Getting tangible about intangibles: The future of growth and productivity?
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Firms in the top quartile of growth by sector outpace peers in intangible investments, with top growers investing 2.6 times more than low growers. @EricHazan
McKinsey data on intangibles, core findings, "...Even through economic disruptions, intangibles investments have increased. Over the past 25 years, the United States and ten European economies (Austria, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, and the United Kingdom) achieved 63 percent growth in gross value added (GVA), a measure of economic growth. During this period, the investment share of intangibles increased by 29 percent. Rising investment in intangibles has been associated with increasing total factor productivity of entire economies. Growth in investment in intangibles slowed after the global financial crisis, and productivity growth decelerated, too, suggesting a link. Investing in intangibles correlates with productivity and sector growth. In the past quarter century, intangibles investment has risen in all sectors, and data from INTAN-Invest indicates that there is an observable link between investment in intangibles and GVA growth. It also indicates a strong association with total factor productivity. Sectors that have invested the most in intangibles— more than 12 percent of their GVA— achieved 28 percent higher growth than other sectors in GVA, at more than 2.7 percent per year between 1995 and 2019. The relationship is strongest in knowledge-intensive services such as financial services and in innovation-driven services such as telecommunications, media, and technology. This apparent correlation reflects the synergistic nature of different types of intangibles. Companies with top-notch digital analytics attract the best talent, and that talent improves the quality and scope of the analytics. Reflecting such synergies, companies and sectors that invest across intangible categories post higher GVA than their peers. Regardless of the sector, companies that invest more in intangibles grow more. The new survey indicates that top growers, defined as companies in the top quartile of GVA growth by sector in 2018-19 (whose median growth was 20 percent) are investing 2.6 times more in intangibles than low growers, defined as the bottom 50 percent of companies for GVA growth in 2018-19 (whose median growth was 3 percent).The gap increases to between five and seven times in sectors such as financial services where competitive advantage is anchored in knowledge..."
Eric Hazan, Sven Smit, Jonathan Woetzel, Biljana Cvetanovski, Mekala Krishnan, Brian Gregg, Jesko Perrey and Klemens Hjartar, "Getting tangible about intangibles: The future of growth and productivity?" McKinsey and Company, June 16, 2021, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/getting-tangible-about-intangibles-the-future-of-growth-and-productivity
“…Most other sectors invested less than 12 percent of their GVA in intangible capital and have achieved below-average rates of GVA growth, at 2.1 percent per year. In general, a relationship can be observed between higher intangibles investment and higher growth, although there are some exceptions. One exception is manufacturing, which has invested 15.3 percent of its GVA in intangibles but has experienced broadly flat growth. This appears to reflect the fact that manufacturing has invested particularly heavily in innovation capital, specifically R&D, which entails large sunk costs as companies seek to develop the right new products. Another example is healthcare (Exhibit 6)….”
“…Three economies stand out for having achieved both high investment in intangibles and robust growth in GVA: Sweden, the United Kingdom, and the United States. Sweden achieved annual 2.4 percent GVA between 1995 and 2020, the United States 2.3 percent, and the United Kingdom 2.2 percent. All three economies have larger shares of knowledge and innovation sectors, in which intangibles investment is prominent. Conversely, economies that posted lower rates of growth in GVA over this period were more exposed to resource- or labor-intensive sectors that tend to invest less in intangibles. Many other factors determine growth, of course, and they should be examined in detail, but there does appear to be a link between investment in intangibles and GVA growth at the whole-economy level. An intangibles-rich economic model is not the only way for an economy to promote productivity and growth. Nevertheless, economies that are experiencing growth in intangibles investment are also posting growth in total factor productivity (Exhibit 4…”