CIO:Let's look at intangibles. You say that 75 per cent of a company's value is in intangible assets that cannot be measured by financial systems. Things like people, data, processes, brand, customer relationships, innovation and culture. At what point will we start putting values on these things so that we can start valuing companies properly?

Kaplan: Our thesis is the intangible assets don't have a value by themselves. It's only when they are linked and aligned with the company strategy that the value is created.

CIO:But systems have value, don't they?

Norton: The right question is, What's the value of my process? You can measure the value of your new product development process. You can count the number of new products [that have come out of the process in the past few years and their value]. Now, having done that, the question is, Do you have the technology to support that new product development process? And so the way that we should measure that is not in terms of the financial value of the system, but rather in the state of readiness of those technologies to support the strategy. The question then is, Do I have the technology, do I have people trained to do this, do I have the incentives to get full value out of the process? Because the process itself is where you make the money, not the IT system.

CIO:What if you could get to a standard set of metrics for intangibles that would go into the balance sheet but would not be numeric - they would be standardised across companies and required for reporting purposes?

Norton: There are trends afoot where this is beginning to happen in pieces. JD Power, for example, performs the equivalent of an audit around quality in an organisation. And there are HR surveys, like Fortune's 100 best places to work survey, that apply a kind of standard set of questions to employee surveys and develop 10 or 20 key measures. People use that as a point of reference. We were number 72 in the top 100 places to work. [International Organisation for Standardisation] certification is another example. Most of the car companies will tell you what their product development cycle is and what the man-hours per car are.

CIO:But this gets murky when you talk about IT. Companies spend billions on systems that are used in almost completely intangible ways. I think so far that has served to the detriment of IT because the costs are tangible but the value is intangible.

Norton: But again I think the problem is that the focus goes back to IT rather than the process. We can be happy if the organisation is in the top 100 places to work, but how did they do that? Maybe they were all able to work at home because they had great Internet access and services. How did you get your product development cycle down from six years to four? You used CAD/CAM and an engineering database. The nonfinancial results speak for themselves, but then the question is: Where does IT fit into this? That's where I think you make a mistake trying to focus and quantify the value of IT because, as I said earlier, you can't isolate IT from training, from other nontechnology programs put in place, incentive programs and so forth.

CIO:Is there anything you would add for CIOs struggling to make sense of strategy in their organisations?

Norton: The message to the IT executive would be: If you want to sit at the strategy table, it doesn't exist, so you have an opportunity to build it - defining the strategy, participating in this process. Then everybody has a way to align their activities to the strategy. Everyone is then strategic. When I have seen this done in practice, I have seen CIOs get up and talk about their strategy, and you can't tell that they are a CIO. They're talking about business issues, and technology is part of it.

SIDEBAR: More Information

A Buyer's Guide to IT Value Methodologies

CIO August 2002

A roundup of several tools to help CIOs quantify, qualify and prioritise the ways IT contributes to the bottom line.

Printlink: www.cio.com IT Value Methodologies

How to Use the Balanced Scorecard

CIO June 2002

Printlink: www.cio.com Balanced Scorecard