Getting Tangible About Intangibles The Future of Growth and Productivity VF

Getting tangible
about intangibles
The future of growth and productivity?
Discussion paper
June 2021
Authors
Eric Hazan, Paris
Sven Smit, Amsterdam
Jonathan Woetzel, Los Angeles and Shanghai
Biljana Cvetanovski, London
Mekala Krishnan, Boston
Brian Gregg, San Francisco
Jesko Perrey, Düsseldorf
Klemens Hjartar, Copenhagen
McKinsey Global Institute Michael Chui, Mekala Krishnan, McKinsey Marketing & Sales Practice
Since its founding in 1990, Susan Lund, Anu Madgavkar, The mission of McKinsey’s marketing
the McKinsey Global Institute (MGI) Jan Mischke, Jaana Remes, & sales practice is to help leaders
has sought to develop a deeper Jeongmin Seong, and Tilman Tacke of both consumer and business-
understanding of the evolving global are MGI partners. Project teams are to-business clients create growth
economy. As the business and led by the MGI partners and include that matters through meaningful
economics research arm of McKinsey consultants from McKinsey offices transformations and marketing-driven
& Company, MGI aims to help leaders around the world. These teams draw on profit. The practice helps its clients set
in the commercial, public, and social McKinsey’s global network of partners their strategic direction, develop their
sectors understand trends and forces and industry and management experts. marketing and sales capabilities, and
shaping the global economy. connect their organization to realize
The MGI Council is made up of
the full potential of today’s omnichannel
MGI research combines the disciplines McKinsey leaders and includes
opportunities. Clients benefit from
of economics and management, Hemant Ahlawaf, Michael Birshan,
McKinsey’s experience in core areas of
employing the analytical tools of Andrés Cadena, Sandrine Devillard,
marketing such as branding, customer
economics with the insights of business André Dua, Kweilin Ellingrud,
insights, marketing ROI, digital
leaders. Our “micro-to-macro” Katy George, Rajat Gupta, Eric Hazan,
marketing, CLM pricing, and sales and
methodology examines microeconomic Solveigh Hieronimus, Acha Leke,
channel management.
industry trends to better understand Clarisse Magnin-Mallez, Jurica Novak,
the broad macroeconomic forces Gary Pinkus, Hamid Samandari,
affecting business strategy and Sha Sha, Oliver Tonby, and
McKinsey Digital
public policy. MGI’s in-depth reports Eckart Windhagen. The Council
McKinsey Digital drives transformation
have covered more than 20 countries members help shape the research
and builds businesses by bringing
and 30 industries. Current research agenda, lead high-impact research, and
together the capabilities needed to
focuses on six themes: productivity share the findings with decision makers
help organizations grow and thrive
and growth, natural resources, labor around the world. In addition, leading
in the digital age. We help our clients
markets, the evolution of global economists, including Nobel laureates,
harness the power of data and artificial
financial markets, the economic advise MGI research.
intelligence, modernize core technology
impact of technology and innovation,
This report contributes to MGI’s and capitalize on new technology,
and urbanization. Recent reports
mission to help business and policy optimize and automate operations, fuel
have assessed the digital economy,
leaders understand the forces digital growth, create stunning digital
the impact of AI and automation on
transforming the global economy experiences, and build digital talent
employment, physical climate risk,
and prepare for the next wave of and culture.
global health, income inequality,
growth. As with all MGI research and
the productivity puzzle, the economic
reports, this work is independent and
benefits of tackling gender inequality,
reflects our own views. This report
a new era of global competition,
was not commissioned or paid for by
Chinese innovation, and digital and
any business, government, or other
financial globalization.
institution, and it is not intended to
MGI is led by three McKinsey & promote the interests of McKinsey’s
Company senior partners: co-chairs clients. For further information about
James Manyika and Sven Smit MGI and to download reports, please
and director Jonathan Woetzel. visit www.mckinsey.com/mgi.
In brief
Getting tangible about intangibles
Investment in intangible assets that productivity. Sectors that have time data-driven decision making,
underpin the knowledge or learning invested the most in intangibles— flexible architectures, and using
economy, such as intellectual property, more than 12 percent of their GVA— intangibles investment to embed data,
research, technology, software, and achieved 28 percent higher growth talent, and innovation in day-to-day
human capital, has risen inexorably than other sectors in GVA, at more operations is needed. Top growers
over the past quarter century, and than 2.7 percent per year between have a test-and-learn, risk-taking
during the COVID‑19 pandemic there 1995 and 2019. The relationship is mindset. They understand the need
appears to have been an accelerated strongest in knowledge-intensive to continually reexamine what type of
shift toward a dematerialized economy. services such as financial services intangibles are most likely to deliver
Could investment in intangible and in innovation-driven services on competitiveness and growth,
assets now breathe new life into such as telecommunications, media, can be scaled, and are most likely to
productivity growth and unlock new and technology. This apparent deliver synergies.
growth potential? This research uses correlation reflects the synergistic
Huge value is at stake, and
sector-level data and a new survey of nature of different types of intangibles.
executives and policy makers
more than 860 executives to explore Companies with top-notch digital
should ask themselves what it
the correlation between intangibles analytics attract the best talent, and
will take to realize the intangibles
investment and the performance of that talent improves the quality and
opportunity. If 10 percent more
sectors, economies, and firms, and to scope of the analytics. Reflecting such
companies were to attain the same
discover the formula for the effective synergies, companies and sectors that
share of intangibles investment and
deployment of intangible assets to invest across intangible categories post
GVA growth as top growers, this could
drive growth. Key findings include higher GVA than their peers.
produce an additional $1 trillion in
the following:
Regardless of the sector, companies GVA or a 2.7 percent increase across
Even through economic disruptions, that invest more in intangibles grow sectors in Organisation for Economic
intangibles investments have more. The new survey indicates that Co-operation and Development (OECD)
increased. Over the past 25 years, top growers, defined as companies in economies. Given mounting evidence
the United States and ten European the top quartile of GVA growth by sector of the correlation between intangibles
economies (Austria, Denmark, Finland, in 2018–19 (whose median growth was investment and GVA growth, there
France, Germany, Italy, the Netherlands, 20 percent) are investing 2.6 times should be more focus on these assets.
Spain, Sweden, and the United more in intangibles than low growers, For companies, execution is key; top
Kingdom) achieved 63 percent defined as the bottom 50 percent growers deploy these assets more
growth in gross value added (GVA), of companies for GVA growth in effectively than other companies.
a measure of economic growth. During 2018–19 (whose median growth was Mindset matters: top growers tend to
this period, the investment share of 3 percent). The gap increases to be more risk-taking and adopt a test-
intangibles increased by 29 percent. between five and seven times in sectors and-learn environment when deploying
Rising investment in intangibles has such as financial services where intangibles. As the intangible, digitized
been associated with increasing total competitive advantage is anchored economy spreads, reskilling becomes
factor productivity of entire economies. in knowledge. even more urgent. Intangibles-heavy
Growth in investment in intangibles superstar firms employ relatively fewer
Today’s top growers not only invest
slowed after the global financial crisis, people than less digitized businesses,
more in intangibles but take risks to
and productivity growth decelerated, but those people tend to be higher
deploy them and develop granular
too, suggesting a link. skilled and higher paid. If these
capabilities needed to accelerate
businesses pull even further ahead,
Investing in intangibles correlates impact. Both top and low growers
inequality could rise. Governments
with productivity and sector are investing in intangibles, but top
can play a key role in reskilling and
growth. In the past quarter century, growers take the deployment of
in ensuring that the right knowledge
intangibles investment has risen in all intangible capital to the next level. For
infrastructure—including education,
sectors, and data from INTAN-Invest example, it is not sufficient to invest
communications technology including
indicates that there is an observable in accessing data; companies also
internet, urban planning, and public
link between investment in intangibles need to have a data strategy enabling
science spending—is in place.
and GVA growth. It also indicates them to succeed in transforming their
a strong association with total factor analytics. Rigorous processes, real-
Getting tangible about intangibles: The future of growth and productivity? i

Getting tangible
about intangibles
As attention necessarily turns toward the potential shape of the economic recovery when it
comes, there will be a continuation—even an acceleration—of a shift toward growth based on
skills, knowledge, digital and other technologies, and, notably, investment in intangible, rather
than physical or tangible, assets in an increasingly dematerialized world. In the 19th century,
the tools of growth were industrial machines; the tools of the knowledge or learning economy
will be intangible assets, such as intellectual property (IP), research, technology and software,
and human capital.1 Companies and countries that master the deployment of intangibles will
be well positioned and are already displaying above-average growth rates.
The role of intangible assets is a very broad and complex topic that raises many questions,
not least how they should be defined (see the discussion in the next section). Is this the start
of a new stage in the history of capitalism based on learning, knowledge, and intellectual
capital? After the pandemic, could a wave of investment in intangibles be the force that
unlocks new growth potential? Could intangibles help to unleash renewed productivity
growth and solve the Solow Paradox? 2 After a decade of rapid productivity gains enabled
by widespread adoption of information technology (IT) and trends such as globalization,
productivity growth crashed between 2005 and 2019 as these trends appeared to reach
the point of diminishing returns, and the next wave of technology—digitization of processes,
big data and analytics, cloud computing, the Internet of Things, and artificial intelligence—
was not ready to fill the gap. This paper does not address these broad issues but focuses
specifically on a link between intangibles investment and the performance of sectors,
economies, and companies, and on how intangible capital differs from tangible capital and
how its different characteristics heighten the imperative of effective deployment. We use
the INTAN-Invest database for a sector analysis and draw on a new survey of more than
860 executives to ascertain their views on which specific use cases they consider key to
making the most out of the intangible capital deployed. 3
Over the past 25 years, investment in intangible assets has risen steadily as a share of total
investment in the United States and ten European economies—Austria, Denmark, Finland,
France, Germany, Italy, the Netherlands, Spain, Sweden, and the United Kingdom. In 1995,
the split was about 70:30 in favor of tangible investment; by 2019, the split was 60:40.4 It is
notable that the intangibles share continued to increase even in the face of major economic
disruptions; indeed, some evidence indicates that that trend may have accelerated during
the COVID‑19 pandemic in 2020 and early 2021.
Companies riding this trend effectively are outperforming others. The new survey indicates
that top growers, defined as companies in the top quartile of gross value added (GVA) growth
by sector in 2018–19 (whose median growth in all sectors was 20 percent) are investing
2.6 times more in intangibles than low growers, defined as the bottom 50 percent of
1
Joseph E. Stigliz and Bruce C. Greenwald, Creating a learning society: A new approach to growth, development, and social
progress, Columbia University Press, 2014; and Fritz Machlup, The production and distribution of knowledge in the United
States, Princeton University Press, 1962.
2
In 1987, economist Robert Solow said that the computer age was everywhere except in the productivity statistics. The
failure of innovation to boost productivity came to be known as the Solow Paradox. See Mekala Krishnan, Jan Mischke,
and Jaana Remes, “Is the Solow Paradox back?” McKinsey Quarterly, June 2018. Also see Felix Roth, “Intangible capital
and labor productivity growth: A review of the literature,” Hamburg Discussion Papers in International Economics, 2019,
Number 4; and Carol Corrado et al., Intangible investment in the EU and US before and since the Great Recession and its
contribution to productivity growth, EIB Working Papers number 2016/08, European Investment Bank, 2016.
3
INTAN-Invest disseminates harmonized cross-country data on investment in intangibles by industry covering 15 EU
countries and the United States from 1995 onward. See intaninvest.net. For full details of sources and methodology, see
the technical appendix.
4
Data for 2015–2019 are extrapolated.
Getting tangible about intangibles: The future of growth and productivity? 1

companies on GVA growth in 2018–19 (whose median growth was 3 percent in all sectors).5
The gap between them increases to between five and seven times in sectors such as financial
services where competitive advantage is anchored in knowledge. This offers strong evidence
that intangible capital is correlated with higher growth across sectors and companies.
Could intangibles be an important part of the formula needed for robust economic recovery
from the COVID‑19 crisis, which not only has taken a terrible human toll but has been
the deepest disruption to economies around the world since World War II? In 2020, GDP fell
by 3.5 percent in the United States, 9.9 percent in the United Kingdom, and 11.0 percent in
Spain, for instance. Meanwhile, the seeds of a different type of recovery were being sown.
Under pressure from economic lockdowns and plunging demand, many firms accelerated
digitization and, to a lesser extent, automation. A McKinsey executive survey conducted in
December 2020 found that three-quarters of respondents in North America and Europe
said that they expected investment in new technologies to accelerate in 2020–24, up from
55 percent who said they increased such investment in 2014–19. Intangibles investment as
a share of total investment reported by national statistical offices rose in the United States
and six large European economies in the first three quarters of 2020, for example, by as much
as 2.8 percentage points in France and 1.9 in the United Kingdom.6
The shift toward intangibles has continued even in the face of major disruption, suggesting
that it is a long-standing trend but one that is not fully reflected in traditional accounting.
The full transformative power of intangibles has yet to be revealed. Amid the perennial
discussion about the long-term structural decline in private investment, it may well be that
companies, or at least large, high-performing companies, are, in fact, investing heavily—but
more in intangibles than in tangibles.
What are intangibles and why are they important?

As far back as the 1960s and 1970s when futurists were talking about the postindustrial
time to come, the importance of intangibles began to be part of the conversation. Their role
came to even greater prominence in the 1990s as the concepts of the “network society” and
“weightless world” became common currency, as value chains and economies globalized, and
as management practices and business processes improved.7 In the computer and internet
age, appreciation of the importance of intangibles heightened further. After the bursting of
the dot-com bubble in the 2000s, a period that included the 2008 global financial crisis and
a decade of relative economic stagnation, their time had come. The emergence of mobile and
cloud computing technologies turbocharged digitization, and firms fully realized intangibles
as a key piece of the formula they need to deliver disproportionate returns. The ubiquity of
computers and data today is enabling us to leverage accumulated knowledge and content
in myriad ways. As economists Jonathan Haskel and Stian Westlake said in their 2017 book,
the notion of “capitalism without capital” is now at center stage. 8
Yet this new era is not showing up in national accounts or, indeed, corporate balance
sheets, and it is likely that we are heavily underestimating the role they are playing in
accelerating the development and spread of the knowledge economy (see Box 1, “A new look
at intangibles”).
5
The survey was conducted in March 2021 in 16 countries in three regions covering 21 sectors. Of the 861 respondents,
nearly 80 percent were C-suite executives. Of the companies represented, two-thirds had revenue of $500 million or
more, and just over half had revenue of $1 billion or more. The main analyses were performed for the most important
sectors by size of GVA, and we ensured that these sectors were represented in the survey. Of 861 respondents, 20 percent
were in advanced manufacturing; 16 percent in telecommunications, media, and tech; 14 percent in retail trade; 13 percent
in financial services; and 6 percent in energy and utilities. The survey results also enabled us to undertake analyses of
approaches to intangibles at the firm level. The Organisation for Economic Co-operation and Development (OECD) defines
gross value added as the value of output less the value of intermediate consumption; it is a measure of the contribution
to GDP made by an individual producer, industry, or sector. See Glossary of statistical terms, OECD, stats.oecd.org/
glossary/index.htm.
6
Will productivity and growth return after the COVID‑19 crisis? McKinsey Global Institute, March 2021, on McKinsey.com.
7
The term “network society” came to prominence in an influential book by Manuel Castells. See Manuel Castells, The rise of
the network society: Economy, society, and culture, Blackwell Publishing, 1996. The term “weightless world” was used as
the title of a 1999 publication focused on the rise of the digital economy. See Diane Coyle, The weightless world: Strategies
for managing the digital economy, The MIT Press, 1999.
8
Jonathan Haskel and Stian Westlake, Capitalism without capital: The rise of the intangible economy, Princeton University
Press, 2017.
2 McKinsey Global Institute

Box 1.
A new look at intangibles
Current definitions and accounting treatments of intangibles are not well suited to the realities
of business in a growing knowledge economy. As intangibles spread and create value, this
topic needs consideration if we are going to measure their value in a way that is useful for
executives and economic policy makers. We have been working with economists to see how
current definitions and approaches to intangibles might be adapted, and in this paper we
attempt to broaden current definitions.
National statistics and corporates today broadly recognize the same categories of investment
as intangible assets, including IP, R&D, goodwill, and computer software. However, they
treat specific items differently. For instance, goodwill is reported as “intangible assets” by
corporates but recognized as “financial” capital in national accounts when first created. The R
in R&D is systematically recognized as an intangible asset by national accounts but not always
by corporates. These nuances may result in differences in the measurement and scope
of intangibles.
— The OECD defines an intangible as “something which is not a physical asset or a financial
asset, which is capable of being owned or controlled for use in commercial activities, and
whose use or transfer would be compensated had it occurred in a transaction between
independent parties in comparable circumstances.” 1 In essence, the value of an intangible
is dematerialized and becomes apparent only when, say, a company is sold and the market
assigns a value to it. Specifically, national accounts compiled by statistical agencies
usually include various types of IP, including patents, know-how and trade secrets,
trademarks, trade names and brands, rights under contracts, and government licenses, as
well as goodwill and ongoing concern value and investment in software.
— Corporates usually count as intangibles IP items including patents, copyrights, customer

relationships, brands, and concession rights, as well as goodwill and investment in
software. How they account for intangibles depends on a range of factors, including
national tax codes, as well as accounting conventions and rules.
As a result, many types of expenditure that create multiyear valuable assets are simply
expensed through the profit-and-loss account or considered intermediary expenditure in
national accounts. When business leaders and, by extension, shareholders are “trapped”
in accounting norms that are not necessarily fit-for-purpose and consider investments in
intangibles as costs rather than assets, this can lead to suboptimal decisions. By adjusting
accounting norms, the full value of intangibles could become clearer, which could lead to
better decisions.
Jonathan Haskel and Stian Westlake highlighted three categories of intangibles in their
influential book, Capitalism without capital: “intellectual property/innovative property,”
which includes R&D, mineral licenses, design, financial innovation, and artistic originals;
“computerized information,” including software and databases; and “economic competencies”
such as advertising and brands, marketing research, organizational capital, and training.
This broader definition and analysis of intangibles has more relevance than traditional
categorization to the role they are increasingly playing in companies, sectors, and economies.
In this paper, we use the INTAN-Invest database developed by Haskel and Westlake,
further developing the three categories into four to include a broader set of capabilities
(marketing, management, and digital) that are key to building future growth prospects.
Those categories are also intangible: innovation capital; digital and analytics capital; human
and relational capital, which includes two subcategories: organizational and managerial
capital, and ecosystems and networks; and brand capital, such as customer insights and
customer experience.
1
Guidance on transfer pricing aspects of intangibles, OECD/G20 Base Erosion and Profit Shifting Project, OECD, 2014.

Box 1 (continued)
Future work is needed to better capture the nature of investment in intangibles by revising
and adjusting the accounting treatment of expenditures associated with these assets.
Instead of showing up simply as in-year expenses or not being accounted for at all, spending
on intangible assets could be capitalized—recognized as capital investment in an asset that
will create value not only in the year of that investment but in future years, too (Exhibit 1).
Looking at business investment and economies through the lens of intangibles enhances
understanding of where and how they are increasingly creating value. Changing accounting
norms is not theoretical but practical, and it is arguably the prerequisite for revealing the full
value of intangible assets.
Exhibit 1
Expenses on intangibles could be capitalized to better reflect investments Illustrative

made in new growth potential.
Corporate profit Potentially Capitalization Depreciation

and loss capitalized? factor1 rate
Sales
Cost of goods
sold
Gross margin
R&D 1.0× 0.15
Design 0.5× 0.20
Advertising 0.6× 0.55
Marketing
0.6× 0.55
research
Training 1.0× 0.40
Digital n/a n/a
Other fixed costs
EBITDA
1. Capitalization factor is the share of expenditure that is capitalized into the balance sheet.
Source: Corrado et al., 2012; McKinsey Global Institute analysis

Accounting norms arguably underestimate the role of intangible capital, which is found
throughout economies today. This capital can be a unique design that engages large numbers
of users and improves their digital experiences, or the digital capture of user behavior,
contributions, and social profiles. It can be an environment that encourages consumers to
access products and services, or the intense big data and analytics capabilities that can
guide operations and business growth. In short, intangible capital encompasses a variety
of concepts, including knowledge, brands, building partnerships, relationships, and
networks, and improvements to organizational effectiveness. Different groupings have been
considered.9 This paper focuses on the following four major types of intangible assets:
— Innovation capital. This arises from investments that build a company’s IP. It includes
investments in R&D in, for instance, new product development across industries from
manufacturing to biotechnology; design, such as new product interfaces—digital
(payment gateways in apps) or physical (larger iPhone screens); and entertainment and
artistic originals, including book publishing and movie production. For an electronics
company, this could be investment in the design of a new device (for instance, IBM’s two-
nanometer chip).10 For a mining company, it could be investing in geological intelligence
for exploration.
— Digital and analytics capital. This arises from investments in building software such
as the installation and maintenance of customer relationship management software;
developing databases, including building a data lake and a data management platform;
digital platforms such as a front-end e-commerce interface; and analytics models and
algorithms, the latter including, for instance, a personalization process that enables real-
time and tailored social media campaigns.
— Human and relational capital. This spans two subcategories. First, organizational and
managerial capital includes investments that build individual or organizational skills
through training, including to advance the skills of a workforce in a particular specialty
and the development of capabilities through, for instance, a talent strategy that builds
employees’ critical digital and cognitive capabilities, their social and emotional skills,
and their adaptability and resilience. Second, capital associated with ecosystems and
networks includes activities related to developing and improving privileged relationships;
partnerships with, for example, key suppliers; and networks including, for instance,
an ecosystem of data partners.
— Brand capital. This arises from investments in marketing and sales that build and
improve brand equity, including, for instance, a TV campaign to improve brand awareness;
convening consumer panels to develop customer insights and better understand the voice
of the customer; and targeted promotions aimed at avoiding customer churn or offering
excellent customer service, which enable improved customer retention.
Taking these together, there is a common thread—investments in intangible capital yield

new products, processes, or capabilities that are often complex to build and replicate
but that enable companies to create enduring competitive strength. These assets can be
scaled more readily than tangible assets, and their benefits are more likely to spill over and
exhibit synergies with other intangibles. However, unlocking that value and productivity is
costly. Intangibles can involve very large up-front investments, which can take considerable
time to yield results and may not be easily recoverable.11 BioNTech, the specialized biotech
company that co-developed a COVID‑19 vaccine with pharmaceutical company Pfizer, had
been operating at a loss since its startup in 2008, and it invested more than $1 billion in
9
Carol Corrado, Jonathan Haskel, and Cecilia Jona-Lasinio, Intangible capital and growth in advanced economies:
Measurement methods and comparative results, Institute of Labor Economics (IZA), discussion paper number 6733,
July 2012.
10
IBM unveils world’s first 2 nanometer chip technology, opening new frontier for semiconductors, IBM, May 6, 2021.
11
Press, 2017. The authors note that the characteristics of intangibles have consequences for economies. They note that
investment appears low because some is unrecorded.

developing a mRNA technology platform.12 Because of widespread use of the BioNTech
Pfizer COVID‑19 vaccine, BioNTech is today one of the most valuable companies in
the biotech industry.
Both Amazon’s development of an internal search process that promotes next products to
buy and Netflix’s efforts to fine-tune personal recommendations to increase video viewing
and retain customers incurred considerable up-front costs, but those were also investments
that contributed to building intangible assets that have been just as valuable as—and arguably
more valuable than—building a factory 25 years ago. There is a risk that intangible assets can
be copied or stolen from others. Think of smartphone features that are widely available across
different brands. However, two characteristics make up-front investment worthwhile. First,
intangibles can be scaled. Take Coca-Cola as an example; developing the brand together with
a marketing and communications strategy takes a lot of money but, once developed, can be
replicated anywhere in the world. Second, intangibles offer synergies. Google, for instance,
invests heavily in developing human capital through training, which enables the company to
attract and retain talent that, in turn, delivers an edge in highly valuable digital and analytical
know-how.13
Importantly, ensuring that intangibles investments yield returns requires different capabilities
and know-how, which we discuss in some depth in this paper. But they also help create new
capabilities that can unlock considerable value.
Over the past 25 years, the investment share of intangibles increased

by 29 percent
Over the past 25 years, the United States and ten European focus economies achieved
63 percent growth in GVA, a measure of economic growth. This represents 73 percent growth
in the United States and 51 percent growth in the ten European economies. During this period,
the investment share of intangibles increased by 29 percent (see the technical appendix for
full details of how intangibles are defined).
The European economies started from a lower base than the United States. US investment in
intangibles was markedly higher as a share of investment than in Europe in 1995, 36 percent
versus 25 percent. From 1995 to 2019, Europe’s share rose faster than the US share, but at
the end of the period was still lower, at 36 percent compared with 42 percent. Over this period,
the US economy grew at a rate of 2.3 percent but the ten European economies on average at
1.6 percent, indicating a broad relationship between level of intangibles investment and GVA
growth rates.
It is notable that the share of intangibles in total investment has risen steadily even in the face
of economic disruptions such as the bursting of the dot-com bubble in the late 1990s—
although with some temporary periods of deceleration in that increasing share, as observed in
the aftermath of the global financial crisis in 2008 (Exhibit 2). It picked up again after that and
appears to have accelerated during the economic crisis triggered by the COVID‑19 pandemic.
As social distancing necessitated remote working, digitization (and to a lesser extent
automation) accelerated, and investment in intangibles was part of this story. Some evidence
indicates that the rise in intangibles investment as a share of total investment quickened. In
the United States, for example, the share of intangibles investment (as measured by gross
fixed capital formation) increased by one percentage point between the first three quarters
of 2019 and 2020 to reach 29 percent of total investment. The same trend was observed
in European economies, some of which experienced even faster increases. In France,
for example, the increase was 2.8 percentage points, while in the United Kingdom it was
1.9 percentage points.14
12
Harry Dempsey and Sarah Neville, “BioNTech to price vaccine ‘well below’ market rates,” Financial Times, November 10,
2020.
13
Paul Fain, Employers as educators, Inside Higher Ed, July 17, 2019.
14

Exhibit 2
The investment mix has shifted toward intangibles over the past 25 years.
Intangible/tangible investment mix, United States and 10 European countries, 1995–2019, %1
Share
growth
Tangibles
Examples
 Residential and 60 -13%
nonresidential buildings 69
 Transportation equipment
 Machinery equipment
 Communication equipment
Intangibles
Examples
 Intellectual/innovative
40 +29%
31
property
 Computerized information
 Economic competencies
1995 2000 05 10 15 2019
Extrapolated2
1. European countries are Austria, Denmark, Finland, France, Germany, Italy, Netherlands, Spain, Sweden, and United Kingdom.
2. Data extrapolated for 2015–19 based on 2010–15 average growth.
Source: EU-KLEMS; Eurostat; INTAN-Invest; McKinsey Global Institute analysis
Investment in intangibles may have been significant enough to have a positive impact on
the GVA of entire economies—economies that have large intangible-rich sectors (Exhibit 3).
Three economies stand out for having achieved both high investment in intangibles and
robust growth in GVA: Sweden, the United Kingdom, and the United States. Sweden
achieved annual 2.4 percent GVA between 1995 and 2020, the United States 2.3 percent,
and the United Kingdom 2.2 percent. All three economies have larger shares of knowledge
and innovation sectors, in which intangibles investment is prominent. Conversely, economies
that posted lower rates of growth in GVA over this period were more exposed to resource- or
labor-intensive sectors that tend to invest less in intangibles. Many other factors determine
growth, of course, and they should be examined in detail, but there does appear to be a link
between investment in intangibles and GVA growth at the whole-economy level.
An intangibles-rich economic model is not the only way for an economy to promote
productivity and growth. Nevertheless, economies that are experiencing growth in intangibles
investment are also posting growth in total factor productivity (Exhibit 4).15 This suggests that
total factor productivity growth and growth in intangibles investment may be correlated—an
increase in intangibles investment may trigger an increase in total factor productivity, and
therefore long-term economic growth. Future research is needed to ascertain how strong this
correlation is and what other factors may be in play.
15
Total factor productivity is a measure of the output of an economy relative to the size of all of its primary factor inputs
(capital and labor). When the growth of a nation’s economic output over time is compared with the growth of its labor force
and its capital stock (inputs), the former usually exceeds the latter. This is due to growth in total factor productivity, that
is, the ability to combine the factors (labor and capital) more effectively over time. This can be due to changes in qualities
(more appropriate skills or embedded technologies) or to better methods of organization. See Antonin Bergaud, Gilbert
Cette, and Rémy Lecat, “Productivity trends in advanced countries between 1890 and 2012,” Review of Income and
Wealth, 2016, Volume 62, Number 3.

Exhibit 3
Some countries invested heavily in different types of intangibles and have grown the fastest.
Average annual investment share of gross value added investment by country, 1995–2019, %1
Countries with high level of intangibles Countries with low level of intangibles
Low High
investment and above-average growth investment and below-average growth
Data and Human and Investment in

Innovation analytics relational Brand intangibles, GVA growth,
capital capital capital capital % of GVA %
Countries
Sweden 5.8 2.3 3.2 1.0 12.2 2.4
United States 4.5 1.8 3.2 1.2 10.7 2.3
Denmark 4.4 1.6 2.8 0.8 9.6 2.2
Netherlands 2.6 2.3 3.8 1.1 9.9 2.1
United Kingdom 3.3 1.8 3.9 0.9 10.2 2.1
Austria 3.3 1.8 2.4 1.1 8.6 2.0
France 3.3 2.6 3.6 0.6 10.1 1.8
Spain 2.2 1.3 1.3 0.8 5.9 1.7
Finland 4.7 1.3 2.8 1.3 10.2 1.6
Germany 3.6 0.9 2.0 0.7 7.1 1.6
Italy 2.4 1.4 1.9 1.1 6.8 0.3
Average 3.7 1.7 2.8 1.0 9.2 1.8
1. Data extrapolated for 2015–19 based on 2010–15 average growth.

Note: In addition to investment in intangibles, many other factors drive countries’ economic growth, including regulation and other policy choices.
Source: INTAN-Invest; McKinsey Global Institute analysis

Exhibit 4
Productivity growth has historically been correlated with growth in intangibles investment
across countries.
Growth in total factor productivity and intangibles investment, United States and 9 European countries, 1999–2017,
compound annual growth rate (CAGR), %1
Growth in total factor productivity, CAGR, %
1.5 R2 = 55%2
Finland
Sweden
United
1.0 States
United
Austria
Kingdom
Denmark
0.5 Netherlands
France
Spain
0
Italy
-0.5
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Growth in intangibles investment, CAGR, %
1. 1999–2016 CAGR for United States.

2. Excl Spain.
Note: Figures show average annual growth rates, 1999–2017. Data are whole economy.
Source: INTAN-Invest; Bergeaud et al., 2016; McKinsey Global Institute analysis
Investing in intangibles correlates with sector growth

A correlation between investment in intangibles and GVA growth is observable at the sector
level. Based on the detailed sector data in the INTAN-Invest database, we classified sectors
into four groups based on their main source of competitive advantage. Broad correlations
are discernible across sectors and in four groups of sectors identified based on their
sources of competitive advantage: (1) innovation-driven services such as information and
communications technology (ICT); (2) knowledge-intensive services, such as finance and
insurance, and professional services; (3) labor-intensive services, such as wholesale trade,
transportation and warehousing, accommodation and food services, construction, and
healthcare; and (4) resource-intensive goods such as mining, manufacturing and utilities
(Exhibit 5).
Sectors that have invested the most in intangibles—more than 12 percent of their GVA—
have achieved higher growth in GVA, at more than 2.7 percent per year (28 percent higher
than other sectors). However, the strength of this correlation is not uniform across sectors.
Knowledge-intensive services appear to have deployed intangibles more effectively than
other groups of sectors, investing 15 percent of their GVA and, on average, achieving above-
average GVA growth of 3.0 percent a year. Innovation-driven services on average invested
17.4 percent of their GVA in intangibles and grew at 2.9 percent a year.

Exhibit 5
Some sectors are intangible-intensive, invest in specific categories of intangibles,

and have grown faster.
Average annual intangibles investment share of GVA by sector, 1995–2019, %1 Low High
Data and Human and Investment in GVA

Innovation analytics relational Brand intangibles, growth,
Sector types Sectors2 capital capital capital capital % of GVA3 %
Innovation-
driven ICT 8.1 6.1 4.5 2.5 21.1 2.8
services
Entertainment
5.3 0.8 5.1 1.9 13.7 3.0
and recreation
Knowledge-
intensive Finance and
3.6 3.3 6.2 1.6 14.6 2.6
services insurance
Professional
3.8 3.2 6.2 1.6 14.9 3.4
services
Labor-
intensive Wholesale trade 1.9 1.4 3.8 2.1 9.3 1.8
services
Transportation
1.0 1.1 3.1 0.6 5.8 1.9
and warehousing
Accommodation
0.7 0.3 3.2 1.5 5.7 2.8
and food services
Construction 1.5 0.4 3.0 0.3 5.1 1.7
Healthcare 0.6 0.6 0.0 0.0 1.1 2.9
Resource-
intensive Mining4 25.0 0.8 1.9 0.0 27.9 3.8
goods
Manufacturing 8.8 1.8 3.5 1.3 15.3 0.9
Utilities 1.7 1.6 3.4 0.9 7.6 1.2
Average 5.2 1.8 3.7 1.2 11.9 2.4
1. Data extrapolated for 2015–19 based on 2010–15 average growth. European countries are Austria, Denmark, Finland, France, Germany, Italy, Netherlands, Spain,
Sweden, and United Kingdom.
2. Non-business sectors (eg, government and education) not considered because no data available for human and relational capital and brand capital.
3. Includes other minor intangibles categories (<2 of total intangibles investment).
4. Most investment in innovation capital in mining relates to mineral exploration, which is considered an intangible in national accounts.
Note: Color coding realized for each intangible capital category independently.

Most other sectors invested less than 12 percent of their GVA in intangible capital and have
achieved below-average rates of GVA growth, at 2.1 percent per year. In general, a relationship
can be observed between higher intangibles investment and higher growth, although there
are some exceptions. One exception is manufacturing, which has invested 15.3 percent of its
GVA in intangibles but has experienced broadly flat growth. This appears to reflect the fact
that manufacturing has invested particularly heavily in innovation capital, specifically R&D,
which entails large sunk costs as companies seek to develop the right new products. Another
example is healthcare (Exhibit 6).
Exhibit 6
Sectors that invest the most in intangibles have grown the fastest.
GVA growth and investment in intangibles, US and 10 European countries, Size based on adjusted GVA, 2019
1995–2019, % share of GVA by sector1
GVA compound annual growth rate, Average intangibles investment =

1995–2019, % 10.0
4.0 Mining
3.5 Entertain- Professional

Healthcare ment and services
Accommodation
recreation
and food services
3.0
Finance and
2.5 Education insurance
ICT
Average
2.0 GVA growth =
2.2
Retail trade
Govern-
1.5 ment
Construction
1.0 Utilities
Transportation
and warehousing
0.5
Manufacturing
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Average investment in intangibles,
1995–2019, % share of GVA
The manufacturing sector has tended to be more intangible-intensive than tangible-intensive.

Examples include Pfizer’s R&D programs and Rolls-Royce’s investment in lean production
techniques pioneered by the Japanese auto industry.16 The shift toward intangibles has also
occurred in service sectors that have steadily increased investment in intangibles, such as
human and relational capital, and digital and analytics capital (Exhibit 7).
16
R&D locations, Pfizer, pfizer.com; and Peggy Hollinger, “Rolls-Royce designs a revolution on factory floor,” Financial
Times, February 10, 2016.

Exhibit 7
Share of intangibles started to tick up in the mid-1990s and early 2000s in

manufacturing and services sectors.
Tangibles Intangibles
Manufacturing Services
GVA share GVA share
0.20 0.20
0.15 0.15
0.10 0.10
0.05 0.05
0 0
1995 2000 05 2011 1995 2000 05 2011
Note: Intangibles intensity in manufacturing and services (real shares of real sector value added, EU and US, non-farm business); author calculations from INTAN-Invest
and SPINTAN.
Source: Haskel and Westlake, 2018; INTAN-Invest; SPINTAN; McKinsey Global Institute analysis
Regardless of the sector, companies that invest more in intangibles

grow more
Turning from sectors to companies, the new survey shows differences among firms within
sectors. In all sectors, some companies outperform others, and firms that invest the most
in intangibles are outperforming their peers. Top growers are investing 2.6 times more in
intangibles than low growers (Exhibit 8).17 The gap between them increases to between
five and seven times in sectors such as financial services where competitive advantage is
anchored in knowledge. This multiple is stable in all categories of intangibles, and indeed
widens in the case of brand capital. Higher investment in intangible assets makes top growers
more likely to create new forms of competitive strength.
17
We measured only 2018–19 and 2019–20 because of constraints in the survey, but INTAN-Invest data suggest that the
correlation exists at both the sector and economy levels.

Exhibit 8
Top growers invest 2.6 times more in intangibles than low growers across sectors.
Intangibles investment by sector, 2019, Median growth, 2019, %

ratio of investment in intangibles/revenue, %1
Low growers 3
Top growers 20
13
5.5x
5.2
8
7
7.8x
4
2.6x 3.2x
4
2 2
2.0x
2 1 1 1 1
Total, median Financial services Telecommuni- Advanced Retail trade Energy and utilities
(n = 72) cations, media, manufacturing (n = 80) (n = 41)
technology (n = 115)
(n = 102)
1. Median by sector. Survey included other sectors not shown here.

Note: Figures may not sum to 100% because of rounding.
Source: McKinsey survey; McKinsey Global Institute analysis
Even sectors with relatively lower growth, such as manufacturing, have top growers that
are using high investment in intangibles to outgrow the market. Moreover, outperformers
are increasingly diversifying growth by entering “intangible-like” adjacencies as an avenue
to achieve disproportionate growth. Manufacturing companies in slower-growing
industries have used their intangible assets (such as brand) to carve out resilient niches
within the industry or find new growth markets while others have focused on productivity
improvements. In summary, companies can outperform the sector in which their core business
operates by expanding the activities in which they engage and the ecosystems in which
they operate.
— Top growers in innovation-driven-services sectors including telecommunications,

media, and technology invest 5.2 times more than low growers.18 Disney, a leading
company in the entertainment industry, has an extensive portfolio of tangible capital,
including roller coasters, water rides, land, and shops. But the company is increasingly
using data analytics. In the early days of the company’s digital journey, it used big data
in its MagicBand bracelet equipped with RFID technology to personalization customers’
experience in its parks.19 Today, the company is using AI-driven data analytics to offer
an increasingly bespoke viewing experience for its Disney Plus customers, and is moving
into natural language processing and machine learning to enhance its understanding of
viewers’ preferences.20 In just over a year after the launch of Disney Plus, the streaming
service had almost 87 million customers—close to the company’s original target of
18
This maps to ICT, entertainment, and recreation in the INTAN-Invest classification.
19
KO, Big data behind Disney Magic, HBS Digital Initiative, November 2019, digital.hbs.edu; Bernard Marr, “Disney uses big
data, IoT and machine learning to boost customer experience,” Forbes, August 24, 2017.
20
“How Disney Plus personalizes your viewing experience,” Forbes Insights, April 21, 2020.

90 million in year four.21 By the second quarter of 2021, that total had risen to nearly
104 million.22
— Top growers in knowledge-intensive-services sectors such as financial services

invest 5.4 times more than low growers. One major European bank had invested limited
amounts in intangible capital and had limited access to data, a shortage of skills, and
conflicting data strategies. In response, the bank sought to increase its access to data,
invested heavily in organizational and managerial capital, and deployed an analytics
transformation program covering the redesign of its organization, a talent strategy,
the modernization of its data architecture, and building analytics capabilities across
the organization. The transformation of the bank’s brand capital added the most value.
The bank developed strong marketing intelligence capabilities for its retail branches,
which enabled more granular customer segmentation and personalized pricing,
and enhanced management of the entire customer journey. Finally, optimized data
management and a new data architecture enabled enhanced analytics capabilities that
the bank used to drive decision making, streamline reporting, and ensure immediate
access to robust data.
— Top growers in retail trade, a labor-intensive-services sector, invest 8.0 times more
in intangibles than low growers. In the past, US discount retailer Walmart relied on
investments in tangibles to drive its revenue, opening new stores, optimizing the layout
of shelves within stores, and expanding the size of its warehouses. However, in 2019,
the company opened only ten additional stores in the United States, its most important
market, as its focus turned to building an innovation culture. Among its initiatives were
using new technologies to enable driver-free deliveries and developing a comprehensive
ecosystem of partners in order to be competitive with e-commerce platforms. Enhancing
its brand capital, the company offered customers a loyalty program with a focus on free
delivery, more choice, and a personalized pricing system. Walmart also developed its
human, organizational, and managerial capital, reskilling existing workers and attracting
new talent. The company developed more than 40 new partnerships to improve customer
convenience. Digital and analytics capital development played a key role in this new
ecosystem, enabling the company to connect its partners, businesses it acquired, and
customers on a single digital platform while embedding machine learning across many
areas of its business. Investments in digital and analytics helped not only to build a stable
technology platform but also to generate advertising revenues through detailed data
gathering and analysis of customers’ shopping patterns.23
— Top growers in resource-intensive-goods sectors, such as advanced manufacturing,

and energy and materials, invest 2.0 to 3.0 times more in intangibles than low
growers. In these sectors, the gap in intangibles investment between top and low growers
is limited in comparison with other sectors, indicating that these assets do not play as
consequential a role in driving performance and growth differences among companies.24
In manufacturing and mining, for instance, companies deploy digital tools to engage
their customers, suppliers, and partners, but digital penetration in their physical assets
remains relatively low. Nevertheless, there are differences in the level of intangibles
investment as top growers diversify into “intangible-like” adjacencies as an avenue to
achieve disproportionate growth. One best-in-class European automotive industry player
has embraced the disruptive shifts in its industry. The company still relies on designing
and manufacturing parts and systems to electrify power trains, optimizing overall
thermal management, and building advanced driving assistance systems. However, it
21
Todd Spangler, “Disney Plus to increase prices in early 2021, eyes up to 260M subscribers by end of 2024,” Variety,
December 10, 2020.
22
Statista, Disney+’s number of subscribers worldwide from 1st quarter 2020 to 2nd quarter 2021, statista.com/.
23
Timothy Green, Amazon spends more on advertising than Wal-Mart, Target, Best Buy, Home Depot, and Kroger
combined, The Motley Fool, February 2018; A. Guttmann, Walmart: Advertising spending 2015-2020, Statista, September
2020; and Stewart Samuel, Walmart: investing to develop a global ecosystem, Retail Analysis, October 2018.
24
In the McKinsey survey, the energy and materials sector bundles mining and utilities companies, and the advanced
manufacturing sector combines advanced electronics, automotive and assembly, aerospace and defense, and
semiconductor players. These differences in classification from the INTAN-Invest database make it more challenging to
compare the survey results with INTAN-Invest data than in other sectors.

invests more in intangible capital, boosting its R&D investments. For instance, it has
launched the first global research center in AI and deep learning dedicated to automotive
applications, the aim being to develop high-performance sensors capable of perceiving
and understanding a vehicle’s context, advanced automated driving functions in complex
environments, smart interaction with users, and learning capabilities through connected
cars.25 The company has estimated that its investment in innovation capital would enable it
to outperform the rest of the automotive market by about five percentage points, increase
earnings before interest, taxes, depreciation, and amortization to 15 percent of sales in
2022, and double its generation of free cash flow in 2020–22 versus 2017–19.26
The scalability of intangibles is already enabling large and profitable firms to emerge, and
they could potentially pull further ahead, thereby widening the productivity and profit gaps
between leaders and laggards.27 Previous MGI research found that a key distinguishing
feature of “superstar” companies is their investment in intangibles. On an annual basis,
superstar companies spend two to three times more on R&D than their peers, and their
share of R&D spending has increased over the past 20 years. Superstar companies in
the top 1 percent by economic profit are almost three times more R&D-intensive than median
companies are, and nearly ten times more R&D-intensive than companies in the bottom
decile. Capitalized spending on intangibles accounts for one-third of superstars’ invested
capital, four times the share for bottom-decile companies.28
An increasing concentration of revenue and profit in a small group of successful firms risks
increasing inequality. Intangibles-heavy superstar firms employ relatively fewer people than
less digitized businesses, but they tend to be more highly skilled and paid. If these businesses
pull even further ahead, the labor share of income—the percentage of national income that
goes to worker compensation—could decline even more. Past MGI research showed that this
phenomenon has been responsible for about 20 percent of the reduction in labor share in
the United States since 2000, a period in which three-quarters of the decline since 1947 was
registered.29 Jonathan Haskel and Stian Westlake have argued that the rise of intangibles
explains several aspects of the long-term rise in inequality. Synergies and spillovers create
inequality between competing companies, and this leads to inequalities in employees’ pay.
Second, the rise of intangibles makes cities—the incubators of spillovers and synergies—even
more attractive places to be, and this drives up property prices: inequality of wealth. 30
25
Our strategy, Valeo, valeo.com.
26
Valeo Investor Day 2019, Valeo Group, December 2019.
27
Press, 2017. The authors argue that the scalability of intangibles enables large and profitable firms to emerge, raising the
productivity and profits gap between leaders and laggards, and contributing to increased income inequality. Also see
Productivity growth in the digital age, OECD, February 2019.
28
MGI analyzed 5,750 of the world’s largest public and private companies, each with annual revenue greater than $1 billion.
Together, they made up 65 percent of global corporate pretax earnings (earnings before interest, taxes, depreciation,
and amortization) from 1994 to 2016. The metric used for superstar companies was economic profit, a measure of a
company’s invested capital times its return above its weighted cost of capital. Economic profit is used because it reflects
the economic value created by a company’s operating activities and investments. See Superstars: The dynamics of firms,
sectors, and cities leading the global economy, McKinsey Global Institute, October 2018; and “What every CEO needs to
know about ‘superstar’ companies,” McKinsey Global Institute, April 2019, on McKinsey.com.
29
A new look at the declining labor share of income in the United States, McKinsey Global Institute, October 2018, on
McKinsey.com.
30
Press, November 28, 2017.

Companies that substantially invest in all four categories of intangible
capital outperform their peers and develop resilience
Intangibles are interdependent, and companies achieve greater synergies by investing in
them all. Companies that have invested across all categories of intangibles are further ahead
in their digitization journey, less likely to be disrupted because they are highly innovative,
and highly likely to be able to attract and retain top talent. All of this can create value and,
importantly, value that can be defended even amid a deep market and economic disruption.
Over the past 25 years, across sectors, there has been a high correlation between
investments in digital and analytics capital and human and relational capital, between brand
capital and digital and analytics capital, and between brand capital and human and relational
capital (Exhibit 9).
Exhibit 9
Investments in different types of intangibles interact with a high correlation,

creating synergies.
Correlation between different types of investments, on their GVA share for sectors and countries,, 1995–20191
Digital and Human and Low High

Innovation analytics relational Brand
capital capital capital capital
Innovation
R² = 19% R²=16% R² = 14%
capital
Digital and
analytics R²=40% R²= 35%
capital
Human and
relational R²=58%
capital
Brand
capital
This correlation reflects the synergistic nature of different types of intangibles. For example,
investment in human capital can drive a better return on investment in digital and analytics.
Companies that have top-notch digital analytics are able to attract the best talent, and that
talent, in turn, improves the quality and scope of those analytics. Intensive investment in
human and relational capital, proxied in the exhibit by organizational capital, and in digital and
analytics capital, proxied by software and databases, is associated separately with higher
productivity—but investing in both is associated with disproportionately higher productivity.
Companies with higher levels of investment in digital and analytics capital and in human and
relational capital have higher productivity per full-time employee (Exhibit 10).

Exhibit 10
Investments in digital and analytics capital and in human and relational capital appear to be
highly complementary.
Low productivity ($20 per hour) High productivity ($200 per hour)
Cumulative investment in 260

human and relational capital,
$ thousand per person employed1
0
0 350
Cumulative investment in
digital and analytics capital,
$ thousand per person employed
1. Proxied by investments in organizational and managerial capital, a subcategory of human and relational capital.
Note: Deepnet model based on 12 countries, 11 sectors, and 14 asset types, 1995–2015.
Source: EU KLEMS; INTAN-Invest; McKinsey Global Institute analysis
Likewise, companies that excel in marketing tend to be those that have invested not only in
brand capital but also in digital and analytics capital, the latter being the key to enabling real-
time and personalized marketing, which in turn enhances brand capital. We find the same
synergies in the case of brand capital and innovation capital (Exhibit 11).

Exhibit 11
Similar complementarities appear in the case of investments in innovation capital and in

brand capital.
Low productivity ($20 per hour) High productivity ($200 per hour)
Cumulative investment in 90
brand capital,
0
0 260
Cumulative investment in
innovation capital,
1. Proxied by investments in organizational and managerial capital, a subcategory of human and relational capital.
Note: Deepnet model based on 12 countries, 11 sectors, and 14 asset types, 1995–2015.
Source: EU KLEMS; INTAN-Invest; McKinsey Global Institute analysis
The survey indicates that a large majority, 81 percent, of companies invest in all types of
intangible capital, and the evidence indicates that the more categories in which they invest
substantially (in the top quartile), the higher their growth in GVA—proof of the power of
synergies. Companies that are in the top quartile for investment in three intangible capital
categories and the two subcategories of the fourth (human and relational capital) grow
2.0 to 2.5 times faster than companies that were not in the top quartile for investment in any
intangible category. Across sectors in 2018–19, a company that was not in the top quartile
for any intangible category grew at 5.0 percent, but a company in the top quartile for one
category grew at 7.0 percent (median), rising to 7.5 percent for three categories, 8.0 percent
for four, and 10.0 percent for five (Exhibit 12).
During the COVID‑19 pandemic (in the course of 2020), companies that invested significantly
in the three intangible capital categories and the two subcategories of the fourth (human and
relational capital) outperformed others; only firms investing substantially in all four categories
of intangible asset (five, taking into account the two subcategories of human and relational
capital) were able to maintain 2019 levels of growth. This indicates that breadth of investment
in intangibles promotes resilience.

Exhibit 12
Companies that invest in multiple intangibles categories report the highest growth.
Median growth of companies investing at top quartile level of 0–5 intangible categories, by cluster and sector, %1
Number of categories
0 1 2 3 4 5
2018–19 10.0
8.0
7.5 7.5
7.0 2.0×
5.0
2019–20 10.0
7.0
6.5 2.5×
5.0
4.0 4.0
Number of 332 66 56 38 44 55
companies
1. Company self-reported growth.

Some sectors are more likely to invest in certain types of intangibles

Over the past 25 years, the ICT sector, representing innovation-driven services, has delivered
continuous innovation and conceived new disruptive ideas. In the past ten years, the sector
has created and scaled successful platforms and markets that benefit from network
effects that have achieved unprecedented scale at a magnitude never before observed.
Examples include Apple’s iOS, a technology platform; Apple’s app store, a marketplace; and
Amazon Prime, an e-commerce platform. ICT invests most in innovation capital and digital
and analytics capital, and these have been the key to delivering disproportionate growth.
Companies in the ICT sector invest at an above-average level in both cases—7.9 percent
in innovation capital versus 5.3 percent for all other sectors, and 6.4 percent in digital
and analytics capital versus 1.8 percent. Additionally, in telecommunications, media, and
technology, top growers invest 5.6 times more than low growers, and the gap is widest in
digital and analytics capital, in which they invest 5.9 times more than low growers. In these
sectors, investment in digital and analytics capital, which includes software and proprietary
data, is emerging as the key driver of the performance gap between top growers and
low growers.

Knowledge-intensive-services sectors prioritize human and relational capital in their
intangibles investment; this category accounts for 6.0 percent of GVA, double the average
share across sectors. The reason for favoring this type of intangibles investment is that it is
perceived to deliver competitive advantages for companies in these sectors. For instance, in
finance and insurance, managing digital talent is key to delivering an effective shift toward
e-banking. 31 McKinsey research in 2016 estimated that 43 percent of all working hours in
banking activities will be automated in the future, necessitating a very large-scale shift in
the type of skills needed, from basic cognitive skills to technological ones. 32 This implies
the need for significant investment in human and relational capital well into the future. These
sectors also prioritize investment in brand capital as the key to driving the mass adoption
of products and services. Again in the financial services industry, initially the emergence of
e-banks didn’t convince a broad range of customers of their merits. Neo-banks including
Revolut and N26 had to invest huge amounts in marketing to evangelize their products and
spread adoption from early tech-savvy customers to millions of active consumers; in 2019,
the two banks had ten million and seven million users, respectively. 33 This resonates with
the survey’s finding that the gap between top growers and low growers is largest for human
and relational capital and brand capital. Top growers invest 10.2 times more than low growers
in ecosystems and networks, a type of human and relational capital, and 7.9 times more in
brand capital (Exhibit 13).
Labor-intensive services overall invest less than half the average share of GVA of other
sectors—1.4 percent of GVA versus 3.0 percent. When they do invest in intangibles, they
tend to prioritize human and relational capital, reflecting the fact that these sectors employ
more people on average (as their name suggests) and still have a large element of in-person
services. Within this category, retail trade also overindexes brand capital, which include
activities such as brand equity, customer engagement, and customer acquisition. Retailers
have increasingly focused on establishing direct-to-consumer channels as the route to
increasing customer acquisition. One example of a brand success is Casper, a mattress
company that achieved $750 million of revenue in four years thanks to a well-executed
marketing strategy. 34 To obtain more leads for its online store, the company set out to gain
deep understanding of Google and Facebook advertising algorithms and then used that
information to create relevant and targeted content for each stage of its funnel that convinced
large numbers of consumers to adopt quickly. Again, this resonates with the survey’s findings
that top growers appear to be driving above-average investment in these intangibles
categories. Top growers invest 7.4 times more than low growers in brand capital and 6.2 times
more in organizational and managerial capital, a subcategory of human and relational capital.
In resource-intensive goods, both mining and manufacturing have invested heavily in

innovation capital, spending 26.1 percent and 9.2 percent of GVA, respectively, compared
with the 5.3 percent average for all other sectors. The motivation was to accelerate and
expand exploration in the case of the first, and to develop a rich pipeline of new products
in the second. In addition, the manufacturing sector, which was under intense pressure to
raise productivity, has invested above-average shares of GVA in digital and analytics capital
(1.8 percent and 3.6 percent of GVA) and human and relational capital (1.8 percent and
3.7 percent) as companies have strived to spread automation, which necessitated investment
in skills building.
31
Dana Maor, “A strategic blueprint for making the most of banking talent,” May 2019, McKinsey.com.
32
Michael Chui, James Manyika, and Mehdi Miremadi, “Where machines could replace humans—and where they can’t (yet),”
McKinsey Quarterly, June 2016, McKinsey.com.
33
5 killer fintech marketing campaigns, Content Works, February 2020, contentworks.agency; and Amy Lewin,
N26’s strategy to stand out in the UK’s sea of fintechs, Sifted, April 22, 2019.
34
Sam Thomas Davies, Casper Marketing: How a mattress company went from zero to $750 million in 4 years (case study),
Sleeknote, December 2020.

Exhibit 13
Top growers prioritize different types of intangibles investment than low growers
across sectors.
Intangibles investment revenue ratio, top growers vs low growers, by sector and category of intangible, multiple
Intangible categories
Human and relational capital
Organizational
Innovation Data and and managerial Ecosystems and
capital analytics capital practices networks Brand capital
Knowledge- Financial 10.2
intensive services
services (n = 72)
7.9
6.8
4.3
3.7
Innovation- Telecommuni- 5.9

driven cations, media,
4.8 4.9 4.9
services technology
(n = 102)
2.8
Labor- Advanced 3.5

intensive manufacturing 3.0 3.1
services (n = 115) 2.3
1.6
Retail trade 7.4

(n = 81)
6.2
5.1
4.5
3.7
Resource- Energy and 2.3

intensive materials 2.1 1.9
goods (n = 41) 1.2
0.5

Top growers not only invest more in intangibles but also deploy them
in ways that develop new capabilities
Merely investing in intangibles is not sufficient to drive growth. Companies should think
about how those intangibles are deployed and used to develop capabilities that create
a competitive advantage. Consider, for instance, an investment in brand capital. In itself,
it does not guarantee uptake of brand equity; a company needs to consider whether it is
engaging with clients in a personalized and relevant way and whether it is reaching customers
through the right channels. A useful parallel is the burst of ICT spending in the early 2000s.
In the United States, productivity grew rapidly, from 1.5 percent a year in 1970–1995 to
2.5 percent in 1995–2005. The productivity surge was possible because of widespread
investment in, and adoption of, ICT that was accompanied by a transformation in the way
companies organized functions and tasks, how their workers used technology, and how they
operated, including across their supply chains.
The combination of high investment and effective deployment is the major differentiator
between top growers and low growers. All companies understand that data and analytics
are not just buzzwords, but capabilities that need to be mastered to survive and thrive in
highly competitive markets. They know, too, that talent is not simply an input but a necessary
investment that, together with creativity and audacity, enables companies to deliver on
innovation. There appears to be widespread acknowledgement that companies’ role is
not simply to create profit for stakeholders but to benefit society. But top growers take
the deployment of intangible capital to the next level and display a detailed understanding
of how intangibles can be used to develop the capabilities that are most likely to deliver on
growth. Most companies agree that more investment in intangibles is key, but the survey
asked what else can be done to fully reap the benefits of investment. Asked to be precise
about what delivers disproportionate returns, respondents cite specific use cases, rigorous
processes, data-driven decision making, and, broadly, using intangibles investment to embed
data, talent, innovation, and purpose in day-to-day operations (Exhibit 14).
Looking at the survey results in more detail, there is considerable agreement among top
and low growers across sectors that intangible capabilities are key to delivering growth and
competitiveness. In the survey, about 24 percent of both top and low growers strongly agreed
that digital and analytics capital is crucial for building a sustainable competitive advantage,
and this finding holds across sectors—from telecommunications, media, and technology,
where data have been a valuable asset for building ecosystems, to advanced manufacturing
as more players digitize their supply chains. About 30 percent of survey respondents, among
both top and low growers, strongly agreed that brand capital is a winning value proposition
when combined with a clear purpose and mission statement. In the case of innovation capital,
about 27 percent of top growers and approximately 23 percent of low growers strongly
agreed with the statement that creativity and audacity and taking into account the voice of
the customer are central to mastering this category of intangibles investment.
In the survey, human and relational capital has two subcategories: organizational and
managerial capital, and ecosystems and networks. Both exhibit considerable common
ground between top growers and low growers. In the case of organizational and managerial
capital, both top and low growers stress the importance of a strategy and an environment
that enables them to attract talent and have in place a robust talent strategy to sustain critical
capabilities. On ecosystems and networks, 23 percent of both categories of companies
strongly agree that growth strategy and vision translated into a clear road map with owners is
important, and about 30 percent of top and low growers concur strongly with the need to have
a clear purpose and mission statement.
Looking through a different lens—the type of intangible asset—a clear picture of higher
growth driven by effective deployment and use of intangibles emerges (Exhibit 15).

Exhibit 14
Top and low growers recognize the importance of strategy and vision in intangibles,
but top growers take concrete steps toward implementation.
Ratio of top growers to low growers per capability, Low High
based on % of executives who strongly agree on the following capabilities
What only top growers do What top and low growers do
Innovation capital 2.4

2.0
1.7
1.3 1.1 1.1
Rigorous Decision Search of Importance of Less risky Creativity and

process to making based disruptive voice of the incremental audacity
measure impact on data innovation customer innovation
opportunities
Digital and analytics 2.0 1.8 1.8

capital (DnA)
1.3
1.0
0.6
Flexible Co-creation of Run analytics in 360° customer DnA critical to Access to data
architecture DnA real time view with data build a for employees
cube competitive
advantage
Human Organiza- 2.6
and relational and 2.0
tional managerial 1.7
capital practices 1.0 0.9
0.6
Unique value Performance Talent- Talent Specific targets Growth targets

proposition that measures management acquisition in line with translated to all
attracts and processes to strategy company levels of the
retains talent foster diversity objectives organization
Ecosystem 3.0
and
networks 1.9
1.5
1.0 1.0 1.0
Investment Scalable Systematic Strategy and Idea generation Clear purpose

decisions made disruptive evaluation of vision statement
holistically business model returns
Brand capital 2.9

2.2 2.0
1.3 1.3 1.2
Personalized Real-time Effective use of Brand Value Clear purpose

experiences marketing digital positioning proposition and mission
spend marketing statement
allocation
Note: Survey respondents had the option to comment on more than one capability.

Exhibit 15
Effective deployment and use of intangibles distinguishes top growers from low growers.
Scores based on % of executives who strongly agree that a capability is important
Low growers Top growers Both

Core area
0 1 2 3 4 5 for
Innovative Search of disruptive innovation opportunities
capabilities
Decision making based on data
Rigorous process to measure impact
Importance of voice of the customer
Creativity and audacity
Digital and Proprietary data
analytical
Cocreation of DnA
capabilities
(DnA) Run analytics in real time
Flexible architecture
Data strategy
360° customer view with data cube
Access to data for employees
DnA critical to build a competitive advantage
Organiza- Performance measures
tional and
Process to foster diversity
managerial
practices Unique value proposition attracts and retains talent
Support for test-and-learn, risk-taking mindset
Performance incentives
Talent-acquisition strategy
Specific targets in line with company objectives
Set growth targets for overall organization
Ecosystems Systematic evaluation of returns
and network
Scalable disruptive business model
capabilities
Investment decisions made holistically
End-to-end market scanning approach
Regular scans of market dynamics, trends
Clear purpose statement
Strategy and vision
Idea generation
Brand Personalized experiences
capabilities
Effective use of digital marketing
Personalized pricing and promotion
Real-time marketing spend allocation
Importance of purpose
Value proposition
Clear purpose and mission statement
Brand positioning

— Innovation capital. In the survey, the share of top growers that reported using data as
the basis for decision making was nearly double the share for low growers. Likewise, more
than twice the share of top growers said that they have rigorous processes in place to
measure the impact of R&D and design, enabling them to build rapidly on successes and
abandon failures. Similarly, twice as many top growers are more willing to disrupt their own
business models proactively (rather than waiting to be disrupted) and to actively search
for opportunities to invest in disruptive innovation. An example of this is Apple’s iPods,
which dominated the portable music player market for years before being incorporated
in iPhones.
— Digital and analytics capital. Only top growers say that they have taken the next steps
needed to implement their digital strategy, including making effective use of proprietary
data, investing in flexible architecture to avoid being held back by legacy systems—
so-called tech debt—and ensuring that they can leverage the full power of intangibles
through real-time analytics. Top growers are 1.3 times more likely to have proprietary data,
1.8 times more likely to run analytics decisions in real time, and 2.0 times more likely to
have a flexible infrastructure. One of the most common challenges leaders face is striking
the right balance between giving teams flexibility to choose their tools and maintaining
required levels of consistency and standardization. Without flexible architecture,
developers will be slowed by dependencies across teams, time spent stabilizing or
integrating code bases after their development, and a lack of team-level ownership and
accountability. Top growers understand this and are allocating significant investments to
modernize their architecture.
— Human and relational capital. Looking at the first of the two subcategories—
organizational and managerial capital—both top and low growers agree on the importance
of attracting talent, but top growers are 2.6 times more likely than low growers to strive
to retain talent by offering a unique value proposition. Top growers are twice as likely to
define performance measures for all parts of the organization, and 1.7 times more likely to
put in place talent-management processes to foster diversity. This last element is striking
as companies have increasingly begun to regard inclusion and diversity as a key enabler
of growth. Yet progress on diversification initiatives has been slow. McKinsey’s Delivering
through diversity research reaffirms the global relevance of the link between diversity and
company financial outperformance. Using 2014 diversity data, we found that companies
in the top quartile for gender diversity on their executive teams were 15 percent more
likely to experience above-average profitability than companies in the fourth quartile.
On the second subcategory, ecosystems and networks rely on regular, streamlined, and
agile processes throughout an organization and with key partners. The survey findings
are similar for top growers and others on the importance of forming external partnerships,
including ecosystems, joint ventures, and consumer partnerships, in order to sustain
growth in the period after the COVID‑19 crisis. However, top growers are 1.4 times more
likely than other companies to have developed an ecosystem of partners to open up new
markets and develop new customers and capabilities. They are also 1.4 times more likely
to have created scalable, disruptive new business models. The best corporate strategies
force a multibusiness company to make clear, holistic choices about its portfolio and
the allocation of resources. The survey indicates that top growers are 3.0 times more likely
to make investment decisions holistically, to do so on a systematic and regular basis, and
to maintain agility. Top growers are 1.5 times more likely to make decisions about spending
and investment allocation through systematic but agile evaluation of returns. Finally, top
growers are twice as likely as low growers to agree strongly that it is important to scale
disruptive new business models.
— Brand capital. Only top growers are already deploying this type of intangible to ensure
that they can leverage brands effectively not only by listening to consumers but by
listening in a tailored way to serve them with personalized offerings backed by real-
time data analytics and tailored pricing and promotion. It is notable that 2.5 times more
top growers than low growers regard personalization as the core part of the customer
experience, and more than double the share of top growers say that they continuously
allocate and reallocate marketing spending in or near real time. Top marketers are

developing systems that can pool and analyze structured and unstructured data,
algorithms that can identify behavioral patterns and customer propensity, and analysis
capabilities to feed that information into dashboards. Their customer data platforms can
connect a single customer across devices, cookies, and ad networks and can enable real-
time campaign execution across touchpoints and channels. In short, top growers are using
their digital and analytics capabilities to market their brand capital.
It is important to appreciate that the experience thus far of top growers and the findings in this
paper offer a current picture. However, deploying intangibles is a moving target. It is already
clear that success comes from investing in intangibles, but arguably less well appreciated is
that deploying these investments is not a static process but a dynamic one. As businesses
invest, they should continually assess not only what is key to success today but what areas
they may need to prioritize for growth in the future. Continuous reexamination of the types
of intangibles that are most likely to deliver on competitiveness and growth, that can be
scaled, and that are most likely to deliver synergies that may create value in other areas of
the learning economy will require a high level of visibility. Companies should consider setting
up a control tower that monitors the skills the organization needs, what IP will deliver the next
slice of competitive advantage, and what area innovation capital should focus on.
Huge value is at stake, and executives and policy makers should ask
themselves what it will take to realize the intangibles opportunity
Huge additional value could be created by investing in intangibles and deploying them
effectively. As a thought exercise, consider the potential value that could be created if
10 percent more companies were to attain the share of intangibles investment, and the GVA
growth, of top growers. This could produce an additional $1 trillion in GVA or a 2.7 percent
increase across sectors in OECD economies. If more companies could capture more of
the productivity- and growth-driving power of intangibles, these assets could play a major
role in the bounce-back of companies and economies from the COVID‑19 crisis.
As the correlation between investment in, and deployment of, intangibles and GVA growth
becomes ever clearer, executives—and governments—searching for sources of growth
should arguably pay more attention to the full range of these types of assets. The formula that
top growers have apparently hit upon may help other businesses understand the best way to
invest in intangibles and deploy them, and help policy makers to put in place the right kinds of
enabling infrastructure.
For companies, execution is key. Top growers not only invest 2.6 times more in intangibles
than low growers and invest in the four major types of intangible capital, they also deploy
them effectively with a focus on embedding intangibles in day-to-day business operations to
achieve returns. Low growers should consider investing in the following categories:
— Innovation capital. Ideas and creativity matter, but rigorous processes and decision
making based on data are necessary to ensure the effective implementation of creative
and disruptive ideas.
— Digital and analytics capital. Having a flexible technology architecture is a must in order
to rapidly process proprietary or external data and deliver real-time analytics. These
capabilities unlock other intangible capital benefits and create synergies between them.
— Human and relational capital. Top growers not only attract but also retain talent by
offering an unrivaled environment and a unique value proposition. To bring their strategy
to the next level, they master process making holistically and build scalable business
models that enhance their leadership position across markets.
— Brand capital. Digital marketing skills are not sufficient to achieve outstanding
performance. High performers distinguish themselves by integrating personalized
experiences into customer journeys, reallocating their marketing spend in real time, and
using data and analytics capabilities.

Mindset matters. Investing in intangibles is different from investing in tangibles. Take
a supermarket as an example. Investing in a new store is fairly straightforward for a retailer,
with relatively certain prospects for sales. However, the sales boost from investing in, say,
a real-time promotion platform is less certain. In the worst-case scenario, the property may
be resold, but an investment in software may not be recovered. This illustrates why investing
in intangibles requires a mindset shift toward the test-and-learn, risk-taking approach that
is more typical of top growers than low growers. In the survey, 70 percent of top growers
agreed with the statement “in order to achieve above market growth, you need to pivot to
a mostly test-and-learn, agile culture,” compared with 60 percent of low growers. Similarly,
about 60 percent of top growers versus about 50 percent of low growers agreed that it was
important to “cultivate an environment to take risks, test and learn, and embrace failures.”
That difference in mindset has led to higher investment. Top growers that strongly agree with
these statements invest 1.2 times more in intangibles than those that don’t agree. Investing
in intangibles is not about their availability but instead is an active choice that can lead to
superior growth performance.
As the intangible, digitized economy spreads, the imperative to reskill—within companies,

and more broadly in society—becomes even more urgent. Digitization, automation, and
the deployment of intangibles appears to have accelerated as leading companies responded
to the pressures of the COVID‑19 pandemic. Recent MGI research found that some firms—
notably large firms that had already outperformed others before the pandemic—shifted
rapidly to online channels and automated production tasks. 35 Companies digitized many
activities 20 to 25 times faster than they had previously thought possible. A December
2020 McKinsey Global Economic Conditions survey of executives found that about
75 percent of respondents in North America and Europe said they expected investment in
new technologies, including automation, to accelerate in 2020–24, up from 55 percent who
said they increased such investment in 2014–19. This could put more pressure on low-skill
workers who are disproportionately susceptible to displacement by automation. Because
of the pandemic, MGI estimates that in the United States alone an additional 5 percent of
workers could be displaced due to automation by 2030, on top of the 22 percent forecast
before the pandemic. That corresponds to an additional eight million workers affected by
automation. The estimated number of additional displaced workers due to COVID‑19 is
between 500,000 and one million each for France, Germany, and Spain. 36 These millions of
displaced workers, coupled with the risk of high-performing firms pulling even further ahead,
could be a recipe for rising inequality between the high- and low-skilled. Significant retraining
programs are needed to help support incomes and mitigate widening gaps between workers.
The shift from tangible to intangible assets increases the need for knowledge infrastructure.
Policy makers will need to focus on facilitating knowledge infrastructure, including education,
as well as communications technology including the internet, urban planning, and public
science spending. Increasingly important will be digital infrastructure to store and manage
data, the technology needed to support high-speed connectivity to transport data, and
powerful high-performance computers to process data. This infrastructure will fully unlock
the value of big data and foster scientific and technological innovation that enables firms
to achieve their digital and innovation objectives. Because intangibles generate spillovers,
a cluster-based approach to developing knowledge infrastructure may be an effective way
to enable synergies. It is notable that the rise of intangibles does not mean that physical
infrastructure is obsolete. The skilled people who work in this sphere and whose talent
is required to unlock its potential still need places to live, high-quality transportation
infrastructure, hospitals, and schools, for instance. And, as in any business cluster, people
need to be able to network and interact with one another; that means well-run cities.
How the intangible economy develops will also depend on the institutional infrastructure,
including effective IP law that strikes the right balance between protecting firms that have
invested heavily in their IP and ensuring that this protection is not so broad or overly strong
35
36
The future of work after COVID‑19, McKinsey Global Institute, February 2021, on McKinsey.com.

that the synergies, scale, and competition that deliver growth are constricted. Another key
requirement needed to make the most of this opportunity is ensuring effective coordination of
large intangibles projects that may involve many investors and firms over long time frames.
The evidence is stacking up in an age increasingly driven by innovation and knowledge that
firms and sectors that invest most heavily in intangibles are reinforcing and deepening their
competitive advantage and achieving the highest rates of growth in gross value added.
The full potential of these game-changing assets will not be realized unless companies are
smart about how they deploy them to create synergies and scale and to enhance a range of
capabilities that can deliver on growth. This paper has focused on an exploration of the link
between investment in intangible assets and economic growth and, digging deeper, on
which corporate approaches are already proving to be most successful for optimizing this
investment. The role of intangibles in the growing knowledge economy is a multifaceted,
complex topic that requires the attention not only of executives but also of policy makers if
firms and economies are to make the most of them.

Technical appendix
This appendix provides details on the data sources and methodology used in this research in
the following sections:
1. Data sources
2. Sector definitions
3. Determining investments in intangibles
4. Determining investments in different intangible categories
5. Determining top growers and low growers
6. Analyzing capabilities
1. Data sources
For this analysis, we used the following data sources.
— INTAN-Invest database. Use of this database helped us to perform analyses on a macro

level, that is, on sectors and countries.
— Proprietary survey. The survey was conducted in March 2021 in 16 countries in three
regions covering 21 sectors. Of the 861 respondents, nearly 80 percent were C-suite
executives. Of the companies represented, two-thirds had revenue of $500 million
or more, and just over half had revenue of $1 billion or more. The main analyses were
performed for the most important sectors by size of GVA, and we ensured that these
sectors were represented in the survey. Of the 861 respondents, 20 percent were in
advanced manufacturing; 16 percent in telecommunications, media, and technology;
14 percent in retail trade; 13 percent in financial services; and 6 percent in energy and
utilities. For our analyses, we used the responses of 591 of those surveyed, eliminating
outliers who reported extraordinarily high investment in intangibles or responded “I don’t
know” to more than two questions.
— The survey results also enabled us to undertake analyses of approaches to intangibles at

the firm level.
— Additional database. For data on gross GVA, we used statistics from the EU
KLEMS database.
2. Sector definitions
The definitions of sectors used in this research differ somewhat from those in the INTAN-
Invest database. In the case of financial services, this research does not include insurance,
as INTAN-Invest does. In telecommunications, media, and technology, the research includes
high tech, media, entertainment, and telecommunications; INTAN-Invest includes information,
communication, entertainment, and recreation. In the case of retail trade, the research
includes retail only, but INTAN-Invest adds wholesale and vehicle repair. The definition
of advanced industries is much broader than that of INTAN-Invest, which includes only
manufacturing; in this research, advanced industries includes advanced electronics,
automotive and assembly, and aerospace and defense. INTAN-Invest’s definition of energy
and materials includes only utilities and mining; this research includes electric power and
natural gas, metals and mining, and oil and gas.

3. Determining investments in intangibles
The INTAN-Invest database (intaninvest.net) is a harmonized (open access) database on
macroeconomic intangibles in a selection of countries, which complements the work of
the INNODRIVE and COINVEST projects. Updating of the database is undertaken through
the voluntary cooperation of academic project partners. 37
In the scope of this analysis were Austria, Denmark, Finland, France, Germany, Italy,
the Netherlands, Spain, Sweden, the United Kingdom, and the United States. We used
the INTAN-Invest database for 1995 to 2015. For 2016 to 2019, we extrapolated data
based on the average growth rate between 2010 and 2015 for each sector and country.
We supplemented the INTAN-Invest data with gross value added data from EU KLEMS. To
equalize the purchasing power of different currencies, we converted all absolute data into
2010 dollars at purchasing power parity.
In the survey, we asked executives how much their organization invested in different
predefined intangible categories and summed these findings to give us the overall level of
investment in intangibles, which we analyzed as a percentage of revenue.
4. Determining investments in different intangible categories

We analyzed four types of intangibles: innovation capital, digital and analytics capital,
human and relational capital, and brand capital. To calculate levels of investment, we
used the following intangible categories from INTAN-Invest (see Box A1, “INTAN-Invest
intangibles categories”).
— For innovation capital, we considered R&D, design, entertainment and artistic

originals, and mineral exploration as well as new product development in the finance
industry categories.
— For digital and analytics capital, we considered the computerized software and
databases categories.
— For human and relational capital, we considered the organizational and managerial
capital and training categories.
— For brand capital, we considered the brand category.
The proprietary survey asked executives how much their companies invest in:
— Innovation, for example, activities related to R&D and developing trademarks, copyrights,
licenses, patents, designs, and artistic originals.
— Digital and analytics, for example, activities related to development and maintenance
of digital platforms, analytics models and algorithms, data and databases, proprietary
software, and spending on third-party software.
— Organizational and managerial capital, for example, activities related to developing and
improving organization reputation, and workforce quality, including training and skills, and
management process and practices.
— Ecosystems and networks, for example, activities related to developing and improving
privileged relationships, partnerships, and networks, and to assessing and developing
geographic footprints.
— Brand, for example, activities related to developing and improving brand equity, customer
insights, customer base, customer loyalty, and content.
Investments in different intangible categories were systematically analyzed as percentages

of revenue.
37
For the underlying assumptions for calculating these data and the corresponding challenges, see Carol Corrado, Jonathan
Haskel, and Cecilia Jona-Lasinio, Intangible capital and growth in advanced economies: Measurement methods and
comparative results, Institute of Labor Economics (IZA), discussion paper number 6733, July 2012.

Box A1.
INTAN-Invest intangibles categories
The INTAN-Invest database includes the Census of Mineral Industries organizational structure such
the following detailed definitions of and National Income and Product as the costs of organizational
the four categories: Accounts. Other geophysical and change and development,
geological exploration R&D in and expenses associated with
Innovation capital
mining industries is estimated from company formation. No broad
— R&D. This is mainly R&D in
census data. statistical information and no clear
the manufacturing, software
consensus on scope are available.
publishing, and telecom industries. — New product development in
Purchased “organizational” or
The US Census collects data on the finance industry. This is
“structural” capital are estimated
behalf of the National Science mainly R&D in finance and other
using SAS data on the revenue
Foundation. Industrial R&D data are service industries. No broad
of the management consulting
available from the early 1950s and statistical information is available,
industry. The own-account
cover work in the physical sciences, and therefore the proxy of new
component is estimated as
the biological sciences, and product development costs in
the value of executive time using
engineering and computer science financial services industries
US Bureau of Labor Statistics
(excluding geophysical, geological, is used, crudely estimated as
data on employment and wages in
artificial intelligence, and expert 20 percent of intermediate
executive occupations.
systems research). purchases. New architectural and
engineering designs are estimated — Training. This includes firm-specific
— Design. This includes new
as half of industry purchased human capital, including the costs
architectural and engineering
services (revenue of the industry of developing workforce skills
designs, estimated as half of
as reported in the SAS). R&D in related to, for instance, on-the-job
industry purchased services;
the social sciences and humanities training and tuition payments for
revenues of the industry come from
is estimated as twice industry job-related education. The Bureau
the Service Annual Survey (SAS).1
purchased services (revenue as of Labor Statistics conducted broad
— Entertainment and artistic reported in the SAS). surveys of employer-provided
originals. This is mainly R&D in training in 1994 and 1995. Direct
Digital and analytics capital
information-sector industries firm expenses such as in-house
This category covers computerized
(excluding software publishing). trainers, outside trainers, tuition
software and databases. Computer
Broad statistical information reimbursement, and outside training
software covers expenses of software
is not available, and therefore funds were included, as were wage
developed for a firm’s own use,
this subcategory is proxied by and salary costs of employee time in
calculated based on National Income
development costs in the motion formal and informal training.
and Product Accounts data that include
picture industry. Development costs
three components: own use, purchased, Brand capital
in the radio and television, sound
and custom software. Computer This category consists of brands,
recording, and book publishing
databases for own use likely is captured namely advertising expenditures and
industries are crudely estimated
in National Income and Product market research for the development
to be double the new product
Accounts software measures; data from of brands and trademarks; purchases
development costs for motion
the SAS suggest that the purchased of advertising services; and advertising
pictures. No estimate for the arts
component is small. expenditures. Outlays on market
is included.
research are estimated as twice
Human and relational capital
— Mineral exploration. This is mainly industry purchased services (revenue
— Organizational capital. This
R&D in mining industries. Data for of the market and consumer research
includes capital associated with
mineral exploration come from industry as reported in the SAS).
1
Service Annual Survey, US Census Bureau, census.gov.

The proprietary survey asked executives how much their companies invest in:
— Innovation, for example, activities related to R&D and developing trademarks, copyrights,
licenses, patents, designs, and artistic originals.
— Digital and analytics, for example, activities related to development and maintenance
of digital platforms, analytics models and algorithms, data and databases, proprietary
software, and spending on third-party software.
— Organizational and managerial capital, for example, activities related to developing and
improving organization reputation, and workforce quality, including training and skills, and
management process and practices.
— Ecosystems and networks, for example, activities related to developing and improving
privileged relationships, partnerships, and networks, and to assessing and developing
geographic footprints.
— Brand, for example, activities related to developing and improving brand equity, customer
insights, customer base, customer loyalty, and content.
Investments in different intangible categories were systematically analyzed as percentages

of revenue.
5. Determining top growers and low growers

Using the survey results, we used the following definitions for each sector:
— Top growers were defined as the top 25 percent of companies in GVA growth in 2018–19.
— Low growers were defined as the bottom 50 percent of companies in GVA growth in
2018–19. 38
Steady growers, which we do not highlight in the paper, are companies in the third quartile in
GVA growth in 2018–19.
6. Analyzing capabilities
In the McKinsey survey, executives responded to a range of statements on each type of
capability. For each capability, we selected top statements based on the percentage of
respondents strongly agreeing with the statement among top growers and low growers
(on a six-point scale). Based on these percentage shares of strong agreement, a score of
zero to five was given to each statement in four groups of capabilities by type of intangible
capital: innovation capital, digital and analytics capital, human and relational capital, and
brand capital.
38
New McKinsey Global Institute research finds that between the periods 1994–96 and 2016–18, investment in intangible
assets tripled while investment in tangible assets dropped by half as a proportion of revenue. This research takes a
narrower view of corporate activity than this paper does, focusing only on about 5,000 public and private companies in the
OECD with annual revenue of $1 billion or more. See Companies in the 21st century: A new look at how corporations impact
the economy and households, McKinsey Global Institute, June 2021, on McKinsey.com.

Acknowledgments
This paper is a collaboration between the McKinsey Global Institute (MGI) and McKinsey &
Company’s marketing and sales, and digital and analytics teams.
This project benefited enormously from close collaboration with Jonathan Haskel, professor
of economics at Imperial College Business School, and Stian Westlake, chief executive
at the Royal Statistical Society, the coauthors of Capitalism without capital: The rise of
the intangible economy (Princeton University Press. 2017). Special thanks go to Tera Allas,
McKinsey director of research and economics in London, for her invaluable input.
The research was led by Eric Hazan, a McKinsey senior partner in Paris and a member of
the MGI Council; Sven Smit, a McKinsey senior partner in Amsterdam and co-chair of MGI;
Jonathan Woetzel, a McKinsey senior partner and a director of MGI in Shanghai and Los
Angeles; Biljana Cvetanovski, a McKinsey partner in London; Mekala Krishnan, an MGI
partner in Boston; Brian Gregg, a McKinsey senior partner in San Francisco; Jesko Perrey,
a McKinsey senior partner in Düsseldorf; and Klemens Hjartar, a McKinsey senior partner
in Copenhagen. The project team comprised Moira Borens, Cherry Chen, Phoebe FY Chen,
Isabel Cordoba, Guillaume Dagorret, Valerie Ford, Armine Gstrein Hassanaly, Claire Gu,
Orsi Jojart, Diana Khramina, Rebeca Kung, Tancrede Peronnet, Fleur Porter, Arushi Singh,
Maria Sliwinska, Ana Rita Sousa, Zsofia Sveiczer, Marija Vukojevic, Justus Winkelmann, and
Nils Wittman. We are grateful to James Manyika, a McKinsey senior partner in San Francisco
and co-chair of MGI, for his guidance, and Kevin Russell, an MGI fellow in Charlotte, who
collaborated with us on MGI’s work on 21st-century companies.
From MGI, we would like to thank Janet Bush, senior editor, who edited and produced
this paper; Nienke Beuwer, EMEA director of communications; Vasudha Gupta, editorial
production manager; Peter Gumbel, editorial director; Stephanie Strom, senior editor;
Marisa Carder and Patrick White, design specialists; Lauren Meling, digital editor;
Tim Beacom, research specialist; and Dennis Alexander of the MGI communication team.
From McKinsey’s marketing and sales team, we thank Julie F. Hayes, Mianne Ortega,
Christina Sheffield, Eric Sherman, Cindy Van Horne, and Kinga Young. We are also grateful
to the many McKinsey colleagues who contributed their industry expertise and perspectives
to this research: Kabir Ahuja, Michael Betz, Marco Catena, Joy Chen, Dianne Esber,
Harald Fanderi, Lars Fiedler, Rock Khanna, Dieter Kiewell, Anna Koivuniemi, Karin Loeffler,
Duncan Miller, Peter Saffert, Christina Sheffield, Dennis Spillecke, and Michael Viertler.

Related MGI and
McKinsey Research
Superstars: The dynamics of firms, sectors, and cities leading the global
economy (October 2018)
This discussion paper assesses the extent to which a superstar effect can be
observed in the global economy in three arenas—firms, sectors, and cities—and
inspects the dynamics, including churn and changing characteristics, in each of
these arenas.
Risk, resilience, and rebalancing in global value chains (August 2020)

This report examines the potential risks in intricate production networks designed
for efficiency, cost, and proximity to markets and looks at advances in technology
that offer companies tools that preserve efficiency while enhancing resilience.
Tackling Europe’s gap in digital and AI (February 2019)

This discussion paper analyzes what Europe could do to catch up with countries
such as the United States and emerging leaders like China. The potential is quite
large, amounting to trillions in additional GDP for Europe, and the continent already
has more professional developers than the United States.
How Asia can boost growth through technological leapfrogging

(December 2020)
This discussion paper describes growth in major technological indicators,
explores the characteristics of growth in technological capabilities and
identifies opportunities where Asia could leapfrog ahead in capitalizing on
technological innovation.
Will productivity and growth return after the COVID‑19 crisis? (March 2021)
This report examines the bold and innovative steps companies took to respond to
the COVID‑19 pandemic and how spreading such rapid innovation more broadly
could produce significant gains in productivity and economic growth.
Connected world: An evolution in connectivity beyond the 5G revolution

(February 2020)
This discussion paper takes a look beyond the connectivity being enabled by 5G
to examine a broad range of connective technologies from fiber and satellites to
Wi-Fi and short-range tools and how it could be deployed in healthcare, mobility,
manufacturing, and retail to deliver economic benefits.
www.mckinsey.com/mgi
Download and listen to MGI podcasts on iTunes or at
www.mckinsey.com/mgi/publications/multimedia/
McKinsey Global Institute
June 2021
Copyright © McKinsey & Company
Designed by the McKinsey Global Institute
www.mckinsey.com/mgi
@McKinsey_MGI
@McKinseyGlobalInstitute
@McKinseyGlobalInstitute
Subscribe to MGI’s podcast, Forward Thinking:
mck.co/forwardthinking

Getting Tangible About Intangibles The Future of Growth and Productivity VF

Uploaded by

Copyright:

Available Formats

Getting Tangible About Intangibles The Future of Growth and Productivity VF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Getting Tangible About Intangibles The Future of Growth and Productivity VF

Uploaded by

Copyright:

Available Formats

Getting tangible

Getting tangible about intangibles

Getting tangible about intangibles: The future of growth and productivity? i

Getting tangible about intangibles: The future of growth and productivity? 1

What are intangibles and why are they important?

2 McKinsey Global Institute

— Corporates usually count as intangibles IP items including patents, copyrights, customer

Getting tangible about intangibles: The future of growth and productivity? 3

Expenses on intangibles could be capitalized to better reflect investments Illustrative

Corporate profit Potentially Capitalization Depreciation

R&D 1.0× 0.15

Design 0.5× 0.20

Advertising 0.6× 0.55

Training 1.0× 0.40

Digital n/a n/a

Other fixed costs

4 McKinsey Global Institute

Taking these together, there is a common thread—investments in intangible capital yield

Getting tangible about intangibles: The future of growth and productivity? 5

Over the past 25 years, the investment share of intangibles increased

6 McKinsey Global Institute

Intangible/tangible investment mix, United States and 10 European countries, 1995–2019, %1

Getting tangible about intangibles: The future of growth and productivity? 7

Data and Human and Investment in

Sweden 5.8 2.3 3.2 1.0 12.2 2.4

United States 4.5 1.8 3.2 1.2 10.7 2.3

Denmark 4.4 1.6 2.8 0.8 9.6 2.2

Netherlands 2.6 2.3 3.8 1.1 9.9 2.1

United Kingdom 3.3 1.8 3.9 0.9 10.2 2.1

Austria 3.3 1.8 2.4 1.1 8.6 2.0

France 3.3 2.6 3.6 0.6 10.1 1.8

Spain 2.2 1.3 1.3 0.8 5.9 1.7

Finland 4.7 1.3 2.8 1.3 10.2 1.6

Germany 3.6 0.9 2.0 0.7 7.1 1.6

Italy 2.4 1.4 1.9 1.1 6.8 0.3

Average 3.7 1.7 2.8 1.0 9.2 1.8

1. Data extrapolated for 2015–19 based on 2010–15 average growth.

8 McKinsey Global Institute

Growth in total factor productivity, CAGR, %

1. 1999–2016 CAGR for United States.

Investing in intangibles correlates with sector growth

Getting tangible about intangibles: The future of growth and productivity? 9

Some sectors are intangible-intensive, invest in specific categories of intangibles,

Data and Human and Investment in GVA

Construction 1.5 0.4 3.0 0.3 5.1 1.7

Healthcare 0.6 0.6 0.0 0.0 1.1 2.9

Manufacturing 8.8 1.8 3.5 1.3 15.3 0.9

Utilities 1.7 1.6 3.4 0.9 7.6 1.2

Average 5.2 1.8 3.7 1.2 11.9 2.4

10 McKinsey Global Institute

GVA compound annual growth rate, Average intangibles investment =

3.5 Entertain- Professional

The manufacturing sector has tended to be more intangible-intensive than tangible-intensive.

Getting tangible about intangibles: The future of growth and productivity? 11

Share of intangibles started to tick up in the mid-1990s and early 2000s in

GVA share GVA share

Regardless of the sector, companies that invest more in intangibles

12 McKinsey Global Institute

Intangibles investment by sector, 2019, Median growth, 2019, %