Is the economic fact that 80+% of most company’s value lie in – emerge from intangible assets sufficient incentive for company – business management teams to…devote the necessary time and minimal resources to identify, assess, and monitor their intangibles? Apparently not!
Incentives, in the context I am striving to establish relevance here…involves, of course, identifying, developing, and exploiting either internally developed or externally acquired intangible assets and aligning them with leadership – employee commitment, collaboration, and creativity to collectively add value, generate (new) sources of revenue, competitiveness, and sustainability to-for a company (product or service).
Too, incentives (incentivizing) in this instance…are not merely applying one of the countless conventional and transparent gambits some companies and their leadership are drawn to, ala ‘rewards for quality and/or performance’, which the conventional one’s, not infrequently, are inclined to dissolve, absent consistent oversight, promotion, and adjustments to the reward(s) system.
Obviously, an initial step obliges company management teams to…recognize, internalize, and act on that economic fact. After all, a company’s intangible assets contribute to, serve as foundations, and are strategic preludes to achieving any company’s mission, financial success, competitiveness, and sustainability.
Through my lens, these are tasks that should not require much, if any, incentivizing…when considered in light of the economic fact that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability either lie in or emerge from intangible assets.
A crash course in intangible assets…they manifest – emerge as, among other ways, feelings, perspectives, thoughts, an intellectual – emotional sense, or a (visual) image. Anyone of which may be positive, something less than positive, and/or fluctuate.
Regardless, the what, why, when, where, and how either of the above may – may not surface to…(a.) favorably or adversely affect consumer – prospective buyer perceptions and/or (b.) the probability either will influence people’s – consumer’s decision to buy – don’t buy, or invest – don’t invest, should be paramount in the minds of business (brand) strategists and decision makers.
Unfavorable intangibles often emerge as incongruities regarding a product or service…among consumers, buyers, and/or investors, where none previously existed. They often manifest as forms of ambivalence, antagonism, or uncertainty which, in turn, (again) can, and not infrequently do, influence a buy – don’t buy or an invest – don’t invest decision.
When-if risks to key intangibles are recognized, assessed, and monitored effectively and timely…their potential adverse economic – competitive advantage impacts may be mitigated and short-lived. If not, risks affecting intangibles can, as unfortunately demonstrated in far too many occasions, become variously permanent insofar as creating a cautionary consumer ambivalence toward a company’s products and/or services, where little, or none previously existed.
Throughout 2017 and thus far in 2018 there have been numerous high profile examples…in which a company’s brand and reputation is tarnished which erodes the publics’ – consumers’ perspective regarding the brand as a whole, or one or more of its products or services. In some instances, it has been found that levels of company leadership had specific knowledge that adverse acts-behaviors, initiatives, transactions were occurring to the detriment (harm) of people – consumers.
In the financial services sector, Wells Fargo comes to mind…through their issuance of credit cards to the unknowing, unwilling, and unrequested with the adverse affects (harm) often being immediate and lasting to thousands upon thousands of (credit card) recipients. One of Wells Fargo responses is the now nationally reengineered marketing slogan, i.e., ‘established 1846, re-stablished 2018’.
Whereas, in the agricultural chemical sector…i.e., GMO’s, herbicides, etc., there is the prospect of future harm occurring to consumers of foods, ala humans, where there has been a consistent and variously strong adverse reaction.
When experienced, competent, successful business persons pose this question to me, which unfortunately…is still relatively frequent, I routinely respond by pointing out that recognizing and extracting value, creating sources of revenue and competitive advantage from a company’s intangible assets, should initially focus…
- less on conventional, near term (immediate) ‘return on investment’ analysis of the activity, and
- more on engaging in activities designed to sustain (protect, preserve) control, use, ownership, and value of those assets into the future, particularly those assets that a company has proprietarily developed, and therefore, rightfully owns and should be able to exclusively reap the economic benefits and competitive advantages.
Through my lens, this movement will advance and become routine as-when business leadership and management teams recognize…there are indeed lucrative – competitive incentives to acquiring operational familiarity with intangible assets. This can be initiated merely by reviewing ‘What Are Intangible Assets’ at http://kpstrat.com/blog/ Readers may find reviewing these examples of IA’s helpful in many ways, not the least of which is understanding any lost – undermined – eroded value, competitive advantages, or sources of revenue.
Acquiring – acquiring operational familiarity with intangible assets involves three, preferably sequential, steps for decision makers…
1. acquiring a sense, curiosity, and motivation to recognize that a businesses intangible assets, regardless of its sector, revenues, etc., exist, and are indeed present in numerous forms and contexts from which value, revenue, and competitive advantage (can) should be exploited!
2. employing experienced sources of guidance to examine a company’s routine – embedded functions, processes, and procedures to identify centers, clusters, as well as the origin of valuable – competitive intangible assets, which unfortunately, often go unrecognized, overlooked, and/or dismissed!
3. recognizing that developing and extracting as much value and competitive advantage as possible from intangibles, need not be an activity overly dramatized by requirements of time, resources, or speed.
4. instead, the fiduciary responsibility of distinguishing and valuing intangible assets should be (more effectively) focused on ‘what fits best’ for each company, i.e., a combination of timing, financials, risk, and alignment with core business objectives.
5. of course, if the activity is conducted in conjunction with a merger, acquisition, a business transaction, or new market entry, etc., speed and execution are certainly important considerations.
Unfortunately, in too many instances today, management teams recognize the presence of…risk to the contributory role, value, and competitiveness of their company’s key intangible assets only in ‘reactive and/or distressed circumstances or exits’. That is, their key, revenue producing intangible assets have been compromised in some manner, e.g., misappropriated, infringed, and/or duplicated by competitive adversaries with their value – competitive advantages being significantly undermined, eroded, or wholly misappropriated.
In such instances, if adequate safeguards were not in place…the targeted – affected intangible assets will seldom, if ever, be fully renewable, or their value fully recouped, once, that is, the intangible asset genie has gotten out of its proprietary bottle!
Too, once realized, leadership – managerial scrambling often occurs…insofar as trying to (re-)establish ownership, control, and use of the at risk assets. In many instances, this is when management teams are obliged to remind themselves, their at risk assets are non-physical (intangible), not physical or tangible. As such, there are different strategies to mitigate or reverse further adverse risk to their intangibles from additional risk materialization, or perhaps worse, cascading throughout their company and potentially, its alliance supply chain.
Several years ago I taught a ‘business management’ course for an MBA program…in which I was determined to…
- integrate the economic fact that 80+% of most companies’ value, sources of revenue, competitiveness, and sustainability evolve from – directly lie in intangible assets.
- emphasize that managing, and the management of any business today should include recognizing, differentiating, assessing, and safeguarding intangible assets relative to their contributory roles and value.
Admittedly, for most of this class of graduate students…this was their initial introduction to intangible assets. I quickly learned that, for even the more seasoned – experienced (employed) graduate students, the contributory roles and value of intangibles were wholly new constructs. And, for some, intangibles represented challenging concepts to initially, at least, understand, even when specifically applied to their current position-employer. I sensed then, and largely still do, that an initial hurdle to understanding intangible assets lies with the word ‘intangible’.
Intangible assets lack a conventional sense of physicality…compared to tangible – physical assets which we are far more accustom in terms of recognizing, valuing, and accounting, etc. That is, for many humans, vis-à-vis our five senses, ala touch, smell, hear, see, and taste, intangibles initially appear less relevant, perhaps in part because our senses are already well attuned to the various types-categories of (conventional) tangible – physical ‘brick and mortar’ assets.
Eventually, before semesters’ end, a significant percentage of the class…relented to recognizing – differentiating the role, function, and contribution of intangible assets being necessary to effective, competitive, and lucrative business management.
One especially articulate graduate student who had already developed a strong and upward career trajectory…in a regional financial services firm, challenged the relevance and contributory role and value which intangible assets play insofar as business operation, performance, and valuation. The student defended his position by describing numerous multi-million dollar loan, merger, and acquisition deals he had lead in which there was absolutely no recognition of intangible assets by any of the parties in either value, collateral (securitization) or due diligence contexts.
Immediately following the last class, this student said to me…“I understand what you’re saying Mr. Moberly (about intangible assets) but, I just don’t see it happening in my banks, at least while the current (lending)officers – overseers remain in place! My response was advocates of (intangible) asset-backed lending would not find this particular financial services firm receptive.
The point to all of this is, ‘times have changed’ and intangible asset intensity and dependency are integral to and embedded in business operations globally, that is a global economic fact and business reality which is virtually irreversible. Unfortunately, introducing and operationalizing the concept of intangibles remains no easy sell!
Michael D. Moberly July 5, 2018 St. Louis firstname.lastname@example.org ‘The Intangible Asset Blog’ (http://kpstrat.com/blog) where attention span and action really matter!