REPLY Meaning of Stock/Level (SD6929)

[SDMAIL John Barton]

Posted by  "John Barton" <bartcons at bigpond.net.au>

Alan

For those like yourself who get concerned about the credibility of 
models that include some categories of soft variables as stocks, you 
might find the following approach useful. Specifically, I have used this 
approach to model intangibles as drivers of shareholder value in 
business models; a context in which clients become very dubious about 
measures that appear unreal.

The first thing to note is that an intangible such as "reputation" only 
takes on meaning when it translates into action (either actual or 
contemplated). Furthermore, concepts such as "reputation" result from 
the cognitive integration of factors which contribute to reputation. 
While these factors may initially be unconscious, interview techniques 
can help identify these factors are and what relative importance they 
have to decision makers. Such factors can be eventually related back to 
a number of easily recognised measurables such as years of experience,  
performance, and size of client lists etc. In most cases if not all, 
these factors can be modelled as stocks. Given the weighting factors, a 
"reputation" index can be formed using these stocks. This index can then 
be related to a further action using a graph function that describes the 
usually non-linear behavioural assumptions (defined by the graph's 
convexity). In the limiting case, this index may have a single component 
which is the case when a surrogate measure is used (for example, 
absenteeism for morale).

This technique is made rigorous in terms of pragmatist philosophy by 
reference to Peirce's pragmatic maxim (meaning is provided by 
contemplated or actual action), and his semiotic framework in which a 
symbol (the index) produces a certain reaction (the action driving a 
rate) determined by an interpretant (the empirically determined weighted 
average used in the index).

Apart from avoiding any issues about modelling intangibles as stocks, 
modelling the basic factors provides a completely transparent approach 
to simulation strategies aimed at improving intangibles and their outcomes.

Best wishes

John

John Barton, PhD
Principal
John Barton Consulting
Business Strategy Dynamics
Office: 2 Arthur Street
Sandringham. 3191
Victoria, Australia
Posted by  "John Barton" <bartcons at bigpond.net.au>
posting date  Tue, 15 Apr 2008 16:30:58 +1000