8.1 Why Intangibles Matter

Soft factors play a crucial role in competitive performance—motivated staff are more productive than those with poor morale, a strong reputation in the market helps customer acquisition, a charity that enjoys its donors’ commitment will raise money more easily, and a political party with stronger support among the electorate will get more votes. If we are to improve performance over time, then we have no choice but to understand how to assess and influence these soft factors (Carmelli, 2004; Hall, 1992). The logic is unavoidable:

• Performance at each moment depends on the tangible resources you can access.
• The only way to change performance is to build and sustain these resources.
• So, if soft factors are to make any difference to performance (which they clearly do), they must do so by affecting your firm’s ability to capture and hold on to these same tangible resources.

Unfortunately, intangibles can be tough to manage. You may easily borrow cash, buy production capacity, or hire staff, but it is slow and difficult to build staff morale, a strong reputation, or support from your donors or voters.

Once you have a strong intangibleAn organization’s nonphysical resources (“soft factors”) that add value to the organization. Intangible resources include things such as reputation, experience, credibility, and staff skills., it will speed the growth of other resources, so imagine the likely performance advantage for an organization with an edge in all such factors. Even better, since it is often hard for competitors to see from outside exactly what these intangibles are and to work out how to collect them, they can give you a sustainable advantage.