CEVITA™: the valuation and reporting of strategic capabilities

Abstract

New types of “measurements” are needed for both tradable and non-tradable assets in order for organisations to meet the challenges present at the corporate, national and international levels, especially in the areas of strategic decision-making and valuation. The focus of attention in recent studies has been on the valuation of intangibles. This paper argues that it is the combination of both tangible and intangible assets that provide an organisation a “capability” that ultimately drives its economic value. The paper then reports on a research study conducted to value organisational capabilities for a strategic military unit (SMU), and a reporting framework comprising a strategic balanced sheet and strategic income statement that was developed for this purpose. The valuation approach is basically to calculate the Capability Economic Value of Intangible and Tangible Assets (CEVITA™) of an organisation by leveraging its capability-enhancing expenses to economic values by using specific Expense Leveraged Value Indexes (ELVI™). 2 The CEVITA™ and ELVI™ trademarks are owned by Profitable Marketing Pty. Ltd in Melbourne, Australia, who were the principal consultants appointed by the Australian Department of Defence for its Strategic Capability Valuation Project. 2 This paper illustrates a technique that will not only make these strategic valuations more relevant, but also show how to report these tangible and intangible asset combinations in an organisation’s financial statements. Even if generally accepted accounting principles cannot accommodate such value-creating information for external reporting, it is argued that, we need to develop them for internal reporting that is less constrained.