Archive for August, 2009
Michael D. Moberly August 31, 2009
Most, if not all, university research, whether basic or applied, produces strategically valuable intangible assets that are frequently equal to the intellectual property that the institutions’ scientists, administrators, and technology transfer teams initially focus. (For a comprehensive list of intangible assets see http://kpstrat.com/brochure.)
In far too many instances though, intangible assets are overlooked, dismissed, or overshadowed by the time honored practice, within higher ed technology transfer, of pursuing conventional intellectual property dominated paths/strategies, i.e., patent applications, provisionals, licensing, etc.
Today’s road to successful technology transfer however, is increasingly lengthy, costly, and risky. Respecting the economic fact that 65+% of most institutions’ value and foundations for future growth evolve directly from intangible assets, its now prudent to factor-include, in any technology transfer process, intangible assets! Why?, because in most instances, intangible assets underly (accompany, are embedded in, become valuable by-products of) scientific innovation. Thus, to consider intangible assets as secondary or subordinate after-thoughts to innovation, technology transfer, or ambitiously vertical strategies of filing patent applications, routinely leaves (a.) opportunity, and (b.) value on the table!
In addition, conceiving university research and technology transfer solely through conventional IP (patent only) lens tends to push out administrative time and inclination to genuinely explore options to exploit and extract value from the innovation. This includes identifying, assessing, and valuing the often times equally useful – valuable intangible assets that routinely surround most innovation. When intangible assets are overlooked or not properly factored in the technology transfer process their supportive and contributory value and even possibly defensive role for enhancing and sustaining the innovation and IP will likely be irrevocably lost. Increasingly, this translates as other domestic, global competitors capturing and exploiting those assets for their benefit and profit.
There are multiple other benefits that can accrue to university technology transfer teams when they engage intangible assets and respectfully move away from the somewhat minimizing view of treating intangibles as un-accountable, un-commercializable, and un-monetizable discards that can’t – should’n’t be integrated into an institutions’ strategic technology transfer plan.
Yet, in this irreversible knowledge-based economy, wherein 65+% of an institution’s value, potential sources of revenue, sustainability, and foundations for future growth lie in intangible assets, disregarding and overlooking their contributory-supportive value and potentially defensive role is not likely to become an administrative practice that legitimately advances technology transfer options in the higher ed arena.
Michael D. Moberly August 27, 2009
Designing and implementing (representation, warranty) ‘convenants’ for mergers and/or acquisitions (as well as other types of business transactions) to monitor about-to-be-purchased (merged) intangible assets is a prudent and forward looking exercise that is increasingly likely to represent the difference between a successful and something less than successful outcome. (For a comprehensive list of intangible assets see http://kpstrat.com/brochure.)
Its well documented that a significant percentage of M&A’s do not bear the anticipated/projected fruit as the deal was initially and often enthusiastically conceived and negotiated. In no small part, the underliers to M&A’s less than stellar track record:
1. are the various challenges associated with actually and effectively integrating-meshing the key intangible assets in the post deal environment, and
2. is the probability that the status, stability, value, and/or materiality of those key intangibles have been undermined, eroded, or otherwise adversely changed in the interim.
Therefore, the rationale for introducing ‘intangible asset monitoring convenants’ in mergers and acquisitions is on two levels:
1. today, its an economic fact that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future growth lie in – are directly related to intangible assets. If the control, use, ownership, value, and stability of those about-to-be acquired/purchased intangibles are neither verified nor monitored pre, and post deal, this represents significant risks that could be mitigated and decision makers could be made aware, if effective monitoring convenants had been negotiated ‘up front’ and were being executed.
2. recognition that intangible assets’ integral to a deal’s (projected) profitability and success are vulnerable to an ever growing milieu of risks, challenges, disputes, and changes, anyone of which can adversely affect the outcome. For example, in an acquisition, the will and ability of the target company to sustain the know how, competitive advantages, reputation, market position, goodwill, image, etc., that are integral to the deals’ value and critical to the deal’s success should be monitorable. In so doing, decision makers can have ‘early warning’ alerts to these risks so they can be properly addressed, prevented, and/or mitigated by, among other things, renogitating deal terms.
Michael D. Moberly August 25, 2009 (Part Two of Two Part Post)
The phrase ‘knowledge-based economy’ is a business reality and economic fact, not a meaningless cliche’. For securiy product/service vendors this phrase should provide critical insight into how the private sectors’ security needs, demands, and expectations are evolving. No longer, for example, are tangible – physical assets, i.e., plants, real estate, equipment, inventory, etc., the predominant source of most company’s value and revenue. Instead, in the ‘knowledge-based economy’ the predominant sources – origins of company value have shifted to intangible assets, i.e., intellectual property, proprietary know how, brand, reputation, image, and goodwill, etc. (For a comprehensive list of intangible assets see http://kpstrat.com/brochure.)
Predictably then, we should see the security (product, service) industry become immersed in training and product and service development to safeguard intangible (asset) sources of company value and revenue which is what companies, their management teams, and boards most want and are being mandated to protect and monitor.
Safeguarding, monitoring, and mitigating risks to intangible assets are the new security drivers for the 21st century! Consequently, these new ‘security drivers’ present many viable opportunities for security product and service companies to profitably engage this still evolving nexus of needs, demands, (management) expectations, and regulatory mandates.
Some outstanding challenges facing the security product and service industry are analogized in a security product presentation I recently attended. All told, the product had numerous (venue) applications and multiple favorable ‘selling points’. Unfortunately however, the vendor either overlooked or did not recognize the various ways in which the product could deliver ‘security intangibles’, i.e., additional value, well beyond the products’ primary security features.
Had the vendor appropriately bundled and characterized the ‘security intangibles’ in the presentation and accompanying promotional materials, management receptivity to purchasing the product would have likely been substantially elevated because return-on-investment projections would have been more clear and much broader.
August 24th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, intangible assets. No Comments.
Michael D. Moberly August 24, 2009 (Part One of Two Part Post)
Knowing how to identify and effectively explain ‘security intangibles’ should become integral to every vendors’ sales vocabulary and repertoire. Vendors of security products, i.e., alarms, intrusion detection systems, CCTV, computer/IT security programs, etc., should ensure their ‘pitch’ and promotional materials effectively address the value added intangible assets that routinely accompany and/or become a positive by-product of their product or service. Security intangibles however, are (a.) frequently overlooked, (b.) not translated effectively, or (c.) left to prospective clients’ imagination to recognize for themselves.
Why should ‘security intangibles’ become integral to every vendors’ sales vocabulary and repertoire? First, its an economic fact that 65+% most company’s (a.) value, (b.) sources of revenue, (c.) sustainability, and (d.) foundations for future growth and expansion lie in – are directly linked to intangible assets. Second, security vendors encounter more enlightened management (procurement, risk, specification, etc.) teams that understand both the added value that intangibles bring to their company’s bottom line as well as the risks to those intangibles. Third, dismissing ‘security intangibles’ as being irrelevant to either sales or client management practices will increasingly become a factor in the sale – no sale equation.
Most security products/services are capable of delivering a much broader spectrum of measurable client benefits (i.e., intangible assets) aside from the conventional and subjective appeal to risk-threat mitigation. Effectively integrating ‘security intangibles’ in sales repertoire and promotional materials can add a competitive advantage that truly distinguishes one security product/service company from another.
Why aren’t ‘security intangibles’ more routinely articulated components of sales presentations? In part its due to the mistaken perception that intangibles are (a.) too challenging to explain to prospective clients or too esoteric to integrate into product/service promotion because they lack physicality, or (b.) synonymous with intellectual property or company goodwill and therefore presumed to fall outside the realm of (tangible only) benefits derived from security products and services.
Michael D. Moberly August 21, 2009
Intangible assets and intellectual property are not the sole province of large, Fortune 1000 types of companies, rather they’re embedded in companies of all shapes, sizes, and industry sectors. But, regardless of a company’s size, it’s prudent today to have a strategic plan in place that specifically describes how those assets will be utilized and protected. Such plans are increasingly regarded by investors and lenders alike, as important signs that a strong, effective, and forward looking management team is at the helm.
In the findings of a survey ‘Investor Attitudes on IP Protection’ (Howrey, Simon, Arnold & White, 2002) one quarter of the (lender, investor) respondents stated they actually turned down and/or discouraged investment opportunities because the applicant (company) did not have, in their judgment, an adequate approach (strategy) in place for addressing their intangibles and IP.
In today’s extraordinarily competitive and ‘winner-take-all’ business environment, having an effective strategy for the stewardship, oversight, and management of a company’s intangibles and IP is essential. For example, a company with a promising technology, but absent an effective intangible asset – IP utilization – protection strategy, is likely to be regarded as insufficient to warrant serious consideration from prospective investors or lenders.
As the survey findings point out, (a.) investors/lenders do not expect companies that do not have an effective intangible asset – IP strategy in place to become a market leader, and (b.) the absence of such a strategy suggests it is unlikely that a management team will be able to fully capitalize on their intangible assets and IP, i.e., achieve the necessary success, sales, profits, and competitive advantages.
By most accounts, an effective intangible asset and IP strategy must include, at minimum:
1. a strong patent protection plan that reaches well beyond ‘patent issuances’ to justify (continued) R&D investment
2. a precise description how the intangible assets and IP will be utilized and protected relative to preserving and/or enhancing market position and reducing the probability that competitors will be able to enter that market space.
3. a demonstration of how the company’s intangibles and IP are aligned with the company’s core business
4. a plan to effectively exploit and extract value from the intangibles and IP to the fullest extent possible, i.e., generate revenue streams, royalties, competitive advantages, and/or enhance the value of the company overall along with objective forms of measurement.
Collectively, the respondents to Howrey’s survey sent consistent messages, a primary one was that the existance, quality, and use of a company’s intangible asset – IP strategic plan contributed to their valuation of a company and to any (current, future) investment decision related to that company!
Michael D. Moberly August 20, 2009
What can management teams’ of intangible asset – intellectual property intensive/rich companies do to elevate (win) the confidence of lenders to become more receptive and responsive to intangible asset – IP backed lending proposals? To be sure, the answer is not easy!
For starters, its essential that applicants fully appreciate the fact that while most lenders understand the terms intangible assets and intellectual property, they may perceive them in different contexts variously influenced by their past experiences and industry sector expertise, and their employers’ (lending institutions’) historical interests and practices.
Therefore, any (asset backed lending) proposal must be framed in a manner that brings financial – business clarity to the intangible assets ‘on the table’, i.e., what they are, the various forms they take, how they’ve been managed and utilized, and how they’re currently positioned (leveraged, convertable) into competitive advantages, value, sustainability, and foundations for future (company) growth, and of course, revenue. Each of these elements are meaningful to – resonate with lenders
Secondly, a proposal should respectfully articulate a rationale that permits the lender (ideologically and practially) to faithfully shift conventional perspectives/practices they may hold to become receptive to considering/examining alternatives, apart from only accepting liens on an applicant’s physical – tangible (assets) property, etc., as collateral.
In many instances, this can be convincingly articulated by emphasizing the economic fact – business reality that in today’s increasingly knowledge-based economies, 65+% of most company’s value, revenue, sustainability, and foundations for future growth lie in – evolve directly from intangible assets including IP, not physical (tangible) assets.
Thirdly, a proposal must clearly address (counter) concerns shared by many prospective asset backed lenders, which is that management teams of intangible asset – IP intensive companies routinely do not have in place a coherent or sufficiently adequate approach (strategy) for the utilization – maximization of their intangibles and IP to warrant investment, i.e., asset backed lending.
And lastly, but quite realistically, asset backed lending applicants should ensure, before negotiations commence, that the lending application itself has space to reference (list, describe as collateral) not solely the applicants’ tangible – physical assets but, most importantly their intangible assets and intellectual property.
(This post evolved primarily from Mr. Moberly’s experiences and research. A 2002 survey conducted by Howrey, Simon, Arnold, & White titled ‘Investor Attitudes on IP Protection’ proved very useful as well.)
Michael D. Moberly August 18, 2009
Insider theft of IP and intangible assets will likely continue to rise and become even more irreversably devastating to (victim) companies. In large part the increase is attributable to two things:
1. the economic fact – business reality that higher percentages (65+%) of company value, sources of revenue, sustainability, and future growth now lie in – evolve from intangible assets such as intellectual property, proprietary know how, and other forms of intellectual capital that are readily available and vulnerable.
2. the category/class of insider thief which Carnegie Mellon’s CERT Program calls ‘the entitled independant’.
In their recently published report titled ‘Insider Theft of Intellectual Property for Business Advantage: A Preliminary Model’ an entitled independant is described as an ambitious insider, acting alone, who steals information which they have contributed to its development. They do this in order to take it to a new job or to use in their own side business.
Of the ‘entitled independants’ CERT studied, nearly 75% were actually involved in the development of the (proprietary) information they ultimately stole and came to possess a ‘sense of entitlement’ which can manifest itself further in some instances as a ‘sense of ownership’. A correlation exists between the entitled independants’ perception of contribution and the likelilhood they will develop a sense of entitlement (ownership).
Many management teams and decision makers will undoubtedly find these findings interesting. But, to those who remain dismissive or hesitant to act on CERT’s findings and models, they’re encouraged to also review McAfee’s recent survey titled ‘Unsecured Economies: Protecting Vital Information’. Here, respondents agreed (not surprisingly) that if an employee, perhaps comparable to CERT’s ‘entitled independant’ is able to appropriate (steal) valuable information assets it will likely lead to the production of a comparable product or service (albeit it a counterfeit or involving infringement) and win space in the marketplace at a far lower cost.
Preferably though, as more management teams and business decision makers come to recognize just how relevant IP and intangible assets are to their company’s value, revenue, sustainability, and growth, their motivation to seek out and act on the findings of relevant reseach studies, like those produced by CERT and PERSEREC (Personnel Security Research Center) will elevate.
Be assured though, company management teams will want their awareness to be simultaneously joined by effective and precise strategies to mitigate, counter, and/or combat the findings that resonate (with them) most. Such strategies should commence with, (1.) purposeful dialogue among a company’s various (turf oriented) professional disciplines and business units, i.e., specialists in information asset protection, HR, IP, IT security, risk management, marketing, R&D, etc., and (2.) disciplined attitudes (among the various disciplines) to reach consensus on what actions are necessary to effectively address (mitigate, counter, prevent) the risks on an enterprise wide basis.
Michael D. Moberly August 17, 2009
The rise in knowledgw intensive – dependant companies has, as most recognize, elevated the importance and relevance of intangible assets. The ACCA (Association of Chartered Certified Accountants) identifies three facts – perspectives that are especially relevant to recognizing ‘intangible assets as strategic assets for SME’s’ .
First, for many SME (small, medium enterprise) management teams’, intangible assets remain somewhat obscure, and unfortunately, shrouded in (technical, financial oriented) jargon. Second, a very significant percentage of SME’s (perhaps 80+%) are in the service sector, which typically generate income from their intangible assets. Third, intangible assets routinely form the basis for SME uniqueness and competitive advantage.
Intangible assets are not the exclusive domain of large, multi-national, IP intensive Fortune 500 types of companies however. Intangible assets are pervasive; they exist in companies of all shapes, sizes, and industry sectors. But, in order for the intangibles to be fully utilized, regardless of whether its an SME or Fortune 500 firm, there must be dedicated and knowledgable individuals amongst the management team who both recognize and provide the necessary stewardship, oversight, and management of those assets as strategic assets!
This means a company’s intangibles should be identified, assessed, protected, and purposely developed, managed, and positioned (aligned) as integral components to a company’s (master) strategic action plan. In most strategic plans in which intangible assets have been integrated – aligned with a company’s mission and/or core business, the plan itself, has been designed to achieve specific goals with respect to the utilization of intangible assets, i.e., they are being developed to (a.) become sources of revenue, (b.) build (company) value and sustainability, and (c.) serve as potential foundations and/or platforms for future growth and expansion.
Of course, there are multiple other benefits that accrue to management teams (and their companies) when they move away from the conventional (historical) view of treating intangible assets as merely individual pieces or collections of assets that are not integrated into an overall strategic plan. CFO’s, for example, have long recognized the importance of strategically managing a company’s financial assets. Thus the concept itself, is not particularly new. What is new however, is recognizing that intangibles are strategic assets for SME’s!
Michael D. Moberly August 12, 2009
Many companies want to attract investors. For IP and intangible asset intensive companies however, there are particular strategies that company management teams should execute to elevate their ‘attractivity’.
Its important to know at the outset that surveys and studies (Howery, etc.) consistently find that investors are more likely to be attracted to companies that have sustained track records of integrated strategies to (1.) identify, (2.) assess, (3.) monitor, (4.) safeguard, and (5.) utilize their intangible assets and IP effectively.
A plausible reason why investors are giving increased weight (scrutiny) to these factors is because they understand (as economic fact) perhaps better than most, the reality that intangible assets and IP are the dominant drivers of most company’s value, sources of revenue, sustainability, competitive advantage, and growth.
Therefore, investing in company’s that have no, or insufficient, or un-enforced strategies (practices) to sustain control, use, ownership, and monitor the value of their IP and/or intangible assets will, at minimum, constitute a cautionary flag insofar as pursuing the investment is concerned. In addition, both the value and usability of IP and intangible assets can be quite fragile, especially when effective safeguards have not been in place and routine (asset) monitoring has not occurred. If management teams dismiss the importance of these strategies and pass on developing and executing them, the probability risks will materialize and push the investment beyond acceptable (risk) thresholds will surely elevate, making the company much less attractive to a mutually beneficial investment.
Similarly, its not likely that investor confidence in the protectability and usability of a company’s IP and intangibles will elevate solely because a company has proof of IP ownership. Routinely, management teams naively portray conventional IP protections, i.e., patents, trademarks, and/or copyrights as synonymous with an asset protection strategy, (1.) the assets are/have been adequately protected from their inception, and (2.) post-investment usability of the assets is assured. The reality is, in this consistently competitive, highly predatorial, and winner-take-all global business environment, neither are assured solely because a patent has been issued.
Generally, investors are experienced enough to recognize that, standing alone, conventional IP protections, while necessary, do not supplant a well conceived, executed, and enforced strategy, i.e., a comprehensive set of policies, practices, and procedures. When management teams make such mis-assumptions, investors are apt to (a.) abandon the prospective investment altogether, or (b.) ratchet-up the due diligence and asset assessments to leverage the risks for better terms. Regardless, managerial oversight of these issues, or worse, negligence, will likely manifest itself as a frustrating and disheartening experience for the company in terms of attracting investment.
Michael D. Moberly August 11, 2009
When companies do not have clear and effective strategies in place to continuously safeguard, utilize, and monitor the value of their intellectual property and intangible assets, there are significant consequences that will likely occur, three of which are, (1.) company performance will be adversely affected, (2.) valuable assets will be at risk, and (3.) prospective investors will be influenced to look elsewhere.
There’s convincing evidence that financial analysts and investors are giving increased weight (ala attitudinal scrutiny) about how companies actually manage, utilize, value, and safeguard their intangibles and IP. A key driver of those (investment, financial analysis) attitudes is the economic fact that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation are thoroughly embedded in – evolve from – directly linked to a company’s intangible assets (and IP).
In other words, in today’s globally competitive, predatorial, and winner-take-all investment arenas, investor confidence is less likely to be achieved merely by proclaiming ownership of IP. Rather, underlying that confidence’ is a company’s demonstrated ability to sustain control, use, ownership, and value of those assets through effective ‘best practice’ strategies.
Surveys clearly show, as the one referenced here by Howery (A Survey of Investor Attitudes on IP Protection), that companies can favorably affect (build, enhance) investor confidence by demonstrating that a comprehensive, effective, and on-going strategy that’s aligned with a company’s core business, has been in place from the outset. More specifically, that strategy must demonstrate how a company’s IP and intangible assets are being:
1. safeguarded relative to market position, value, and competitive advantages, etc.
2. utilized, i.e., identified, assessed, positioned, leveraged, maximized, and exploited to extract value.
3. valued, i.e., reliable, understandable, repeatable, and objective tools are available to provide more than subjective, snap-shots-in-time asset valuations.
Intangible assets (and IP) are now key underliers of most companies overall competitive strategy, rather than being mere service functions and costs as they’ve been routinely portrayed previously. The above therefore, represent more objective markers of proper stewardship, oversight, and management that investors (analysts and asset-back lenders) can variously use as components to assess a company’s soundness, profitability, and sustainability.
The level of importance which investors accord to these markers is reflected in the reality that they recognize that companies with significant intangible and IP assets possess certain competitive advantages which collectively contribute to a company being more profitable and ‘suvivable’ if quality protection, utilization, and value monitoring strategies have been integrated and are in place. In today’s knowledge-based (intangible asset, IP) economy, companies that dismiss these essential managerial (fiduciary) principles and responsibilities will increasingly find themselves at a disadvantage!