodaikanal - 624101+919487390439jayar.ibcm@gmail. com

CopyrightIBCM - Inactivity Based Cost Management - Copyright © REGN. NO. L-27490/2006 DATED December 1, 2006 Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah IyerALL RIGHTS RESERVED. No part of this Publication may be reproduced, stored in a retrieval systems, transmitted, in any form or by any means – electronic, mechanical, photocopying, or otherwise without the prior permission in writing from the Author.

Picture Courtesy: India World Cup:ix


i 4. Cost Containment and Value Chain Management: New Building Blocks for Jobs and Economic Growth: Background paper for the conference session: “Global Competition and Collaboration”

ii EIU report_v2_A4_Apr14. dated 15th April 2011, KPMG International in co-operation with EIU onCorporate Sustainability - A Progress Report - (page29)iii © OECD 2012 – Pension Markets in Focus – September 2012 – Issue 9 iv http://en.wikipedia.org/wiki/Animal_spirits_(Keynes)v http://www.slideshare.net/jayaraman.18/planning-and-budget-measuring-by-return-on-intangiblevi http://www.slideshare.net/jayaraman.18/investment-decisions-for-pension-funds-by-intangible-value-

capitalvii http://www.slideshare.net/jayaraman.18/diy-corporateratingviii http://jayaribcm.wordpress.com/ix http://www.sify.com/sports/India-beat-Sri-Lanka-to-win-cricket-World-Cup-imagegallery-cricket-

lecxTXiaaaj.html?html=5

Reviving keynes animal spirits for your business

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