In 2005, three economists — Carol Corrado (Conference Board), Charles Hulten (University of Maryland), and Daniel Sichel (Federal Reserve Board) — published a paper that changed how we think about economic growth. "Measuring Capital and Technology: An Expanded Framework" proposed that the Solow Residual — the unexplained portion of economic growth — was not truly unexplained. It was the result of unmeasured investment in intangible capital.
Their framework, now universally known as "CHS," classified intangible investment into six categories organised under three groups. It has since become the standard taxonomy used by the OECD, NESTA, the European Commission, and most academic researchers studying intangible capital.
This article explains each of the six categories in detail: what they include, how they are measured, and why they matter for businesses and economies.
The CHS taxonomy organises all intangible investment into three groups.
| Group | Categories | What It Covers |
|---|---|---|
| Computerised Information | 1. Software and databases | All investment in digital infrastructure |
| Innovative Property | 2. Scientific R&D | Discovery and invention |
| 3. Non-scientific R&D (design, creative) | Aesthetic and functional innovation | |
| Economic Competencies | 4. Brand equity | Market positioning and reputation |
| 5. Firm-specific training | Human capital development | |
| 6. Organisational capital | Management systems and processes |
The CHS framework is not just an academic classification — it is a practical tool for identifying and measuring the full range of intangible investments a business makes. Most companies can map their spending to these six categories with reasonable precision.
This is the most readily measured category of intangible investment because software spending is already tracked in corporate accounts and, since SNA 2008, is capitalised in national accounts.
What it includes:
How it is measured: At the firm level, software capital investment is measured through direct expenditure: payroll costs for software developers, contractor fees, purchased software, and cloud infrastructure directly attributable to software creation. At the national level, the ONS uses survey data and employment-based estimates.
Useful life estimate: 3-5 years for commercial software, potentially longer for core platforms that are continuously maintained and updated.
A fintech company employing 40 software engineers at an average fully-loaded cost of £85,000 is investing approximately £3.4M annually in software capital. If the company also spends £600K on cloud infrastructure for development environments and £200K on third-party API licences used in product development, total software capital investment is £4.2M. Over a 5-year useful life with continuous investment, the accumulated software capital stock could exceed £15M.
This covers formal research and development aimed at creating new knowledge, products, or processes. It is the most established intangible investment category, with R&D expenditure data collected systematically across OECD countries since the 1960s (via the Frascati Manual).
What it includes:
How it is measured: R&D expenditure is measured using the OECD's Frascati Manual definitions. Companies report R&D spending in financial statements (often as a line item or in notes). The UK's Business Enterprise R&D (BERD) survey provides national-level data.
Useful life estimate: Varies significantly by sector. Pharmaceutical R&D may have useful lives of 10-15 years (reflecting the patent life of successful drugs). Technology R&D may depreciate in 3-5 years. The average across sectors is typically estimated at 5-7 years.
For UK businesses, R&D investment is eligible for R&D tax credits, making this the most tax-efficient category of intangible investment.
This category captures innovative investment that falls outside the Frascati Manual definition of R&D. It is broader than most people expect.
What it includes:
How it is measured: Design investment is estimated from employment data (designers, architects, engineers) and industry surveys. Creative originals are measured by production costs. Financial innovation is the hardest to quantify and is often estimated as a proportion of financial sector value added.
Useful life estimate: Design capital: 3-5 years. Artistic originals: variable (a film catalogue may generate royalties for decades; a single article may have a 1-year useful life). Financial innovations: 3-7 years.
This category is frequently underestimated. Companies that invest heavily in design — from user experience research to industrial design to brand aesthetics — are making intangible investments that create measurable value. Apple's design investment, classified here, is a core driver of its market premium.
This is the broadest and most impactful group — and the least well measured in official statistics. None of the three categories in this group are fully capitalised in national accounts.
Brand equity investment creates the market positioning, reputation, and customer trust that drive pricing power, organic demand, and competitive advantage.
What it includes:
How it is measured: At the firm level, brand investment is measured through marketing and advertising expenditure, typically available from the general ledger. At the national level, NESTA uses advertising expenditure data plus estimates for in-house marketing activity.
Useful life estimate: Brand capital is long-lived but requires continuous maintenance investment. Core brand assets may have useful lives of 10-20 years, but without ongoing investment, depreciation accelerates. A useful starting estimate is 5-7 years for the portion of brand investment that creates lasting value.
Brand investment is simultaneously one of the largest categories of intangible investment and one of the least recognised in accounting. Under IAS 38, internally generated brands cannot be capitalised on the balance sheet. Yet when a brand is acquired in a business combination, it is recognised as an identifiable intangible asset under IFRS 3 and valued — often at billions of pounds. The same asset is invisible when built internally and visible when acquired. This inconsistency is one of the central problems in intangible capital accounting.
Training investment develops human capital — the knowledge, skills, and capabilities of the workforce. The CHS framework captures only firm-specific training (training that is specific to the employer and not fully transferable), though broader training investment is sometimes included in expanded versions.
What it includes:
How it is measured: Training expenditure is measured through direct costs (course fees, trainer salaries, training technology) plus opportunity cost (employee time spent in training rather than production). NESTA uses employer training survey data from the Department for Education.
Useful life estimate: Training capital depreciates as employees leave the firm or as skills become obsolete. Average useful life estimates range from 2-5 years, depending on employee retention rates and the pace of skill obsolescence.
Organisational capital is the most difficult category to measure and the most transformative in its effects. It encompasses the management practices, business processes, and institutional knowledge that determine how efficiently a company operates.
What it includes:
How it is measured: The primary measurement proxy is management consulting expenditure, supplemented by estimates of in-house management innovation (measured through management time allocated to organisational improvement). NESTA uses consulting industry revenue data plus employment-based estimates for in-house activity.
Useful life estimate: 3-7 years. Organisational capital can be long-lived if embedded in systems and processes, but depreciates through management turnover, organisational restructuring, and environmental change.
When a UK manufacturer invests £500K in a lean management consulting programme, £200K in process automation, and allocates £300K of senior management time to redesigning the supply chain, total organisational capital investment is £1M. The resulting processes may generate efficiency gains for 5-7 years, representing an ongoing return on this intangible investment.
The CHS framework is not just an academic taxonomy. It provides a practical checklist for strategic investment decisions.
Investment balance. Most companies over-invest in some categories and under-invest in others. A technology company that spends heavily on software and R&D but underinvests in training and organisational capital is building an asset base with a structural weakness.
Depreciation awareness. Each category depreciates at a different rate. Software depreciates fast. Brand equity depreciates slowly. Understanding these rates prevents the illusion of a growing asset base when key categories are actually eroding.
Peer benchmarking. CHS categories enable like-for-like comparison across companies and sectors. The Opagio Calculator uses CHS categories to benchmark intangible investment intensity against UK peers.
Investor communication. Presenting intangible investment in CHS categories provides a structured, credible narrative that investors can evaluate. It transforms the conversation from "we spend a lot on things that don't show on the balance sheet" to "here is our intangible capital formation across six defined categories, with investment levels and trends."
The Opagio Intangibles Questionnaire assesses companies across all six CHS categories, producing a radar chart that visualises investment balance and identifies gaps. The Valuator provides tools for valuing specific intangible assets using established methods like Relief-from-Royalty and MPEEM.
For a structured learning path through the CHS framework and its applications, the Intangible Asset Masterclass in the Opagio Academy covers each category with worked examples, measurement templates, and case studies.
For the accounting perspective on intangible assets, see What is IAS 38? and What is IFRS 3? in our FAQ.
About the Author
David Stroll is Co-Founder and Chief Scientist at Opagio, where he leads research into intangible capital measurement and productivity frameworks. A former DEC engineer and co-founder of PayMode, David brings decades of experience at the intersection of technology, economics, and organisational productivity. Meet the team →
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