Everything ‘physical’ is destined to end up on the scrapheap (or in a museum) eventually. But, although intangibles can’t be seen or even touched, they often prove to be the most valuable for successful companies.

A few years ago, there was series on Radio 4 jointly produced with The British Museum: “A History of the World in 100 Objects”. Each 15 minute episode would focus on a single object from a crude neolithic hand axe, right up to a HSBC gold credit card.

But it wasn’t the items that were really important in the context of the programme, but the how and why behind their creation. To take one example, the Lewis Chessmen. Whoever carved them up in the Scottish islands a thousand years ago wasn’t consciously setting out to make a statement: he was just making a chess set.

This distinctive set is now a priceless relic: for historians, its depictions of warriors, clergy, and royalty tell us about Norse attitudes to religion and society. In other words, they are expressions of the values behind the person who created them.

Much like the Lewis Chessmen, your company isn’t your product range – and nor is it your headquarters, inventory, swish new logo or anything else ‘physical’. Your company is the collection of the unique intangibles that bring these things into existence.

There’s more to Coke than bottling plants

Coca-Cola is valued by Interbrand at around $80 billion. But if you were to look at its balance sheet, the paper value of the company comes nowhere near that figure. The ‘physical’ actually counts for very little in explaining the company’s true worth. So yes, its bottling plants, property and other infrastructure are worth something – but they barely scratch the surface when it comes to explaining how and why Coke is so successful.

Each year, investment bank, Ocean Tomo conducts a study of the market value of intangible assets of S&P companies. Back in 1975, it was estimated that 80% of the value of such companies resided in hard assets such as land, plant and equipment. Two decades later and that had been completely turned on its head: now, intangible assets make up more than 80% of the average value of a business.

And ‘intangibles’ aren’t just trademarks and other intellectual property. With Coke, for instance, its various trademarks are valued at just $6.7 billion.

The real key are all the untouchable features of a company that help to explain its success. The way the brand is regarded by customers, goodwill, the quality of leadership and management, the brainpower that exists within the organisation: these are just some of the intangibles that give a company its competitive edge.

“Your most precious, valued possessions and your greatest powers are invisible and intangible.” – W. Clement Stone

Individual product lines and bricks and mortar only go so far. Take the example of a startup seeking crowdfunding backing: many of the companies who secure support have next to nothing in the way of physical assets – and might not even have a product on the table yet. But they still attract investment. So how do they do it?

It’s on the basis of the intangibles: the value that’s perceived to exist in the company that can’t be touched and can’t be set out in a balance sheet.

So which intangibles should you focus on? Start with the fundamental components of organisational identity: your Purpose, Culture and Story.

Adobe’s Purpose: How to “ditch the physical” completely

Why do we exist in the first place? Companies that frequently ask themselves this question tend to be highly effective at moving with the times. It stops you getting bogged down in the ‘physical’ and focus on the things that are really important.

Take Adobe: when the company started out in 1982, its initial project was to develop and sell the PostScript page-description language. But behind this were four characteristics that shaped its work and the decisions it made: to be “genuine, exceptional, innovative and involved.” Its purpose was to enable creatives to produce better work.

For Adobe, these have proved to be much more than empty words. The company operates alongside much bigger players, yet it has managed to expand its range and notch up phenomenal growth precisely through keeping this core purpose in sight.

When every decision you make is informed by your purpose, you can afford to make big changes. That’s exactly what Adobe did in ditching its physical software offerings in favour of a subscription-only offering.

This could have gone seriously wrong: the company could have ended up annoying its supporters who’d already bought out-of-the-box offerings and failed to pick up new ones. It could have taken a ‘halfway house’ approach and offered a subscription alongside boxed software, but instead, in the words of TechCrunch, it “chose to bet the ranch at a time when most of its peers were struggling with changing business approaches”.

Keeping your company purpose at the forefront isn’t about sticking with the old way of doing things come what may. Adobe worked out that completely turning its revenue model on its head was totally in tune with its purpose – and the best way of fulfilling it.

Barclays’ Culture: when short-term performance trumps all

For Adobe, a commitment to its guiding purpose translates into bold yet sound decisions. But companies don’t make decisions: people do. To make the right decisions requires the right environment – in other words, a positive, high-performance culture.

You can’t physically touch corporate culture. But you can tell when it’s not right – not least because it manifests itself in the physical. It can end up with horse meat in burgers, emissions testing results being skewed or bank interest rates being manipulated.

Whether it’s ending up with a white elephant that can’t be sold or a reputational crisis on their hands, companies inevitably ask themselves, ‘“How did we end up here?”, or more precisely, “How were these decisions made?”. In the aftermath of the LIBOR scandal (as with many other organisations), the answers for Barclays stemmed back to the culture.

Barclays got very big, very quickly – nothing fundamentally wrong with that. The real problem however (as the post-crash Salz Review showed) was that the bank got so obsessed by “winning” and short-term gain that it forgot about why it came into existence in the first place: to serve the interests of customers and clients. The subsequent “cultural challenges” that this produced, dominated by profits and bonuses at any cost, was just the type of environment where underhand dealings could take place.

Ford’s Story: when ‘students of spreadsheets’ take over

Henry Ford’s methods changed the world, but the story behind them was a simple one. It was compelling because it focused on a central, groundbreaking vision: that automobiles should be not just for the wealthy, but for everyone. That was the idea – and it just so happened that making that idea a reality involved revolutionising mass production.

Over 20 years, 15 million Model T cars rolled off the production line. But regardless of its revolutionary status, the Model T ultimately went the same way as every other physical product: it ended up as scrap, with a handful saved as museum pieces.

If we’re not careful, stories can end up as museum pieces or historical footnotes too – and that’s kind of what happened to Ford for a while. It almost wrecked the company.

In the decades after Henry’s departure, the company kept that central narrative alive. It didn’t forget why it came into being in the first place. It continued to innovate and improve. It didn’t lose sight of its core mission to bring great quality vehicles to the masses – to bring people “freedom, ingenuity, self-reliance and optimism”.

“It’s only intangible ideas, concepts, beliefs, fantasies that last. Stone crumbles, wood rots. People, well, they die. But things as fragile as a thought, a dream, a legend, they can go on and on.” – Chuck Palahniuk

But fast forward to the nineties and something had changed. Writing for HBR, Ty Montague describes how Ford lost its way through straying from its narrative: “The professional managers in charge weren’t students of story. They were students of spreadsheets and short-term profitability”.

The company lost sight of why it was there in the first place. It made decisions that strayed from the narrative and the results were “products that were drab, uninspiring and poorly made”. It was only after Henry’s great grandson and the other board members appointed Alan Mulally “…a leader that understood the narrative and knew how to act Ford-like again” that the company got back on track.

Are you paying enough attention to the intangibles?

It’s easy to focus on the finer points of your product range, your buildings, your inventory, your equipment, or whichever other ‘physical’ thing is calling the loudest.

But these aren’t your company. In fact, they represent just a tiny fraction of what your organisation is really ‘worth’. Your property can be replaced. Your current product range is destined to one day end up as scrap. The key intangibles: Purpose, Culture and Story are what make up your unique identity – and it’s in these that your sustainable value lies.