SOURCE: Talent Growth Advisors

Talent Growth Advisors

August 01, 2016 09:00 ET

Talent Growth Advisors Releases First-of-Its-Kind "Intellectual Capital Index," Revealing Talent Is the #1 Driver of Market Value in the Dow Jones Industrial Average

Proprietary Study Shows 86% of the Average Company's Value in the DJIA -- Over $4 Trillion -- Stems From Intellectual Capital

ATLANTA, GA--(Marketwired - August 01, 2016) - National management consultancy Talent Growth Advisors (TGA) today announced the results of its Intellectual Capital Index (ICI), the first-ever study to measure the specific dollar-figure contributions that talent makes to the market value of companies included in the Dow Jones Industrial Average (DJIA). The analysis reveals that 86 percent of the average company's value is a direct result of the only active source of intellectual capital -- its people. The ICI also reveals that the top 5 IC companies in the DJIA today are:

1. Boeing, 2. Pfizer, 3. Apple, 4. United Technologies and 5. United Health.

"It's not a stretch to suggest the DJIA should be re-christened as the 'Dow Jones Intellectual Average' based on these findings and the marketplace shift from the industrial age to today's knowledge economy," commented Linda Brenner, co-founder and managing partner, Talent Growth Advisors. "We believe -- and now know with certainty -- that companies across industries can accelerate market capitalization through targeted talent strategies that recognize and act on the most critical roles that drive intellectual capital and, therefore, value. Instead, however, most companies still subscribe to a peanut butter approach to talent, spreading limited resources evenly and leaving significant business upside on the table."

Additional implications resulting from the ICI include:

  • Investment in research and development, averaging at 24 percent of total operating income for companies examined in the study, is a significant driver of intellectual capital
  • The range of ICI values correlate to and provide a useful benchmark within specific industries
  • On average, companies with a high ICI have higher price earnings ratios -- meaning their earnings growth potential is perceived by the market as being more robust

"These hard numbers indicate that intellectual capital -- which is solely driven by people -- drive more than $4 trillion dollars of the value for companies in the DJIA alone. In fact, human capital is the only active driver in creating intellectual capital, and over time actually has a compounding impact on value, much like the concept of compound interest," said Tom McGuire, co-founder and managing partner, Talent Growth Advisors. "Understanding and acting on this is the cornerstone of an effective 21st century talent strategy."

In its work with a range of marquee brands such as BASF, Chick-fil-A, The Home Depot and Coca-Cola, TGA recommends that companies of all sizes:

  • Build a financial model that prioritizes efforts tied to finding, hiring and keeping top talent in the most critical roles that drive intellectual capital
  • Design and implement highly differentiated HR programs and processes
  • Measure the return on talent investments based on the incremental business value added by those critical roles

To determine the ICI, a financial analysis of the stocks comprising the DJIA was conducted.

For more information, visit www.talentgrowthadvisors.com/ici.

About Talent Growth Advisors

Talent Growth Advisors is a national management consultancy born from a blend of finance and talent management expertise. The firm helps companies connect talent investments with business value by creating and measuring strategic, differentiated approaches to hiring and talent management. Led by a team that has run finance and talent functions at Fortune 500 companies, Talent Growth Advisors has partnered with clients such as Coca-Cola, Raytheon, L'Oréal, Ogilvy and Expedia in talent planning, talent acquisition and talent management. For more information, visit www.talentgrowthadvisors.com and read about our detailed approach in our book: "Talent Valuation: Accelerate Market Capitalization through Your Most Important Asset," available on Amazon.

Survey Methodology

The TGA Intellectual Capital Index (ICI) was calculated for stocks included in the Dow Jones Industrial Average based on research conducted of annual reports (form 10K) filed by each company with the Securities and Exchange Commission for the fiscal year 2015. The ICI measures the market value of a company above and beyond tangible assets, including internally developed brands, patents, technologies and other intangible assets not recorded on the company's books (per current accounting rules) as well as those on the books acquired through purchase.

TGA developed an algorithm that calculates the difference between the Enterprise Value and Adjusted Book Value of each company and adds the value of booked trademarks, goodwill and other intangible assets. The result is expressed as a ratio of Enterprise Value to produce the ICI amount.

Five of the DJIA stocks (petroleum: Exxon and Chevron and financial: Goldman Sachs, J.P. Morgan Chase, Travelers) were excluded from the study. The accounting rules for these businesses are distinct due to the nature of the asset categories (oil and money) they trade in and do not allow for comparable and accurate analysis. For more information about the study, please visit www.talentgrowthadvisors/ici.

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