Archive for July, 2009
Michael D. Moberly July 31, 2009
A company culture is a shared system of values that defines what is important (to a company). Blended into a ‘company culture’ are certain norms and beliefs that convey appropriate – accepted attitudes and behaviors (for a company). Dr. Edgar Schein suggests a company culture will emerge – be exhibited as management teams and employees recognize the beneficial (economic) outcomes that will accrue as they engage and solve problems through those shared norms, values, beliefs, and attitudes in the form of efficiencies, competitive advantages, new knowledge, and reputational value.
Positively linked to a company’s culture is it’s reputation which is the ‘perceptual representations of past actions and future prospects that describe (drive) its overall appeal to key constituents, e.g., customers, clients, investors, employees, and the general public. A company’s reputation is often multi-dimensional however, because
constituent groups tend to use their own criteria to assess (a company’s) reputation vis-a-vis competitors.
Executive surveys and studies consistently report culture and reputation to be key factors and contributors to business success because they:
1. add value through differentiation and competitive advantages
2. are positively linked to enhanced (financial) performance
3, are difficult to imitate or replicate (by competitors).
Intuitively then, management teams should be (more) receptive, not reluctant or hesitant, to better understand how intangible assets such as culture and reputation favorably influence their company’s performance, success, and sustainability.
One starting point to achieve this is for management teams to recognize that a strong company culture will favorably influence a company’s performance by attitudinally positioning a company to produce, sustain, exploit, and extract more value from those assets, e.g.,
1. performance is enhanced because the parties perceive their actions are ‘chosen by them’.
2. the parties have greater clarity about what the company’s goals are and how to attain them and thus, will make better (more facilitating) decisions.
3. the consensus of values, beliefs, and norms enables more social control within a company which is more effective and efficient than formal controls, especially when addressing deviations from the norms established through the company culture.
Ultimately, company’s with strong cultures produce equally strong reputations, both of which are intangible assets that can deliver strategic advantages and higher financial performance!
(Some insights for developing this post was gleaned from ‘Creating Competitive Advantage Through Intangible Assets: The Direct and Indirect Effects of Corporate Culture and Reputation’ by Sylvia J. Flatt and Stanley J. Kowalczyk)
Michael D. Moberly July 28, 2009
While intangible asset assessments and inventories have relevance to both the buy and sell sides of a transaction, a buyer who elects to conduct neither is elevating the transactions’ risk factors, i.e., the probability that one or more of the assets will be significantly impaired. The reason? Risks to transactions and the IP and intangibles in play today are far too consistent, far more likely to occur, and far too easy to execute by adversaries and competitors. Ultimately, the assessment/inventory findings can serve to guide the transaction management team thresholds for asset risk. For example, if the assessment-inventory reveals significant risks that cannot be sufficiently mitigated or (transaction) terms renegotiated, should the transaction proceed, and if so, what’s the probability the transaction objectives are still achievable?
Among other things, the assessment (inventory) will test the in play assets relative to their ability to sustain the transactions’ projected (a.) objectives, (b.) returns, and (c.) exit strategy under various circumstances and scenarios, e.g., embellished respresentations, fraud, misappropriation, business intelligence, and infringement, etc., by:
1. Identifying, sifting through, and unraveling any embedded – intertwined intangibles and competitive advantages relevant to the transaction…
2. Identifying and assessing any under-the-radar risks, threats, and vulnerabilities that can entangle and/or ensnare the assets in costly, time consuming, and momentum stifling disputes or challenges…
3. Assessing the adequacy and effectiveness of any asset safeguards that have been in place (pre-transaction) relative to preserving the assets’ value and usability…
Using these principles, the assessment/inventory can deliver timely and relevant insight to transaction management teams by:
1. Alerting them to significant vulnerabilities and risks that warrant immediate attention, but yet may be favorably leveraged (re-negotiated) prior to deal closure…
2. Bringing operational, economic, and strategic clarity to the intangible assets that are in play, particularly those relevant to achieving a favorable outcome…
3. Identifying the most effective asset safeguards and value preservation measures that (a.) reflect the circumstances of the transaction, and (b.) are aligned with the transactions’ objectives including the life-value-function cycle of the assets!
And, as always, the overarching objective is to enable a more secure and profitable transaction to go forward, not impede it!
Michael D. Moberly July 27, 2009
Today, when negotiating, performing due diligence for, and/or executing business transactions it’s important for management teams to not be dismissive about the role that ‘secure’ intangible assets play in the outcome. The more familiar (alert) management teams are to intangible assets and their management, e.g., their role – contribution to transaction value, future company growth, and overall sustainability, the more likely a favorable outcome will be in the offing.
Whether its the buy or sell side of a transaction, the objectives are similar, which is to ensure management teams fully recognize and assess intangibles that are so essential to transaction (near term, long term) profitability and success. That’s because factors such as (asset) status, fragility, stability, control, usability, and ownership will, with increasing frequency, affect transactions and their outcomes.
In many instances, transaction team reluctance to duly recognize the relevance of intangibles is attributed to a mistaken assumption that intangible assets are synonymous with intellectual property, thus, conventional IP protections, e.g., patents especially, are sufficient safeguards for the assets in play and will deter would-be infringers, thieves, fraudsters, and misappropriators. A counter view however, and one more reflective of todays aggressive, predatorial, and winner-take-all transaction environment, is that conventional IP protections are more akin to reactive swords, rather than proactive shields, and carry little, if any deterrent affect. In other words, the real value and benefits that well protected and preserved intangible assets bring to a transaction can be significantly diluted, undermined, or even irrevocably lost when management teams overlook and/or don’t factor those realities.
A positive, perhaps first, step management teams should consider to consistently and favorably affect a transactions’ outcome, is to recognize the importance of conducting an inventory and/or assessment of the assets, applying a ‘business impact analysis’ methodology in both pre and post transaction contexts. An intangible asset assessment is a thorough, systematic, and circumstance-company specific procedure that objectively describes the (a.) status, (b.) stability, (c.) fragility, (d.) sustainability, and (e.) vulnerability of the assets in play.
Further, its important to test those assets insofar as their ability to sustain the transactions’ projected (a.) objectives, (b.) returns, and (c.) exit strategy under various circumstances, e.g., embellished respresentations, fraud, misappropriation, business intelligence, and infringement, etc., anyone of which, should they occur, will, most assuredly, adversely affect a transactions outcome. The objective here is to enable/facilitate a more secure and profitable transaction to go forward, not impede it!
Finally, it’s important that management teams’ recognize that intangible assets will almost always be part of any transaction, especially in light of the economic fact that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation consistently lie in – are directly linked to intangible assets!
July 20th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, intangible assets, Reputation risk.. No Comments.
Michael D. Moberly July 20, 2009
Company reputation, along with image and goodwill, are intangible assets! An effective initial step toward reducing the probability that a company will be unduly exposed to or become a victim of ‘reputation risks’ that occur with increasing frequency and adversely affect, not only image and goodwill, but value and revenue as well, is to conduct an intangible asset assessment. A well designed and executed assessment will produce three relevant and beneficial outcomes for a company, (1.) identify its key intangible assets, (2.) assess reputational risks to those assets, and (3.) determine strategies to prevent and/or mitigate those risks.
The following are the much abbreviated findings of an actual intangible asset assessment for a U.S. headquartered company. This company is the market leader (developer, manufacturer, and supplier) of a particular automotive services product and has multiple U.S. and international manufacturing, sales, training, and distribution sites with annual sales exceeding $300 million.
The assessment revealed four key areas which, in the assessor’s view, warranted attention by the company’s management team and board:
1. A presumptive (over) reliance on patents as constituting the sole means for safeguarding the company’s rights to it’s reputational – proprietary know how…
2. An under-appreciation for the intertwined relationship between the company’s reputation (image, goodwill, brand/product integrity, etc.), relative to the (reputational) know how embedded in employees at various levels and global locations…
3. Company practices (polices, procedures, etc.) were largely absent (a.) acknowledgement of intangible assets, and (b.) understanding of the assets relationship to sustaining/building company reputation…
4. The absence of a protective company culture that contributes to ensuring key reputational drivers are sustained, in this instance, (a.) a web-based customer/client training and trouble-shooting programs, and (b.) rapid turn-around (response) times for customer inquires, services, trouble-shooting, product delivery, and repair…
The reason the assessor identified these four areas as warranting management team and board attention are the convergence of (a.) the assets’ vulnerability, stability, and fragility, and (2.) the rapid cascading affects that adversely affect reputation, image, goodwill, value, and revenue should certain risks (to those assets) materialize.
Michael D. Moberly July 14, 2009
Safeguarding a company’s reputation is an essential (integral) responsibility for management teams and boards alike whether they oversee Fortune 1000’s or small, medium-size companies. An important first step to effectively, and perhaps permantly, address a company’s reputational risk is for management teams to recognize what precipitated – influenced their perception of such risks. This is important for two reasons. First, successfully and effectively responding to reputation risk events has essentially become a CEO driven act. Second, the design and execution of a reputation risk management policy is seldom as effective or proactive as it could be if the principal’s discount how their initial perceptions of reputation risk were framed and ultimately influence their actions ‘under fire’.
Typically, management team’s perception of risk evolves from one or more of the following, (a.) anecdotal accountings from colleagues, (b.) media reports, or (c.) personal experiences. Similarly, management teams are prone to framing reputation risks to their company as subjective, single events with little consideration given to the equally devastating after shocks that can cascade throughout a company and its external environment. To more effectively mitigate and/or counter such oversights, principal’s would find it useful to reflect on precisely how they perceive (interpret) the various types/categories of reputational risk that can adversely affect their company, i.e., their assessment of…
1. the source/origin of the risk
2. the company’s vulnerability/exposure to reputational risks
3. probability and ease which particular reputational risks can/will actually materialize
4. how a reputation risk can adversely affect their company, i.e., costs and cascading affects
5. the time frame and costs the company will incur relative to reputation recovery initiatives
6. the strength of the company’s existing reputation risk management plan to prevent or mitigate
7. whether reputation risks constitute a security problem, communication problem, or management problem, etc.
In most circumstances, conducting an intangible asset assessment of a company, which includes not only assessing reputational risks, but identifying and assessing each assets’ status, fragility, stability, and sustainability. Most management teams find such an assessment a useful prelude to designing a reputation risk policy. For example, if a company policy to address reputation risks is found to have a ‘crisis management’ orientation rather than a ‘contingency-mitigation planning’ orientation would be an indicator that the company is not monitoring – scanning either their external environment or stakeholders for early warning signs that reputation risks are materializing. Instead, a ‘crisis management’ orientation implies a company is essentially waiting for a reputation risk crisis to occur rather than engaging in a proactive and preventative approach!
Michael D. Moberly July 13, 2009
Company reputation is defined by the Economists’ Intelligence Unit, Weber Shandwick, and others, as ‘how positively or negatively a business is perceived by the people or entities the company relies on for its success, i.e., customers, investors, regulators, the media, and the wider public’. There’s virtually no argument that reputation is a prized and increasingly valuable intangible asset, but it’s exposure and fragility to a growing mass of asymmetric risks is real, especially if management teams are unfamiliar and/or inexperienced in its stewardship, oversight, management, and monitoring.
In its study, Reputation: Risk of Risks, Economist Intelligence Global Risk Briefing Unit, found that, of 269 senior risk managers interviewed, risk to company reputation represented their chief concern, ahead of other risks such as regulatory, human capital, IT network, market, credit, financing, political, and terrorism risks, etc.
Company reputation has become a dominant and driving source of company value and competitive advantage, which numerous respected sources estimate, among them being Weber Shandwick, 63% of a company’s market value now lies in – evolves from reputation. When that level of company value is directly linked to bundles of intangible assets that collectively comprise ‘reputation’ it clearly suggests that the stewardship, oversight, management, and monitoring of company reputation should not be relegated to I’ll do it when (a.) I have time, (b.) I see my competitors doing it, (c.) my company experiences a reputational crisis, or (d.) regulatory mandates require its valuation and reporting. Rather, ‘reputation management’ should commence immediately and focus on an array of stakeholders which can, and frequently do demand – create attention.
For example, company reputation can decline radidly when a customers’ interaction and/or experience with a company falls short of their expectations. In this regard, those charged with managing, monitoring, and responding to a company’s reputational risks must first bring clarity to three things, (1.) whose interaction/experience, (2.) what experience, and (3.) which expectations. Clarity on these matters, will lead to more timely, effective, and responsive strategies to address company reputational risks particularly in terms of resolving and mitigating!
While protecting/safeguarding a company’s reputation is an increasingly critical fiduciary function, it is also one of the more challenging insofar as, (a.) designing effective practices for constant (reputation) monitoring and measurement, and (2.) proactively, rapidly, and correctly responding to reputation hemorrhaging events. In large part, those challenges are products of the asymmetric nature of risks today which collectively exacerbate reputational risk, i.e., (a.) the 24/7 global media, social networking and communication channels and blogging, (b.) increased scrutiny from global regulatory bodies, and (c.) increasingly transferrable customer loyalty.
July 10th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, Intangible Asset Value. No Comments.
Michael D. Moberly July 10, 2009 Part Two Of Two Part Post
Regardless of how well intentioned and designed a business case may be for utilizing intangible assets, there’s plenty of well deserved skepticism among company management teams about intangibles, particularly in the areas of monetization and value extraction. It’s prudent then for ‘business cases’ to convey that intangibles are still occasionally perceived in the business community as being esoteric and theoretical concepts, which sometimes makes translating them to real business world applications suspect. Too, management teams are, generally speaking, realists and therefore reluctant to embrace (accept) a business case that is overly optimistic in positive outcome projections and/or espouses too much simplicity in execution.
Equally important, its unacceptable for a ‘business case’ advocating the use of intangible assets to be framed or designed as merely a regurgitation of a warmed over or generic version of a conventional (tangible-physical asset oriented) business case. Intangible assets are unique, but pervasive contributors to company value, revenue, sustainability, and future wealth creation and, as such, warrant independant, experienced, and forward thinking in the design of a ‘business case’.
The following are some key, but representative issues that should be addressed in the design and presentation of a ‘business case’ to company management teams for utilizing intangible assets…
1. Bring definitional clarity to intangible assets through a strong and relevant repertoire of examples applicable to a cross-section of industries applying understandable ‘economics 101’ techniques for valuation, revenue convertion, and measuring asset performance.
2. Avoid reliance on subjective – worst case (risk/threat) scenarios as a primary tactic to attract management team attention, but respectfully acknowledge that intangibles, left unrecognized and un-utilized, are vulnerable to exploitation-use by competitors and adversaries, and once gone, they’re not easily replaced or retrieved, and are extraordinarily costly and time consuming to re-build.
3. Demonstrate best practices for sustaining (protecting, preserving) control, use, ownership, and value of a company’s intangible assets and, why consistent stewardship, oversight, and management are essential.
4. Describe and explain conventional factors for determining (intangible) asset ‘suitability’, i.e., recognition, valuation, separability, transferability, life cycle, and risks.
5. Demonstrate connections, relationships, and linkages between a company’s intangible assets, i.e., their production, acquisition, and use, and the contributions and multiplier-effects they bring to company value, revenue, sustainability, and future wealth creation.
6. Describe practical strategies to position and bundle intangible assets (when feasible) to achieve broader positioning, leveragability and/or value potential.
July 9th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, intangible assets. No Comments.
Michael D. Moberly July 9, 2009 (Part One Of A Two Part Post)
Any well intentioned and designed ‘business case’, at minimum, should achieve four things for the (decision making) management team…
1. objectively convey the reasoning/rationale for engaging something new, different, and better than what’s been done previously, i.e., statement of the problem and how the problem will improve if the initiative is executed!
2. describe a time line when the new initiative will deliver a sufficient return-on-investment to be worthy of the time, resources, and expense of those who will be involved in its execution, i.e., primary benefits (near term and long term)!
3. demonstrate the relevance of the initiative and how it will favorably affect a company’s core business and its future growth potential and sustainability, i.e., secondary benefits (near term, long term, multipliers, and risk mitigators)!
4. describe environmental changes necessary to compliment – support the initiative, i.e., the time and costs to populate employee knowledge base, integrate it, and apply it!
Conceiving and presenting a ‘business case’ for utilizing intangible assets however, must begin with providing management teams with objective data and examples to aid in recognizing the relevance and feasibility of the initiative, key among them being…
1. their company actually possesses and produces potentially valuable and monetizable intangible assets.
2. the economic fact that, for most companies, including theirs, 65+% of the value, sources of revenue, sustainability, and foundations for future wealth creation lie in – are directly linked to intangible assets.
3. practical, measurable, and understandable techniques to identify, assess, value, position, leverage, and maximize/extract value from their intangible assets.
4. once executed, the initiative can be leveraged (showcased) to literally build additional intangible assets for the company, i.e., enhancing the company’s image, goodwill, reputation, etc.
Regardless of how well intentioned and designed a business case is for utilizing intangible assets, the presenter will likely face some well deserved challenges and skepticisms which frequently evolve from (a.) the fact that intangibles lack physicality, unlike tangible-physical assets, and (b.) intangibles are often portrayed/articulated in an esoteric (theoretical) manner who’s real business world application is suspect hence, an understandable reluctance to immediately embrace (accept) the contributions and value intangibles make to a company.
July 7th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, intangible assets. No Comments.
Michael D. Moberly July 7, 2009
In the pre-internet and dotcom era, company value and sources of revenue overwhelmingly evolved from tangible (physical) assets, i.e., machinery, equipment, buildings, inventory, property, vehicles, etc. Necessarily, business continuity and contingency planning focused primarily on (contingencies for) the recovery (continuity) of those tangible assets.
As the Internet and dotcom era’s evolved and their affects became more pronounced and evident, the drivers – sources of most company’s value, revenue, and sustainability shifted. No longer were tangible-physical assets dominant, instead, intangible assets, i.e., intellectual property, proprietary know how, human and intellectual capital, competitive advantages, brand, goodwill, image, etc., were collectively becoming the foundations to a knowledge-based economy! Today, 65+% of most company’s value, sources of revenue, sustainability, and future wealth creation lie in – are directly linked to intangible assets, not tangible assets!
Consequently, the time honored continuity/contingency planning practice of trying to contain loss and/or damage to a company’s tangible/physical assets, was becoming less relevant. Continuity-contingency planning for businesses needed to shift a large part of their focus to sustaining (protecting, preserving) (a.) control, (b.) use, (c.) ownership, and (d.) value of intangible assets to elevate the probability for a speedier, stronger, and more complete economic, competitive advantage, and market share recovery.
Some continuity – contingency planners however remain skeptical about the role and contribution intangible assets make to company value, revenue, and sustainability, and making intangibles more of the plans’ focal point. But, for company’s and communities that have experienced significant disruptions or natural disasters of late, had their continuity/contingency plans included intangible assets it would clearly have made a difference, e.g., New Orleans’ business community following hurricane Katrina, Mattels’ toys found to include high levels of contaminants from a manufacturing process, consumable foods and health products being suspect of contamination, and Starbuck’s communication misques on 911.
In most instances, a company’s tangible (physical) assets can be re-purchased, rebuilt, and/or replaced in fairly rapid order following a disaster or business calamity. Intangibles, on the other hand, are not off-the-shelf assets. They’re more fragile, volatile, and mobile and are not nearly as easy to recover without an effective and comprehensive continuity/contingency plan that specifically accounts for intangible assets.
Marketing studies routinely find that consumers and clients will frequently shift, if not totally abandon, brand loyalty for example, in lieu of other products or services when (a.) one or the other are even temporarily unavailable, and/or (b.) their quality becomes suspect. Its expensive and time consuming to re-build intangible assets. Employees (human intangibles) and the intellectual capital, experience, and know how they possess are mobile, that is they can leave and go elsewhere during downtimes, sometimes to competitors which makes recovery all the more difficult and drawn out.
Another motivator for management teams to ensure their company’s continuity/contingency plan includes intangibles is the reality that competitors globally will take full advantage of – exploit any such opportunity to advance themselves when they see competitors stumble!
July 6th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly July 6 2009
Is it possible, in today’s hyper-competitive and globally predatorial business environment for intangible asset intensive and dependant company’s to innovate, market new products and services, and execute transactions faster than competitors’ and adversary’s can undermine those initiatives or compromise those assets?
The short answer is yes. But, there are three important realities for management teams to recognize…
1. Any business advancement and/or transaction strategy that does not factor the speed and predatorial nature of today’s extraordinarily sophisticated data mining (scanning) technologies that enable business/competitor intelligence, information brokering, and economic (industrial) espionage operations, is short-sighted and will lead to (a.) elevated (unecessary) risk, (b.) lower probability for profitability and success, and (c.) unrecoverable loss of intangible assets.
2. Competitor/business intelligence operations are not directed soley to the Fortune 1000’s, rather they can and consistently do target (scan) every company, alliance, and transactions’ intangible assets whether its a large, small, or start-up firm.
3. The key reason for the elevated risk to information-based assets is that today 65+% of most company’s value, sources of revenue, innovation, and competitive advantages lie in intangible, not tangible, assets, e.g., proprietary know how, intellectual property, goodwill, image, brand, etc.
Thus, in today’s increasingly high stakes (one shot) global business arena, trying to stay ahead of the competition by assuming a company can move faster than its competitor’s and adversary’s can learn about, exploit, and undermine their (a.) innovation plans, (b.) transaction intentions, and (c.) commercialization capabilities, is increasingly risky.
Management teams’ that advocate such strategies often put forth two, potentially plausible, rationales:
1. It constitues a very realistic perspective about company’s inability today to effectively sustain control, use, ownership, and value of its intangible assets and intellectual property for indeterminate periods.
2. Any at risk assets will likely become obsolete, i.e., their usefulness, commerical value, and consumer demand will rapidly fade, therefore, any potential economic – competitive advantages illicitly gleaned by competitors – adversaries will be minimal.
From a fiduciary responsibility perspective however, either rationale more closely resembles ‘permissive neglect’ than realism or asset obsolescence!