Intangible Asset Due Diligence

April 23rd, 2014. Published under Due Diligence and Risk Assessments. No Comments.

Michael D. Moberly    April 23, 2014    ‘A long form blog where attention span really matters’!

Conducting intangible asset due diligence is essential because today, as much as 80+% of most company’s value, sources of revenue, and competitive advantages, etc., lie in – evolve directly from intangible assets. That’s a globally universal economic fact! Too, the various transactions a company routinely engages, one can be assured, intangible assets will inevitably be in play and therefore their status can affect any transaction outcome.

Intangible asset due diligence is not an exercise that is useful only after a company suspects or experiences the materialization of a risk, i.e., misappropriation, infringement, etc., or is notified they are a defendant to a lawsuit!

Equally important, intangible asset due diligence, given the complexities involved, should not be a mere confirmatory review that certain intangibles are present using a generic, one-size-fits-all checklist.

Intangible asset due diligence is obliged to provide decision makers with…

  • actionable recommendations for making sound business decisions about preserving, managing, positioning, and extracting value from the assets in play.
  • an objective sense of the targeted assets’ fragility, stability, defensibility, and value insofar as projections of deliverable revenue and competitive advantages.

When conducting intangible asset due diligence, a first responsibility is to understand the target company by becoming familiar with its intangibles, i.e., the underlying intellectual, structural, and relationship capital particularly.

When should companies conduct their intangible asset due diligence? In most circumstances, its best to engage in preliminary due diligence should be conducted as a prelude to any transaction in which specific, i.e., the sought after intangibles will be in play. Thus, intangible asset due diligence should be analogous to asset monitoring and conducted in both pre and post transaction contexts.

How will intangible asset due diligence benefit your company? In any business transaction in which intangible assets will be integral to the outcome, due diligence can enable and facilitate a more secure and profitable transaction (not impede it) by providing decision makers with clear and timely insights, i.e.,

  • Identifying embedded – under-the-radar risks, vulnerabilities, and operational complexities that contribute to impairing or entangling knowledge-based assets and serve as preludes to costly and time consuming disputes and challenges…
  • Identifying and unraveling internal centers, chains, or clusters of intangibles and competitive advantages and assess the adequacy of safeguards.
  • Bringing operational – economic clarity to the target company’s intangible assets, intellectual property, know how, brand, and competitive advantages, etc.
  • Identifying efficient – effective protection – value preservation measures that are aligned with a transactions’ objective and the company’s strategic business plan, i.e., projected returns, exit strategy, as well as the life – value cycle of the assets in play.

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com

Invention Commercialization Critical Questions Affecting Outcome

April 12th, 2014. Published under Intangible Asset Value, Intangibles as strategic assets, Managing intangible assets, Uncategorized. No Comments.

Michael D. Moberly    April 12, 2014   ‘A long form blog where attention span really matters’.

Often, the unrecognized and under-valued intellectual and structural capital initiators to intellectual property rich corporate – university R&D collaborations are the  numerous intangible asset underliers, i.e., intellectual and structural capital which inevitably play a significant role in an invention and/or technology transfer initiatives, in general.

But, when the stewardship, oversight, and management of an invention’s (IP’s) contributing – supporting intangible assets are neither acknowledged nor safeguarded, at the outset, those asset’s value, competitive advantages, value, and sources of revenue which they may have the potential for producing for their holder can quickly be undermined, substantially diminished, or even ’go to zero’!

To avoid or substantially mitigate the vulnerability, probability, and criticality which such asset risks will materialize, I find a quick, but effective, project-wide (self-) assessment is useful.  The assessment consists of eight managerially focused questions with each designed to respectfully influence R&D project leaders, inventors, researchers, and technology transfer – commercialization teams to genuinely reflect on how, whether, and to what degree the key – relevant intangible asset initiators have, thus far, been managed, utilized, and safeguarded.

Admittedly, a rather transparent agenda to this assessment is elevating (managerial) awareness and operational familiarity with the economic fact that 80+% of most invention’s, and eventually startup and/or spin-off company’s value, projected sources of revenue, and ‘building blocks’ for successful (asset) commercialization evolve directly from the initiating – supporting (underlying) intangible assets, not IP per se.

An unfortunate, but persistent reality (risk) is that intangible assets can quickly become mired in costly, time consuming, and momentum stifling challenges and disputes or become subject to misappropriation or infringement if left unacknowledged, or negligently meld into the public domain – open sources.  As suggested, when either occurs, the asset commercialization potential (of these intangible assets, including the IP itself) can be irreversibly lost or, at minimum, severely obstructed in their contributory role.

The assessment…

I routinely find clients can complete this assessment in 7-10 minutes.  Readers are encouraged to not infer the speed in which the assessment can be completed and its brevity, i.e., seven questions minimizes its significance and benefits.  In framing this (self-) assessment I recognize that more comprehensive assessments do not necessarily produce – influence superior or more genuine (personal) reflection that translates to action and more profitable outcomes, particularly with respect to the oversight, management, and status of the key (most critical and contributing) intangible assets.  Too, I am respectfully, and humbly confident the assessment itself, as well as each of the nine questions can echo throughout an enterprise to the point they become routine discussion and action items in conference rooms, board rooms, technology transfer offices, and particularly amongst the scientists, researchers, and inventors who stand to benefit from effective and consistent stewardship, oversight, and management of the research they initiated.

Seven critical questions affecting invention commercialization outcomes…

As corporate – university R&D project management teams engage the assessment questions below they are encouraged to recognize that intangible assets, primarily in the form of intellectual and structural capital are not always specific to a single invention.  Instead, they may ultimately become initiators – underliers to other projects as well as being integral to most every stage of the instant invention process, i.e., at the (a.) idea formation stage, (b.) invention and product development stage, and (c.) commercialization (technology transfer) stage.

Assessment questions…

  1. Are intangible assets consistent discussion (action) items in management team meetings?
  2. Can research project management teams and the relevant inventors distinguish – or find consensus about the specific intangible asset(s), i.e., intellectual, structural capital, emanating from the initial research, and now have measurable contributory value to the product being proposed for commercialization to create sources of revenue, competitive      advantages, reputation, market space, etc.?
  3. Are project managers – management teams maintaining an inventory (audit) of the contributing (underlying, supporting) intangible assets that emanate from and/or drive the invention/commercialization process?  If so, are those processes being regularly re-assessed, updated?
  4. Do the inventory-audit updates specifically include an assessment of how, whether, or which intangible assets sustain value, materiality,  relevance, and mitigate risks to the invention itself, the  commercialization process, and the inevitable spin-off – startup company’s core mission and strategic planning?
  5. Have invention commercialization project managers identified which (contributing) intangible assets hold the highest probability for investor attractivity, value, and sustainability, price points, fees, royalties, etc., if they were sold, licensed, or used in a strategic alliance and/or joint venture?
  6. Have invention commercialization project managers and inventors identified which invention relevant intangible assets, particularly      intellectual and structural capital are most vulnerable to risk, e.g., pre and post commercialization, technology transfer, and business transaction to infringement, misappropriation, premature leakage, counterfeiting,  etc.?
  7. Have invention commercialization project managers implemented an organizational resilience (continuity – contingency) plan that specifically includes (a.) contributory intangible asset risk/threat mitigation, and (b.) rapid recovery from the adverse impact of materialized risk(s)?

In sum, are there processes – procedures in place, with respect to the invention commercialization process to…

  • ensure mission critical (intangible) assets hold (their) value, deliver revenue, or remains relevant to the spin-off company’s core mission and strategic plan, and
  • remain aligned with the development and/or acquisition of additional intangible assets necessary to achieve the inevitable spin-off company’s core mission, and strategic (market) planning?
  • identify who is responsible and how will such responsibilities will be executed regarding the on-going management, monitoring and measurement of intangible asset performance relative to sustaining – enhancing company value, sources of revenue, competitive advantages, reputation, etc.

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com 

 

Reputation Risks Breed Secondary Actors

April 10th, 2014. Published under Reputation risk.. No Comments.

Michael D. Moberly    April 10, 2014    ‘A long form blog where attention span really matters’.

Reputation risks can produce secondary actors.  Most examples of materialized reputation risk which draw my attention emanate from online discussion groups, business magazines and various other (media) sources in which usually there are often well warranted critiques of mishandled calamities of Fortune ranked firms.  Too, those discussions are frequently framed in 50,000 foot altitude language, no doubt, in part, because when Fortune ranked firms experience a ‘reputation risk’, inevitably, there are two commonalities that eventually come to light, i.e., the risk…

  • has often been known and festering for a period of time within the company but not acted upon.
  •  is of sufficient magnitude that media attention is warranted and obligated, i.e., automobile safety recalls.

But usually, the media attention and subject matter expert discussions and critique meld away because in a few weeks as other companies experience reputation risk events.  Somewhat unfortunately, little of such discussion or critiques are conveyed at the 50 foot altitudes where reactions to an exposed reputation risk can assume a much more personal context.  Too, at the 50 foot altitudes employees are far removed from the company’s c-suite and its official line it has adopted.

This leaves one to conclude that, at the 50 foot altitudes,  reactions may be more revenge and/or retribution orientation. Yes, these terms may be harsh but I am hard pressed to identify words or language that better reflects what sometimes occurs. More specifically, companies experiencing significant events – oversights which adversely affect their reputation ought not assume that mid to lower management personnel may not engage in reactions that specifically reflect the official company line.

As an example, let’s examine the multiple reputation risk challenges experienced by Toyota over the past few months – years, including another massive recall announced yesterday.  The initial risk Toyota experienced that lead to recalls, dealt with untimely (vehicle) acceleration.

Well, a long standing academic unit at Southern Illinois University Carbondale is an Automotive Technology program which is, by all accounts an excellent program.  For years the Auto Tech program has been the butt of ignorant and disrespectful jokes, often emanating internally, insofar as being characterized as ‘truck driver training or a shade tree auto mechanic school’.  Of course, nothing could be further from the truth.  This academic unit has won far more than its share of national awards for both its technology prowess and its partnerships with every automobile manufacturers including Toyota which donated automobiles and held two positions on the programs’ board of advisors.

Perhaps with some irony, a faculty member of the Auto Tech program who’s specialty – expertise was in automobile ignition systems had recently purchased a Toyota, as it would happen, shortly after the company’s ‘acceleration problem’ came to light.

With customary research curiosity, this faculty member brought his Toyota into the Automotive Technology program ‘shop’ and set out to try to find the cause of the ‘sudden unintended acceleration’ problem (perhaps caused by faulty ignition switches) using his own newly purchased Toyota Tundra as the ‘test’ subject.

Not wishing to belabor the point, this professor did, in fact identify a technical theory as to what was causing the dangerous acceleration problems. He put his findings – theory to paper and sent it the National Highway Transportation Board fully expecting that would be the end of it.  But no, the following week he received a call from a Congressional oversight committee and found himself testifying before Congress a few days later.

One may think such research coupled with an invite to testify before a Congressional committee would be a good thing, right?, with University administrators being thrilled with the national recognition it would achieve.  But, not in this instance, Toyota representatives arrived on the campus soon after, and in possession of the professor’s entire (Congressional) testimony in which they set about to critically review ‘line by line’.  Needless to say, the Toyota officials were not pleased, and perhaps even more unfortunately, neither were SIUC’s administration which cast doubt on the professors’ continued employment as was his research, which by the way, NASA scientists, who were also researching the same problem, strongly supported.  Before the Toyota officials departed campus, they took back the vehicles they had donated to the Automotive Technology Program’s and also resigned their two seats on the program’s Advisory Board.

Probably every reader of this blog would not find the above particularly surprising or necessarily out of character for multi-national firms to react in such a direct and revengeful manner.  After all, it was indeed adversely affecting not just their reputation, but their ‘bottom line’.

But, what I find even more interesting is why would administrators of such a large university, unwittingly open their doors to potentially be on the receiving end themselves of (academic research) reputation risk, seemingly absent thought given to the time honored principles of academic freedom?

Intangible Asset Strategist Corporate – University Research

March 31st, 2014. Published under IP strategy., University R&D, University Technology Transfer. No Comments.

Michael D. Moberly    March 31, 2014   ‘A long form blog where attention span really matters’.

It’s all about sustaining control, use, ownership and monitoring the value, materiality, and risks to intangible assets, particularly intellectual and structural capital.  And, when 80+% of most research evolves from intangible assets, i.e., intellectual and structural capital in particular, having an intangible asset strategist and risk specialist available can make the difference between exasperating ‘minimalization’ and  exuberance!

Having served in academia for 20+ years myself, it’s certainly no secret that one distinguishing factor related to university-based (faculty) researchers (inventors) is that they generally have the opportunity to pursue – engage in research that reflects their academic interests which they have dedicated themselves. This generally involves multiple years of rigorously testing hypotheses which occasionally culminates in a patentable and/or licensable product with future commercialization potential.

Achieving this level of academic excellence, i.e., patentability is seldom a standalone activity. Instead, it entails developing and maintaining positive collaborative – working relationships between faculty researchers and TTO director and staff, both of which are essential components to achieving satisfying and optimistically lucrative (scientific) outcomes for all parties.  So, faculty researcher (inventor) relationships with their universities’ Technology Transfer Office (TTO) can often be complicated and even contentious, but need not be so!

Competing in the global R&D environment…

Those familiar with R&D processes and what’s necessary to successfully move a scientific project along the continuum to reach patentability stage and perhaps commercialization in its market space recognize that most all R&D, be it university or private sector based, are competing in an increasingly intertwined, aggressive, and often times predatorial marketplace where boundaries have become blurred between domestic and international business allegiances, prompting, in many respects, well warranted risks and cautions which produce more challenges for institutions and investors insofar as distinguishing – assessing the most promising (patentability, commercialization) strategies within a particular field.

More specifically, and to be purposefully redundant, a fundamental concept that warrants more recognition by faculty researchers and university TTO managers alike, is that the broader research and development environment has truly become globalized, which in my niche of the world translates as being increasingly competitive, aggressive, predatorial, and often culminates in winner-take-all outcomes. Necessarily, the competition for researcher intellectual and structural capital competencies is quite intense, sometimes bordering on the fanatical.

Unfamiliarity, naiveté, or acting dismissively of the environment I have characterized here will (can) contribute to – exacerbate the growing array of problems and challenges insofar as securing and retaining strong defensive – offensive grounding in intellectual property, patents particularly. If, for example, a faculty researcher/inventor has the good fortune, skill, and necessary long term funding to develop a compound or device that ultimately can be readily circumvented and/or counterfeited.  Herein lies unfortunately, an all too frequent problem in which one’s work ends up being exploited, not by its rightful owner, rather by predatorialy motivated economic and competitive advantage adversaries globally.

Needless to say, when such risks are dismissed or worse in my view, a feigning of unawareness or adopting a position which suggests it’s not their responsibility to elevate (risk) awareness within their respective (institutional) research community it’s disconcerting and demoralizing to faculty researchers – inventors.   More so when they learn their work/research product will face challenges, legal and otherwise, which an institution may opt to not engage because the challenge is difficult, time consuming and very costly to effectively enforce or ‘win’.  When such circumstances arise, as well as many others, one can be assured it will render a projects’ attractiveness to prospective licensees, investors, and/or commercialization opportunities to be less than might what otherwise be expected, in other words significantly minimized.

Strategic solution paths…

A universities’ technology transfer office is and should be the starting point for faculty researchers – inventors to disclose, or fully unravel, their invention and acquire the most current strategic counsel to ensure the most promising and worthy research, i.e., technologies are guided to their natural and hopefully lucrative and beneficial conclusions.  A not infrequent personal – professional reality is that at some point during a projects’ disclosure, unraveling, and technology transfer process is the discouraging reality that that not all discoveries warrant patentability and commercialization.

A complicating factor, one which university technology transfer managers know all too well, is that a technology transfer process can take months, and in some instances years – to fully evolve and arrive at a point of final (university) recommendation or decision.  For example, the issuance of a patent or consummation of a licensing agreement, are events which involve mergers’ of expertise, good fortune, good timing, and investor/funder interest.

But, it is not my intent to place the onus solely on TTO managers, rather, faculty researchers – inventors seeking a potential (public) break through or ‘turning point’ moment for their specific research, often times they are already acutely aware of the global competitiveness and predatorial nature associated with R&D environments in general.  In other words, a faculty researcher will always find it in their interest to consistently engage in best practices insofar as effectively managing and safeguarding their research.

A university’s technology transfer office is typically where the expertise lies to convert inventions into commercially viable products if and when feasible.  Faculty researchers and/or inventors need experienced and industry sector expertise to aid them in navigating, assessing, and offering recommendations on strategies that hopefully lead to patentability and/or commercialization which can come from intangible asset strategists and risk specialists.

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com

 

Protect, Preserve, and Monitor Intangibles

March 27th, 2014. Published under Intangible asset training for management teams., Managing intangible assets. No Comments.

Michael D. Moberly    March 27, 2014   ‘A long form blog committed to elevating awareness about intangible assets and where attention span really matters’.

As readers know well, it is an economic fact that intangible assets collectively represent 80+% of most company’s value, sources of revenue, as well as serve as ‘building blocks’ for growth, profitability, and sustainability. It’s certainly not much of a leap in thinking then to recognize that key factors to effectively manage each of the above lies in company decision makers’ ability and commitment to…

  • protect, preserve, (sustain), profitably utilize, and monitor any fluctuations in the assets’ ‘contributory value’ which is variously dependant on
  • identify, prevent, and/or mitigate current and horizonal risks – threats which if – when they materialize, will, with little doubt, impair company growth, profitability, reputation, competitive advantage, and strategic planning.

In my view, one, if not the very first thing company decision makers should recognize is that, unlike patents, trademarks, or copyrights, which are conventional forms of intellectual property enforcement, there is nothing comparable issued by the government, or otherwise that says, ‘these are your intangible assets’.  Doing so, is entirely the (fiduciary) responsibility of company management teams, that is, to acquire that know how independently or secure the services of an intangible asset strategist and risk specialist for strategic counsel and training.

Position business decision making to include the following…

  • shift knowledge-based (intangible) assets away from being conceived and engaged as predominantly legal functions and/or processes to business management – decision functions and processes.
  • align intangibles with economic, financial, and risk management planning, core business strategies, specific transactions, and the assets’ value – life – functionality cycle
  • avoid costly and time consuming challenges over control, use, and/or ownership of their intangibles including misappropriation, infringement, and counterfeiting and other vulnerabilities that can lead to asset compromise and/or undermining.
  • counter the expanding global risks and threats which when materialized, impede business momentum, delay or undermine transactions, competitive advantages, and erode asset value and performance.

Objective: bring managerial, business, strategic, and economic clarity to under-the-radar intangibles, i.e.,

  • find’em, unravel’em, protect’em, preserve’em, defend’em, monitor’em, and enhance’em…
  • the stewardship, oversight, and management of intangible assets
  • monitor their value, risks, threats, and materiality

Distinguish intangible asset value…

  •  objective vs subjective value
  • what’s the difference, why it’s important, and how can it be applied

Valuation of intangibles must be much more than mere snap-shots-in-time…

  • business worth model
  • market approach
  • income approach
  • cost approach – substitutions

Recognize circumstances in which intangible asset value can/will fluctuate…

  • developmental and/or operational stage (value)
  • market value
  • industry (consumer) cycles

Recognize intangible asset value can be instantly undermined by…

  • premature disclosure, leakage, misappropriation, theft
  • entanglements and challenges over origin, control, use, and/or ownership
  • global business intelligence and data mining
  • counterfeiting, economic espionage

Recognize ‘rules’ for sustaining profitability and defensibility of intangible assets…

  • don’t assume no one is interested in the know how you’re producing
  • do assume your know how will be consistently targeted beginning at the earliest stages of its development and throughout its life – value cycle
  • do develop ‘best practices’ to protect, preserve, and monitor its value

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com

Chief Culture Officer

March 26th, 2014. Published under Company culture and reputation.. No Comments.

Michael D. Moberly    March 26, 2014    ‘A long form blog where attention span really matters’!

A principled company culture…

It’s certainly not a stretch then, to infer that a principled company culture can also serve as a catalyst for internalizing and enhancing other factors noted in SHRM’s survey, i.e., employee engagement, retention, performance, and certainly, recruitment of new employees

Society for Human Resource Management Survey…

Readers of this blog recognize that a company’s culture and its management, in a growing number of instances facilitated by a ‘culture officer’ can become a strategically significant and value contributing intangible asset.  A 2012 survey commissioned by the Society for Human Resource Managers, i.e., SHRM asked 770 human resource leaders to identify significant workforce management and staffing challenges.  The challenges the survey respondents identified were…

  • company culture management
  • employee engagement
  • employee retention
  • effective performance management, and
  • employee recruitment.

Interestingly, full ninety percent of the survey respondents identified ‘company culture’ management as being (a.) important, or (b.) very important!  Standing alone, I, and I am confident others, find this revelation instructive in many ways, one is, it should prompt management teams to recognize that devoting time, energy, and some resources to developing and sustaining an effective and positive company culture will, under most circumstances, deliver impressive, measurable, and beneficially strategic returns each of which can contribute to a company’s value, sources of revenue, and sustainability.

Equally important, in my view, the SHRM survey findings give persuasive and definitive weight to the view that a well managed and positive company culture, whereby employees, management teams, c-suites, and boards collectively recognize, respect, and are committed to sustaining a principled base of intellectual, structural, and relationship capital and values (intangible assets) can, with little doubt, elevate a company’s overall performance.

Integral to (1.) recognizing, and (2.) accepting this view lies the economic fact that 80+% of most company’s value, sources of revenue, and strategic ‘building blocks’ for growth, profitability, and sustainability today either lie in or evolve directly from intangible assets, one of which, of course, is a positive and principled company culture!

It’s certainly not a stretch to infer then, that a positive and principled company culture can, and in all likelihood will serve as a catalyst for internalizing and enhancing other findings – revelations in this survey commissioned by SHRM, i.e., employee engagement, retention, performance, and certainly, and recruitment of new employees, etc.

How do management teams know their company is exhibiting a positive and principles culture…?

Based on the excellent work of Dr. Edgar Schein, a company culture consists of progressive stages, and will emerge and start to become observable to management teams in the following contexts, i.e., evidence that…

  • employees (collectively) recognize and begin to act on a shared system of values, norms, beliefs, and attitudes that defines and clarifies what is important to them and their employer.
  • employee’s at all levels recognize they learn as they are solving (company) problems and, if the problem solving methodologies work well enough, employees will consider them valid and worthy of being taught and passed along to new employees, because…
  • they represent the correct way to perceive, think, and feel in relation to addressing (internal, external) problems that their company routinely faces, which, in turn, leads to greater efficiencies, competitive advantages, and reputational value, etc.  (Adapted by Michael D. Moberly from the work of Dr. Edgar Shein)

But first, the initial step that most companies must undertake insofar as developing a positive and principled company culture involves…

  • determining what attitudes and beliefs need to (should) be established, and
  • having a clear understanding how those attitudes and beliefs will be translated and ultimately operationalized by employees, preferably as consistent, positive, and principled behaviors that cascade throughout a company.

But, as aptly pointed out by Dr. Kenan Jarboe in his Athena Alliance monograph appropriately titled ‘Intangible Asset Monetization: The Promise and the Reality’, there are six factors considered by financial markets (i.e., asset buyers, sellers, and investors) with respect to determining the ‘suitability’ of an (intangible) asset.

Of those six factors, one is an assets’ transferability.  In other words, is a company’s culture transferrable?  Or is it so (company, business unit) specific/centric that it cannot be replicated or sustained through a market change, merger or acquisition, or significant economic downturn as is being experienced today?

Unfortunately, the contributory value of a principled company culture seldom, if ever, appears on management teams’ conventional mba oriented dashboards, in part, I believe, because those intellectual – managerial dashboards have not fully transitioned to the intangible (non-physical) assets side of a business or company, such as a company culture.

Too, for some management teams, c-suites, and boards, a principled company culture, remains somewhat of a managerial, financial, and competitive advantage mystery in terms of understanding how best to utilize – exploit this influential asset.

A much desired objective of course, is to build a resilient, self-perpetuating, and principled company culture that is readily scalable and supports development of intellectual, structural, and relationship capital.

But, building a positive  and principled (semi-permanent) company culture is not something which evolves solely in a top-down fashion, nor is it a characteristic owned and executed solely by a management team or c-suite as aptly noted by Jennifer King (Software Advice Blog, June 12, http://www.softwareadvice.com ). Instead, a well-grounded and principled company culture provides permanence, depth, and confidence among employees and their abilities and capabilities!

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com

 

Economic Espionage, An Alternative View

March 25th, 2014. Published under Economic Espionage. No Comments.

 Michael D. Moberly    March 25, 2014   ‘A long form blog where attention span really matters’.

Overview…

I found a 1999 paper authored by Merrill E. Whitney and James D. Gaisford (then) of the University of Calgary, titled ‘ Why spy? : An inquiry into the rationale for economic’ to be very intriguing, sufficiently so to write this post.

Peculiarly, economic espionage has been a topic which I have had consistent interest for 25+ years when I began designing and conducting my own (investigative) research directed to universities, startups, and larger corporations and cultivating ‘trust based relationships’ who would point me in particular directions so I could examine this phenomena from an unclassified position that went well beyond the scope of others.

I am very hard pressed to even suggest, on the most basic level, there is a rationale, economic or otherwise, for engaging in economic espionage, particularly as we have come witness how it has morphed today.  One reality that I should think requires no persuasion whatsoever, is that industrial (economic) espionage and its close cousin product piracy and/or counterfeiting are certainly not particularly new activities as each have been consistent challenges almost since ‘man’ began writing on the walls of caves.

Their premise…

Admittedly, I was and remain variously intrigued by the audacity of Whitney and Gaisford to have thoughtfully engaged in the study of economic espionage in this manner, something which most countries intuitively find repugnant.

Whitney and Gaisford however, consider how economic espionage can yield desirable strategic affects as well as cost savings to favor firms within the spying country. No argument here, that does happen, but one important question is ‘which firms benefit’?

The spying country, they suggest, will typically gain, even though counter-espionage (information asset protection) programs and s will almost certainly today be conducted (in place) by the targeted countries and companies.  When technologically advantaged (targeted) countries spy on one another, it is possible, Whitney and Gaisford point out, that both may ultimately – eventually be better off.  The ‘better off’ in this instance, translates as the ‘transfer of technology’ which has occurred.   Generally then, Whitney and Gaisford suggest, consumers may become a beneficiaries to economic espionage.

Perspectives on economic espionage…

In a classic sense, economic espionage is activities initiated – conducted by government entities on behalf of their domestic-based firms.  In other words, it may be a strategy of sorts, to obtain marginal-cost reducing production technologies. To take this perspective further, Whitney and Gaisford suggest economic espionage may constitute a form of strategic (competitive advantage) trade policy!

  • if spying unearths the blueprints of a product or source code for software, for example, the fixed costs associated with the R&D can be reduced for the domestic firms, i.e., the recipients – end users of the spying.
  • in such instances, there are direct benefits accruing to the domestic firms located in the spying country, but there may be few, if any, strategic benefits because the behavior of the (recipient) domestic firms in their respective global markets may remain unchanged.
  • on the other hand, economic espionage that gleans information about contract bids, marketing plans or strategic planning in general, or costs of foreign  competitors may give rise to (some) strategic benefits in specific global markets, even though there are no direct benefits.
  • lastly, if proprietary intellectual and structural capital, i.e., information about production technologies and processes of foreign firms is obtained, (through economic espionage) there will be a…
    • direct benefit in the form of lower total costs for the domestic firms, and
    • strategic effect on global markets, due to lower marginal costs…

True enough, it is difficult to (objectively, factually) determine the level of economic espionage that actually occurs, in large part due to its stealthy, asymmetric, and often times long term elements.  Too, determining whether or how much growth – expansion of economic espionage has occurred is challenging due to the clandestine nature of economic and reluctance by victim companies to ‘go public’.  Collectively, these factors, unless duly accounted for, precludes systematic empirical verification.  But, as readers know, anecdotal accounts abound.

Whitney and Gaisford suggest government (national) spying may have advantages over corporate (industrial) espionage, i.e.,

  • national spy agencies may be able to reap economies of scale and/or scope…
  • information that is obtained by means of national government spying is (may be) non-competitive in the sense that it can (conceivably,      theoretically) be used by all domestic firms (located in the national spying agency’s country)…
  • government conducted espionage may yield positive social benefits even if the private benefit of corporate espionage to an individual firm is negative…
  • conceivably, the (national spying agency’s) government would be able to the favorable effects of national spying on domestic consumers into account whereas this externality would (may) be ignored in the case of corporate espionage.
  • in some countries though, such as the U.S., the business culture arms-length relationships between private companies and government may (will) make economic espionage by governments more problematic.

A business model for economic espionage, spying often pays well…

  • ‘…penetration rate is the probability that a country’s agents will successfully penetrate and acquire the (targeted) new  technology
  • ‘…the marginal cost of spying always increases as the probability of penetration is increased, the average variable cost of spying is always increasing in the probability of penetration
  • ‘…the extent of County X’s spying is inversely related to the difficulty of espionage because an upward shift in the marginal cost of the espionage function would lead to a lower optimum penetration rate
  • ‘…it could be that the temporary glut of spying resources in the aftermath of the Cold War has lead to increased economic espionage because of unusually low marginal costs
  • ‘…the presence of domestic consumers would weaken the case for a strategic export subsidy, because such a subsidy would (likely) raise domestic prices (therefore) domestic consumers stand to gain from economic espionage
  • ‘…if the optimum penetration rate is positive, then espionage must generate a favorable strategic effect as well as a direct cost saving

Introducing counterespionage to thwart economic espionage, some perspectives…

  • …the probability that Country  X’s spies will be able to successfully penetrate Company B that is located in Country Y is (now) considered relative to the probability that Company B will be able to thwart Country X’ spies.
  • …need to factor/calculate Country X’s cost of (their) economic espionage operations and Company B’s governments’ costs associated with counter-espionage.
  • …the optimum expenditure on espionage is (usually) positive unless the marginal cost of spying is at least as large as the marginal benefit when both the penetration and interceptions rates are equal to  zero.
  • …even when Company B’s governments’ counter espionage initiatives are possible, spying remains beneficial to the consuming (spying) countries and County X, but harmful to the country in which Company B is located

Merrill E. Whitney and James D. Gaisford University of Calgary International Economic Journal, Volume 13, Number 2, Summer, 1999.‘ Why spy? : An inquiry into the rationale for economic’ . 

Universities Relationships With SME’s

March 24th, 2014. Published under Corporate - University Research, Intangibles as strategic assets. No Comments.

Michael D. Moberly    March 24, 2014    ‘A long form blog where attention span really matters’.

Two points for context…

First, to the readers of this blog I suspect there is no need to elaborate on the reality that growing percentages of the content of today’s products and/or services consist of attractive technological inputs and features that provide consumer conveniences and elevate market space competitiveness.  And agreed, most, if not all of such inputs – features are rooted in intangible assets, particularly intellectual and structural capital.

Second, it’s certainly no secret that there are few (company) business models that specifically reflect or encompass a desire to assume the costs and risks associated with incurring the levels of vertical – horizontal integration necessary to single-handedly achieve exclusive mastery and ownership of each technology and skill set required to develop, manufacture, market, and sell products and/or services to be housed under a single (corporate) roof.

This readers, sets the context for this post!

SME’s and SMM’s can be sources of complimentary intellectual and structural capital…

Rooted in my 20+ years in academia and many years of subsequent consultancy practice directed almost exclusively to serving small and midsize companies, ala SME’s and SMM’s, I believe, anecdotally of course, that corporations, universities, and their respective R&D and technology transfer offices, and (faculty) researchers themselves, are inclined to be receptive to pursuing (research) relationships, partnerships, and/or alliances within their respective tier, i.e., universities designated as a Carnegie I or II research institutions or conversely, with Fortune 1000 companies.  For various reasons, SME’s and SMM’s, aside from technology exclusive companies, are seldom or certainly infrequently recognized as originators and/or contributors of useable (cutting edge) intellectual or structural capital sufficient to compliment or convert university’s basic research into the highly sought after path towards commercialization.

So, for readers who may still be thinking this is merely another piece about ‘startups’ and/or university-based spinoff’s, I have failed to bring clarity to my point.  My position is this; many, if not most SME’s and SMM’s develop, own, and harbor a substantial amount of intellectual and structural capital which is not nearly as routinely or aggressively sought or tapped into as is warranted or at the level many of their Fortune 1000 ‘first cousin’ competitors experience.

Not so flatteringly, my years of experience in academia, there are varying levels of assumed self-importance and even superiority some universities express through their culture, key administrators, faculty, and technology transfer units which variously inhibits some from engaging the unacknowledged and untapped intangibles embedded in SME’s and SMM’s as collaborative supplements to emerging (university-based) research.

Yes, I am a strong advocate for university research leadership to moderate their culture and adjust and broaden their strategic research practices to encourage and allow monitoring the SME and SMM environment.  One important product of which is identifying particularly effective SME’s and SMM’s whose success originates solely from their intangibles, i.e., intellectual and structural capital particularly, much of which in my experience, can be aligned with specific research interests and/or initiatives of a university.

Two way vs. one way transfer of intangibles…

What I am referring to is certainly not a mere one-way ticket of knowledge transfer from SME’s and SMM’s to academia, rather as open ended round-trip tickets for…

  • knowledge (intellectual, structural capital) collaboration and transfer
  • intended to forge      strategic relationships to respectfully exploit and advance relevant intangibles and competitive advantages, and
  • capture knowledge spillovers that otherwise would likely be lost.

University’s  as stand alone ‘ivory towers’…

The time-honored vision of university’s being stand alone ‘ivory towers’ removed from worldly concerns and external influences is now much more myth than reality, at least in my view.  That’s largely the result of  legislation and other initiatives introduced during the late 1980′s and early 1990′s during which a significant shift in the academic research community began whereby researchers and scientists were now being encouraged to work more closely (collaborate) with private sector interests.  One reason of course was to speed the transfer – commercialization of ideas from academia to the marketplace..  (The above was inspired by my extensive conversations with the Congressional Research Office researcher and author of ‘Is Science For Sale?: Transferring Technology From Universities To Foreign Corporations. Report by the Committee on Government Operations.October 16, 1992. House Report 102-1052)

One consequence of this heightened motivation and receptivity to negotiate external collaborations was that a growing number of colleges and universities, through their respective licensing and technology transfer units, realized and were provided with legitimate pathways and motivations to become more entrepreneurially oriented, and thus externally competitive.

In other words, university research administrators and faculty researchers were, with some rapidity, becoming more receptive to considering new and/or distinctive opportunities and platforms for collaboration with private sector entities.  These were also recognized as additional means to seek and secure financial support for continuing (on-going) research and their related activities. There is little doubt such receptivity was prompted and/or at least influenced by a second realization, which is the potential commercial value and revenue generation (royalty) potential which could evolve from the commercialization of internally or collaboratively generated inventions or ‘breakthroughs’.

Broadly speaking, university inclinations to be more open and receptive to exploring – pursuing external (contractual) alliances or consortiums with private sector entities are now commonplace.  In fact, for numerous institutions, a primary responsibility of the university technology transfer director’s is to do just that.   Too, a rather obvious benefit to both parties is that such collaborative arrangements are acknowledged as a relatively quick, accepted, and legitimate (two-way) pipeline to access specific bases of knowledge and expertise, i.e., intellectual and structural capital to complement a company’s existing competencies related to the development of future products and services.

It would behoove university research administrators and technology transfer directors to keep a keen eye on (monitor) particular SME’s and SMM’s which are producing value laden intangible assets which in many instances, paths for application and commercialization have already been demonstrated.  But, with collaboration and the infusion of additional research products, even greater mutually beneficial commercialization opportunities can emerge.

Reputation Risks vs Public Relations?

March 20th, 2014. Published under Reputation risk., Systemic Risk. No Comments.

Michael D. Moberly     March 20, 2014      ‘A long form blog where attention span matters.’

‘Houston, we’ve got a problem’!  The problem is, in my view, that far too many decision, makers, c-suites, boards, and management teams are conceiving and seeking resolution to their public persona challenges through conventional public relations lens and not as they should, through a very nuanced and sector specific reputation risk lens.

There is no question each of these corporations have taken substantial ‘direct hits’ over the past few months, and there are not likely to diminish anytime soon given relevant Congressional Committees are now gearing up for hearings and investigations, all seeking answers to the proverbial questions, i.e., who knew what, when did they know it, and what, if anything, did they do about it upon knowing about it’.

I must ask readers…

  • are these mere public relations issues which presumably can be managed or otherwise expected to dissipate over a period of time with no long term detrimental – adverse financial and/or competitive advantage affects?
  • or, are they merely the inevitable outcome of internal process and/or procedural malfunctions that repeatedly failed and will manifest as substantial and long term risks to each company’s reputation?

But, let me make a personal point before we proceed much deeper in this conversation, which is, while the three companies (examples) noted above, each are clearly among the Fortune 500’s, much smaller firms succumb to precisely the same circumstances, but the latter seldom makes national and international media headlines.

So, I believe what Target, GM, and Toyota are experiencing, can and should only be conceived and addressed through the lens of reputation risk.  Interestingly yesterday, Attorney General Holder pointed out that Toyota sought to handle their long running accelerator problems as a public relations problem.  If that is the case, clearly someone received consistently bad counsel. So, public relations is clearly the wrong lens to address, what may ultimately be determined to be systemic – internal process, procedure (company, business unit cultural) breakdowns that produce obvious and substantial consequences financially and competitively.

When does a public relations problem become a reputation risk problem…?

Admittedly, having worked almost exclusively on the intangible side of businesses for many years, this is not necessarily an easy question to answer, nor perhaps, should it be.  My experiences lead me to conclude however, that boards, c-suites, and many management teams, have yet to transition from characterizing – framing such events in public relations to reputation risk contexts, as inferred by AG Holders’ remark.  Clearly, in my view, the problems experienced by Toyota, GM, and Target, to name just a few, reached well beyond a conventional public relations challenge months, if not years ago, and have moved into a much longer term reputation risk cycle.

So, perhaps, that was the distinction between a public relations problem and a reputation risk problem applied by these companies, i.e., the time frame in which the problem can and/or will fester with consumers to the point it materializes to adversely affect a company’s reputation, which as we know is often for extended or perhaps even, indeterminate periods of time.

But, using time as the primary metric for distinguishing adverse events as being public relations vs. reputation risk problems falls short of a critical aspect, that is rapidly and correctly assessing the gravity of the problem, through the eyes of (factors) consumers, investors, and other stakeholders.  Ultimately, materialized reputation risks are often found to be a failure or breakdown in a company’s structural capital, i.e., processes.

Again, my familiarity with such circumstances is that frequently those responsible for making (business) decisions remain challenged insofar as their inclination to characterize many adverse events in quarter by quarter contexts which, as it so happens, is more aligned with public relations ‘fixes’, versus longer term and much more adverse reputation risks.

The intangible asset ‘risk of risks’ is a company’s reputation!

Company reputation is an intangible asset of the first order.  So, perhaps it would be useful to say again it an economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, competitiveness, and sustainability lie in or evolve directly from intangible assets.  Respectfully, I suspect this economic fact may have prompted The Economist’s Intelligence Unit (EIU) to produce a ‘global risk briefing’ paper titled Reputation: Risk of Risks.

Company reputation is defined (in the Economists’ report) as ‘how a business is perceived by stakeholders, including customers, investors, regulators, the media, and the wider public’.  To be sure, it ‘declines when a company’s experiences fall short of expectations’.  When not one, but multiple consumers – users die or incur serious physical injuries because their expectations were not met by a company’s product, then, ‘Houston, we do have a problem’ and its unlikely it can be readily fixed through conventional public relation strategies.

However, before this definition can be fully translated into effective (reputation risk) countermeasures, it’s important for company decision makers, not unlike, Toyota, Target, and GM to achieve crystal clear operational clarity regarding…

  • whose experiences
  • what experiences, and
  • which expectations.

Company reputation is certainly a prized and increasingly valuable, yet vulnerable and fragile asset which the respondents to the EIU survey agreed by stating that sustaining a positive company reputation is a main concern for the majority of risk managers, ahead of, for example…

  • regulatory risk
  • human capital risk
  • IT network risk
  • market risk, and
  • credit risk.

It’s fair to say now that company reputation risk has risen to the level of being a fiduciary responsibility (and concern) that extends well beyond senior risk managers to being permanent fixtures on company management team, c-suite, and board dashboards, i.e., Stone v Ritter.

What these companies needed was a deeper appreciation for the asymmetric nature (elements) of reputation risk today, which is, unsatisfactory (poor) company reputation can rapidly, and often times irreversibly and adversely affect a company economically and competitively, aside from the embarrassing and probing questions that will be inevitably posed by Congressional Committee members, especially, those who have constituent(s) who personally suffered due to a company’s obvious absence of understanding and correcting reputational risks in a timely manner that preferably exceeds regulatory agency oversight requirements and before unwitting consumers die or become injured.

Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or m.moberly@kpstrat.com.

 

 

Intangible Asset Side Of Business!

March 17th, 2014. Published under Intangible asset strategy, Intangible asset training for management teams., Intangible Asset Value. No Comments.

Michael D. Moberly   March 17, 2014   ‘A long form blog where attention span matters’!

There is certainly both fact and legend to the premise that company success and profitability often lie in being first in the market place. However, management teams which are operationally unfamiliar with the intangible asset side of their business, particularly the inter-connectedness of intellectual, structural, and relationship capital that routinely pave the road for getting a company’s product(s) to the correct market place ahead of its competitors are now obliged to acquire such familiarity.

As readers know, for an ever expanding range of companies globally, 80+% of their value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in -  emerge directly from intangible assets.

So, to pave the most effective and efficient road maps, it’s essential to elevate clarity and bring choice to the stewardship, oversight, management of each company’s intangible assets that contribute value, competitive advantages, and other valuable virtues related to achieving business success, e.g., identifying, unraveling, developing, positioning intangibles to maximize and extract as much value and competitive advantage as possible.

As more business persons are coming to realize, there is no other time in business management history when larger percentages of a company’s value, sources of revenue, competitive positioning, earnings potential, and overall sustainability are more rooted in intangible assets.

Again, small company management teams are obliged to recognize the roadmap to securing the preferred and profitable outcome to any transaction, marketing program, and/or R&D project undertaken is routinely paved with…

  • the significant and inevitable roles they play in achieving preferred outcomes, along with
  • recognizing the necessity that intangibles be developed and positioned to accrue as much leverage as possible.

All too frequently however, the various contributions intangible assets make to a company, insofar as distinguishing their contributory value are overlooked, dismissed, undervalued, and unrecognized.  A response I seem to hear most from company management teams for this evolve around intangibles’ lack of physicality.  That is, intangibles are often ‘taken for granted’, not distinguished as value contributors, and otherwise become deeply embedded over time in routine (company, business) operations, processes and/or functions which tend to fall under the conventional business-minded radar this is often still fixated on tangible assets.

But, this is where small company management teams need to be, i.e., with respect to the intangible assets their companies produce and possesses…

  • Michael Porter, Harvard Business School, has described intangible assets as distinctive and unique blends of business activities, processes, know how, and customer/client relationships, in other words, combinations of intellectual, structural, and relationship capital, which companies can and should exploit to differentiate them from competitors, and thus create contributory value.
  • Similarly, Weston Anson of CONSOR, describes intangible assets as internally developed know how, i.e., intellectual capital primarily,…
    • that supports specific proprietary methods, processes, and best practices, and
    • the ways in which that information – those assets are used and applied.
  • Ultimately, intangible assets, says Dr. Baruch Lev, NYU, Stearns School of Economics, typically come at…

                      - the beginning of a process as ideas,

                      – the middle of a process as patents, and

- at the end of a process as commercialization and distribution channels.

A particularly frustrating misnomer that still frequents intangibles’ characterization is that they only reflect a company’s goodwill, brand, or possibly trademarks?  Readers of this blog of course, realize intangible assets reach far beyond such limitations, for example, the…

  • American Institute of Certified Public Accountants defines ‘goodwill’ as all of the intangible assets and supporting assets that contribute to ‘advantage’ that an established business has over its competitors or comparable businesses about to be started which include image, customer base, reputation, and perceptions…
  • British, on the other hand, broadly define ‘goodwill’ as the probability that a company’s customers would continue to do business with it and value its products and services above those available from competitors…

For every company, with respect to the various types of (business) transactions they typically engage, it’s advisable that business management teams and decision makers recognize the…

  • various forms intangible assets manifest.
  • various circumstances a company’s intangible assets will be in play.
  • actions necessary to sustain control, ownership, and contributory value of those assets, for the duration of their respective life, value, and functionality cycle.

Below are various examples – contexts of intangible assets.  For management teams, boards, and other business decision makers for which, most respectfully, this may be their initial foray into the intangible side of their business, they may find it useful to seek the expertise of an intangible asset strategist insofar as translating these intangibles into operational and/or transaction contexts.

Technology:  internally developed (proprietary, unpatented) software, databases, source code, custom applications, and technology sharing agreements…

Marketing:  advertising concepts, focus group findings, subscription lists, music, promotional characters/devices, newsletters, credit information files…

Engineering:  designs, drawings, blueprints, schematics, diagrams

Relationship – Organizational Capital:  customer/client relationships, mailing lists/data bases, retrieval systems, distribution channels, 1-800 numbers…

Competitor Research:  actionable business intelligence, i.e., competitors plans, intentions, and capabilities…

Real Estate: zoning, permits, water/mineral/development rights, easements, location visuals and proximities, options…

Human-Intellectual Capital: work force in place (experience, education, training), training manuals, operating processes, non-compete/disclosure agreements (if transferable), the sum total of employees’ specialties, skills, attitudes, abilities, competencies, and technical (proprietary) know how, insurance enrollment/expirations

Internet:  domain names, website design, B2B/e-commerce capabilities, web links, accessibility, use, URL’s…

Company/Business Identity:  image, goodwill, reputation, trade name, logos, brand…

Contracts/Agreements:  most any contract that has a definable life and some form of exclusivity, i.e. employment, affiliation, advertising, sales, subscription, service, long term lease, non-compete covenants, joint ventures, value of future purchases due to special relationships with vendors, royalties, technology sharing/joint ventures…

Products/Services:  warranties, production capability, order/production back log, operating permits, licenses, renewals, processes, expirations, retail shelf space, distribution rights/networks…

Intellectual Property:  patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, logo design, brands… 

R&D:  (in-process) studies, formulas, processes, assembly data, regulatory agency approvals, collaborative alliances, formulas, outstanding RFP’s, specialized technical repositories, libraries…

Communications:  methods, cable/transmission rights, FCC licenses, certification, bandwidth…

Structural Capital:  structures and processes employees develop to increase productivity and performance (business process/method patents)

Adapted/modified by Michael D. Moberly from various sources including ‘The Intangible Assets Handbook’ – Maximizing Value From Intangible Assets.  Weston Anson.  American Bar Association 2007 and ‘Global Brand Integrity Management’. Richard S. Post and Penelope N. Post. McGraw Hill. 2007