To attach some numbers to this claim. In 1975, tangible
assets (such as factories, land, and equipment) made up ~83–85% of S&P 500
company value. This equation has reversed with intangibles accounting for ~90%
of S&P 500 market value.
The liberalization of global trade, deregulation of sectors
such as telecom and finance, and the rise of international supply chains forced
companies to become leaner and more agile. Capital-intensive operations were
outsourced or divested, while firms began investing more heavily in strategic
capabilities such as branding, customer relationships, and intellectual
property.
Furthermore, the emergence of the internet, software
ecosystems, and data analytics fundamentally changed the nature of value
creation. The success of companies like Microsoft, Google, and Amazon depended
on their ability to scale up their intangible-heavy models.
The COVID-19 pandemic significantly accelerated digital
adoption, driving rapid uptake of remote work, e-commerce, and virtual
collaboration tools. Digital-native and digitally agile companies outperformed
their peers, highlighting the strategic advantage of digital readiness.
Legal and accounting frameworks tried to keep up pace with
this changing trend. The TRIPS agreement (1995) established global IP
standards, and IAS 38 (2001) set rules for recognizing intangibles. Yet most
internally developed assets such as algorithms, proprietary data, culture remain
off-balance-sheet, creating a disconnect between financial statements and the actual
enterprise value.
Despite their value, most intangible assets such as software,
brand, data, culture remain undervalued or unreported. Over 70% of investors
believe key corporate assets are missing from balance sheets, hampering strategic
planning, investor confidence, and precision in M&A.
Human capital is another critical intangible but often
unmanaged. Talent can leave, taking their core competencies along with them.
Yet few organizations have systems in place to quantify or strategically manage
this risk.
Impairment testing for intangible assets is widely
criticized for its lack of transparency and timeliness. While the majority of
investors express a preference for impairment over amortization as a valuation
approach, 73% report that current practices fail to deliver meaningful insights
into the asset performance.
Furthermore, it is imperative for companies to recalibrate
their reporting frameworks to accurately capture and value intangible assets.
While the 20th century was driven by physical capital, the 21st century is
powered by intangible forces, though invisible, are more influential in shaping
competitive advantage.
