Archive for November, 2008
Michael D. Moberly November 21, 2008
I’m extrapolting here somewhat, but according to Rob McLean’s fine piece ‘Intellectual Asset Strategy and the Board of Directors’ (IAM December/January 2006), which I believe is still very much apropos today, ‘boards are frequently drawn into intellectual asset management issues when there is a crisis, such as a lawsuit involving IP rights’. ‘Few boards’, McLeans suggests, and which I believe still reflects reality, ‘deliberately allocate time to intellectual asset issues as a matter of course’.
I can’t say for sure whether McLean’s references to ‘boards’ were directed to larger, Fortune 1000 types of companies or small medium enterprises and multinationals, i.e., SME’s and SMM’s respectively? While, much of my professional interests tend to be focused on the latter, my experience suggests that boards and senior management in either group still convey little overt (interest) incentive (a.) for consistent stewardship, oversight, and management of intellectual (intangible) assets, (b.) in intangibles being routine action items on board and/or c-suite agendas, and (c.) in deliberating – taking action on intangibles because they’re primarily perceived as legal processes versus fiduciary business decision.
With respect to boards’ actually engaging intellectual (intangible) assests, Mr. McLean describes four levels of engagement in which he characterizes boards’ in…
Level I – are generally unaware of the importance of intellectual (intangible) assets and related strategies relative to company strategy or competitive industry trends…
Level II – may be peripherally aware that intellectual (intangible) assets have some importance in strategy and competitive trends at the company level…
Level III – have a high-level understanding that intellectual (intangible) assets have some importance in strategy and competitive trends at the company level…
Level IV – have a detailed understanding of the role that intellectual (intangible) assets and strategy play in strategic planning at both the company and business unit level…
McLean further suggests (with respect to company boards’), that if ‘they are being honest, most would situate themselves at Level I or II’, a perspective which I belive is still reflective of today’s circumstance however it may stunt current fiduciary responsibilities.
For those who find Mr. McLean’s (level approach) portrayal and assessment of board engagement with intellectual (intangible) assets to reflect their observations and experienes, it does present numerous challenges and conundrums to intangible asset specialists. One in particular is sending unequivicol messages to boards and senior management that however ‘full their managerial/fiscal plate may already be’, their stewardship related to sustaining – enhancing – leveraging – extracting value from internally produced and/or acquired intangible assets should be permanent fixtures on their respective agendas.
From the board and senior management perspectives, there are three broad, yet quite plausible, starting points to achieve this:
First – consider changes in company governance structure and practices to genuinely reflect and be aligned with the reality that as much as 75+% of a company’s value, sources of revenue, sustainability, and foundations for future wealth creation are very likely to lie in – directly linked to intangible (intellectual) assets.
Second – takes steps to ensure the right people receive the right information that allow them to focus on the right areas with respect to the company’s intangible assets. This includes information and insights related to maximizing, leveraging, and extracting value and whatever else can position those assets to deliver (more) value and competitive advantages.
Third – the underlying/foundational responsibilities for identifying, assessing, and sustaining (protecting, preserving) control, use, ownership, and value of those assets should reflect a collaborative effort amongst intangible asset specialists, legal counsel, security, risk management, IT, and relevant business units where the intangibles often originate and percolate!
November 20th, 2008. Published under Analysis & Commentary: Studies, Research, White Pap, intangible assets. No Comments.
Michael D. Moberly November 20, 2008
In 2004, Deloitte teamed with the Economist Intelligence Unit to conduct a survey titled; ‘In the dark: What boards and executives don’t know about the health of their businesses’. The survey produced the following three key findings related to the importance of boards and senior managers to track non-financial aspects of company performance:
1. Factors driving boards and senior managers to monitor key non-financial performance indicators are:
a. increasing global competition
b. growing customer influences
c. greater awareness of risks to company reputation, and
d. accelerating product innovation
2. Despite the growing need to monitor non-financial vital signs of their businesses, most boards and senior managers are struggling to do so.
3. The biggest obstacles to enabling boards and senior management to track non-financial vital signs of their business are:
a. lack of sophisticated measures, and
b. doubts that they truly matter.
Interestingly, the Deloitte survey also revealed an overwhelming majority of respondents (ranging from 90+% to 78%) described ‘critical and important drivers to (their company’s) success’ as (a.) customer satisfaction, (b.) service quality, (c.) efficiency and effectivness of business processes, (d.) brand strength, (e.) innovation, and (f.) quality of relationships with external stakeholders. Please note that each of the aforementioned are routinely classified as intangible assets!
In my view, the findings and obstacles cited above by the survey’s respondents, can be substantially mitigated by elevating boards’ and senior executives’ awareness, alertness, and overall familiarity with intangible assets, particularly ‘company specific’ intangibles (their) company possesses, produces, and/or has acquired. Once this occurs, I’m confident it will become much clearer to senior executives and boards’ alike (a.) what type of performance indicators need to be in place (to track-monitor non-financial vital signs) and (b.) any changes in company governance, i.e., stewardship, oversight, management, that may be necessary to act on (e.g., better utilize, leverage) those performance indicators!
Michael D. Moberly November 19, 2008
In today’s globally competitive, aggressive, and winner-take-all business transaction environment, the management, oversight, and stewardship of intangible assets, IP, and proprietary competitive advantages that are in play – part of deals are fiduciary responsibilities and business decisions not solely legal processes.
By framing transactions in this context, it adds credibility, confidence, and efficiencies to the work of transaction management teams and increases the probability that pertinent details, particularly those related to the intangible assets that are in play, will become action items in the transaction management teams’ interaction with c-suites and boardrooms.
All intellectual properties are intangible assets, but, conventional forms of IP ownership-enforcement, i.e., patents, copyrights, and trademarks are absolutely not synonymous with (a.) sustaining control, use, ownership, or value of those assets, or (b.) the ability to maximize any projected economic rewards/benefits from a transaction.
Similarly, the time frames when a company can realize the most value from acquired IP and intangibles relatiive to the life, value, and functionality cycles of those assets continues to be compressed, in part, because of:
– barrier free (global) entry points and quick and substantial profits from large scale misappropriation, infringement, and product counterfeiting operations which are, in some regions, a more favored and certainly more lucrative option.
– increasing vulnerability to external exploitation, i.e., sophisticated and predatorial business intelligence and data mining campaigns that can rapidly undermine and/or erode asset value and project (transaction) momentum.
When substantial – valuable intangible assets are in play, business transaction management teams may be well advised to:
1. Focus squarely on the economic fact – business reality that today, as much as 75+% of a transactions’ value and ultimately the sustainable economic benefits to a party lie in intangible assets…
2. Treat the control, use, ownership, and value of intangible assets as business decisions and fiduciary responsibilities integral to relevant legal processes…
3. Integrate measures/techniques to mitigate risks – threats to the intangible assets that are in play, which, if they materialize (pre – post transaction) could:
– undermine competitive advantages and erode projected profitability
– cause time consuming distractios that disrupt transaction momentum
– ensnare-entangle the assets in costly legal challenges and/or disputes.
As business transaction management teams integrate the above guidance, particularly when intangible assets are in play – part of the deal, it will enable-facilitate stronger, more secure, profitable, and efficient transactions, not impede them!
Michael D. Moberly November 18, 2008
First of all, let’s agree at the outset, it is an indisputable economic fact – business reality that upwards of 75+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation lie in – are directly linked to intangible assets.
That said, for a variety of reasons, there remains considerable unfamiliarity and even uneasiness amongst a significant percentage of business decision makers about precisely what intangible assets really are, and how to best utilize – leverage – extract value from something that’s yet to appear on their balance sheets.
Building the proverbial, but always essential ‘business case’ (rationale) for devoting the time and resources to identify, assess, value, utilize, and extract value from a company’s intangible assets begins with a thorough and practical understanding of intangibles.
Conceiving and presenting a ‘business case’ for any new or untested initiative which decision makers may be unfamiliar, as those with the insight and fortitude for such things know, can be a daunting task in which preparation, as always, is the key. The challenges associated with that task elevate:
– when the subject matter, in this case intangible assets, are, quite literally, intangible, in other words, they lack physicality.
– because many decision makers still carry misgivings, misunderstandings, and/or dismiss intangibles as being (too) esoteric, or worse, irrelevant to their company and circumstances.
The following represent (some) key factors that should be considered when conceiving and presenting a ‘business case’ to decision makers for identifying, utilizing, and exploiting a company’s intangible assets:
1. Bring definitional clarity to intangible assets through a strong and relevant repertoire of examples applicable to a cross-section of industries…
2. Describe best practices (and, why they’re necessary) to sustain (protect, preserve) control, use, ownership, and value of the assets…
3. Avoid (over) reliance on subjective – worst case scenario risks and threats as a tool to attract decision makers’ attention…
4. Describe plausible, practical, and understandable –‘economics 101’ – approaches for valuing the assets…
5. Describe how and why it’s necessary to identify and unravel asset origins, location, ownership, and who’s developing them…
6. Describe conventional factors for determining asset ‘suitability’, i.e., recognition, valuation, separability, transferability, life cycle, and risks…
7. Demonstrate practical/realistic connections, relationships, and linkages between the production, acquisition, and/or use of intangibles and their direct, supportive, and multiplier-effect contributions to company value, revenue, sustainability, and (positioning for) future wealth creation…
8. Describe ways to position and/or bundle particular assets (if feasible) to achieve broader leveragability and/or value potential…
9. Draw decision maker attention to the importance of practicing consistent stewardship, oversight, and management of intangible assets, framed as fiduciary responsibilities…
10. Describe intangible assets in revenue conversion and performance measurement contexts…
Michael D. Moberly November 15, 2008
With such significant percentages of deal – transaction value lying in a targets’ intangible assets, due diligence must be much more than a cursory or confirmatory review of the presence, absence, and/or position of particular assets, i.e., intangibles and intellectual property. And, to be sure, it must provide more than subjective, snap-shot-in-time estimates of their value. Instead, due diligence must provide (bring) unequivical clarity to decision makers regarding, among other things, the fragility, stability, defensibility and strategic value of the targeted assets.
I am not alone when I suggest the strategic value of intangible assets cannot be properly or convincingly demonstrated by using conventional snap-shot-in-time techniques because, in today’s aggressive, globally competitive, and winner-take-all transaction environments, asset value and materiality can fluctuate rapidly, especially if adverse circumstances exist and/or the assets are subject to compromise, misappropriation, infringement, erosion, or undermining (pre-post deal).
It’s particularly important today, for the framers’ (those charged with structuring) deals – transactions to recognize that conventional forms of intellectual property enforcement (i.e., patents, copyrghts, trademarks) are not synonymous with either party being able to sustain-preserve control, use, value, or even ownership of the targeted assets. This should be a special concern in post-transaction contexts.
One, of many reasons why its important to integrate these and other perspectives in due diligence strategies’ today, is that the time frame when holders, buyers, and/or sellers of intangible assets can realize-extract-leverage the most value (from them) is being continually compressed due in no small part to the globally predatorial business intelligence and data mining operations that can, when successful, rapidly ‘get out front’ of competitors’ deals and/or transactions to adversely affect (undermine, erode) an assets’ (strategic) value.
What follows are a few issues parties’ should consider as they ‘frame and structure’ their due diligence strategy in deals and/or transactions particularly with respect to targeted intangible assets, i.e., is there evidence of:
1. a broader company culture that recognizes the value of the targets’ core (revenue – value producing intangible) assets?
2. consistent stewardship, oversight, and management of those assets?
3. consistency in the representation of those assets, i.e., Sarbanes-Oxley, FASB, etc., in which risks, value, materiality, and financial performance are accounted for and measured?
4. business continuity-contingency planning that includes core intangible assets?
5. strategic planning intended to achieve fuller utilization (monetize, extract value) from the intangible assets?
November 14th, 2008. Published under Analysis & Commentary: Studies, Research, White Pap, intangible assets. No Comments.
Michael D. Moberly November 14, 2008
I am quite confident that devoting time and resources to developing an enduring ‘company culture’ in which employees, business units, and c-suites collectively recognize, respect, and are committed to not only building (adding) intangible assets to a company, but also, contributing to sustaining their control, use, ownership, and value, can deliver returns.
An organizational culture, according to Dr. Edgar Schein, consists of three progressive stages:
1. Shared assumptions that employee’s learn while solving problems, which, if those assumptions work well enough…
2. Employees will eventually consider them valid and worthy of being taught – passed along to new employees, because…
3. They represent the correct way to perceive, think, and feel in relation to addressing (internal, external) problems that are routinely faced…
So, why is an intangible asset focused ‘company culture’ important now? First, its because as much as 75+% of most company’s value, sources of revenue, and sustainability lie in – are directly linked to intangible assets. Second, deliberately instilling an ‘intangible asset focused company culture’ becomes a good vehicle to raise enterprise wide awareness about important (quite possibly, the real) sources of internal company value. Third, a ‘company culture’ can serve as a catalyst for internalizing strategies and incentives to begin monetizing the business – economic reality that there’s been a permanent shift in the primary sources of company value, revenue, and sustainability, that is, from tangible (phyiscal) assets to intangible assets!
Designing a ‘company culture’ that’s focused on intangible assets involves determining:
1. What attitudes and beliefs need to be established (internally) that lend themselves to identifying and sustaining control, use, ownership, and value, and
2. How those attitudes and beliefs will be translated and ultimately manifest themselves in employee, business unit, and c-suite behavior, i.e., consistent procedures, policies, and (best) practices relative to the stewardship, management, and oversight of intangibles…
Matthew Bunn and Anthony Wier point out that a ‘good corporate culture is comprised of 20% equipment, and 80% people’. That said, its important to recognize that the best practices, policies, procedures, regulations, and standards, cannot compensate for apathy or conceptual dismissiveness about identifying, using, leveraging, and extracting value from intangibles!
As pointed out by Dr. Kenan Jarboe in his Athena Alliance monograph ‘Intangible Asset Monetization: The Promise and the Reality’, there are six factors considered by financial markets, and presumably ‘buyers and sellers’ as well, with respect to determining the ‘suitability’ of an an asset, one of which is ‘transferability’. In other words, is a ‘company’s culture’ so specific to that company, industry, and/or location that it can’t be replicated or ‘sustained’ through a market change or significant economic downturn?
Michael D. Moberly – November 13, 2008
The findings of several quality studies, most notably those produced by PERSEREC and Carnegie-Mellon’s CERT, convey significant challenges stemming from ‘insiders’ relative to the threats-risks they pose to proprietary information, trade secrets, IP, and know how. Those studies provide us with important insights and perspectives regarding the who, what, how, and even possibly how (information) losses/compromises were detected.
By all accounts, the challenges of safeguarding valuable/sensitive information assets in globally operating companies and the losses attributed to insiders, is on the rise. The precise number of (insider theft-compromise of information asset) incidents companies’ experience, the dollar amount of those losses, and/or the end-use beneficiaries of the stolen-compromised assets is often blurred or incomplete because, among other things, (a.) evidence is largely anecdotal and/or company specific, (b.) victim companies are frequently predisposed to assume the culprit is foreign national or economic-defense adversary, (c.)instructive evidentiary-investigatory elements of the incident(s) become classified, and/or (d.) facts about an incident are considered reputationally proprietary by the victim company.
Carnegie-Mellon University’s CERT research unit identified the following attributes of an insider, albeit with respect to a study regarding ‘IT sabotage’:
1. Access – an insider can target a company from behind it’s perimeter defenses and not cause suspicion…
2. Knowledge, trust, familiarity – of both the IT system and the target and permits insiders’ to perform discovery without arousing suspicion…
3. Privileges – an insider can readily obtain the necessary privileges necessary to conduct an attack…
4. Skills – insiders can mount an attack and can work within the target’s domain expertise…
5. Risk – insiders tend to be very risk averse in preparing for and conducting the attack…
6. Method – insiders are likely to work alone, but may recruit and/or co-op a trusted colleague for facilitation and/or enabling purposes…
7. Tactics – may include either (a.) plant, hit, and run, (b.) attack and eventually run, (c.) attack until caught, and/or (d.) espionage…
8. Motivation – an insider may engage in an act for (a.) profit, (b.) getting paid to disrupt the target, (c.) provoke change in the company/target, (d.) blackmail, (e.) subvert the mission of the target, (f.) personal motive, or (g.) revenge…\
9. Predictable Processes – the motivation for an attack by an insider can evolve from (a.) a particular event, (b.) sense of discontent, (c.) being ‘planted’ to conduct the attack, (d.) adversary identifies a target and mission that meets their (or, another parties’) needs…
From these nine attributes of insiders who engage in ‘IT sabotage’ three important questions arise:
First – with respect to the attributes, can they be extrapolated – are they applicable to the risks/threats presented by insiders to a company’s information assets, in addition to IT system sabotage?
Second – if so, can these attributes (relevant to ‘insiders’) be consistently identified and assessed (legally) using existing pre-employment screening tools?
Third – if the above attributes are not found to be present (in an applicant) at the time of hire, should companies, given the enormous stakes, invest in post-hire (periodic honesty, integrity, attitudinal) screening of employees to detect the acquisition/presence of certain proclivities, propensities, and/or an overall receptivity to engage in adverse acts or policy violations affecting the security (control, use, ownership, and value) of their employer’s information assets, e.g., theft, infringment, compromise, etc.?
Michael D. Moberly November 12, 2008
In most any business transaction, particularly, mergers, acquistions, and venture capital investments, intangible assets play a key role, not only in terms of value, pricing, etc., but also in understanding more precisely what’s being (a.) acquired, or (b.) invested. Too often, the existance, role, and contributions of intangibles falls outside or under conventional decision making radar. That is, intangible assets are often ‘pockets of value and competitive advantage’ that are overlooked and underappreciated.
Intangible assets, in addition to being perishable. fluctuating, and costly, if not nearly impossible to renew if compromised, undermined, or devalued, are sometimes ‘company specific’. That is, assuming they can be replicated or trying to ‘make them fit’ in another company’s operating culture or circumstance may be chancy at best. It’s advisable then that replication (transferring) of intangible assets should figure rather prominently in a deal’s overall analysis.
Remember, a company’s intellectual property, know how, competitive advantages, and brand, etc., i.e., its intangible assets, constitute steadily rising percentages of most company’s value, and by extension, the value of any transaction (be it an acquisition or investment in a start-up or early stage firm) in which IP and intangibles are in play. Experience and research tell us that in either instance, the buyer – investor is literally hedging their analysis (i.e., due diligence, judgment, intuition, etc.) that substantial returns will result as a product of their risk!
Strategic paths to elevate decision makers’ confidence in transaction outcomes, i.e., decisions to (a.) buy – don’t buy, or (b.) invest – don’t invest, begins by examining the nuances of the targets’ intangible assets to unravel, assess, and monitor the stability, fragility, defensibility, value, and materiality changes (of the assets to:
1. Elevate the probability that control, use, owership, value, competitive advantages, and efficiencies of those assets can be sustained (pre – post transaction), and possibly replicated…
2. Determine if the the assets can sustain the parties’ financial interests and projected returna relative to the deals’ terms, objectives, and/or exit strategy…
3. Leverage any (identified) IP – intangible asset risks, threats, and/or vulnerabilities in (re-)negotiating deal terms…
4. Align post-investment IP protections and intangible asset value preservation strategies with, for example, the assets’ (a.) developmental life/value cycle, (b.) initiatives related to transfer or commercialization, etc…
5. Monitor invested-in-research to mitigate vulnerability-probability of premature disclosure, infringement, legal entanglements or ensnarements, theft or compromise, undermining of competitive position, value erosion, adverse affects of business intelligence or economic espionage…
Due to the economic fact – business reality that in most transactions, be they a merger, acquisition, or investment by venture capitalists, intangible assets and IP are very likely to be a significant element of the deal. In some respects today, business transactions, i.e., mergers, acquisitions, investments, etc., may be less (conventionally) driven/influenced by a targets’ low (under-valued) stock, rather by ‘bargain hunting’ for companies with unrecognized, under-valued, and unused intangible assets!
For decision makers well versed in intangible assets and IP, such ‘bargains’ should be worthy considerations, especially if the buyer or investor can objectively identify sound opportunities for mining, leveraging, and extracting value from those heretofore under-the-radar (intangible) assets. Regardless of a decision makers’ rationale and/or motive, having procedures, processes, and practices in place to effectively and efficiently identify and ‘bring to the surface’ value laden intangible assets, coupled with the ability to assess control, use, ownership, and value of those assets in both pre-post transaction contexts, can ‘rationally’ elevate confidence in transaction outcomes!
Michael D. Moberly November 1, 2008
Today’s business (economy) is very different from the past, and the past, in this instance, is measured in just a few years, not by generations or eras, unless of course, you’re talking about ‘generations’ of technologies, which we’re not! Rather, I’m referring to company’s intangible assets which have become the primary, if not dominant, driver (source) of value, revenue, sustainability, and the basis for future (company) wealth. There clearly is something novel about the ‘new (intangible asset driven) economy’ as Dr. Kenan Jarboe points out. Intangible assets, he says, include knowledge, ideas, skills, relationships, and organization, and have taken on greater worth, and monetization of those intantible assets is one step in the process of value creation’. (Kenan Jarboe, ‘Intangible Asset Monetization: The Promise and the Reality’. Athena Alliance, 2008, p. 88).
More to the point, steadily rising percentages, as much as 75+%, of company value today, lie in – are directly linked to intangible assets. While this percentage may vary somewhat, depending on the industry, it is, by all objective measures, an indisputable economic fact – business reality which should not be dismissed or left unconsidered relative tobusiness (strategic) planning.
Unfortunately however, this gargantuan shift from a tangible to intangible asset-based economy has yet to become fully operational and as useful as it can be, primarily with respect to achieving consensus and consistentcy in accounting (of-for intangibles). As Dr. Jarboe points out again, ‘there are numerous reasons for this, one of which is, there’s no standardized financial tools for businesses to (literally) capture the value of intangible assets’.
What we’re striving for at the Business IP and Intangible Asset Report and Blog is to elevate the overall level of awareness of business decision makers for conceptualizing a clear, viable, consistent, lucrative, and strategic pathway to monetize (value, securitize, leverage, and extract value from) their company’s intangible assets.
So, am I suggesting the entire business community must wait indeterminately for:
1. state and federal agencies to reach cross-agency consensus about reporting and accounting of intangibles, or
2. the financial markets to similarly reach consensus for determining (intangible) asset (a.) recognition, (b.) valuation, (c.) separability, (d.) transferability, (e.) duration, and (f.) risk?
No, not necessarily. Rather, what I’m suggesting is that waiting indeterminately for an incentive and/or consensus about the financial structuring of intangibles literally leaves, in the interim, trillions of dollars of value ‘largely hidden away and unavailable for financing purposes’. (Jarboe, p.6)
In today’s financial crisis, monetization of intangible assets, i.e., leveraging them, extracting value from them and turning them into revenue as another tool to sustain a company through this crisis, should be ratcheted up on the growing list of priorities!