Archive for November, 2009
Michael D. Moberly November 30, 2009
As conveyed numerous times at this blog, for a vast majority of company’s today, the value of their intangible assets far exceeds the value of their tangible assets. There’s absolutely no evidence on-the-horizon that this economic fact – business reality will reverse itself as knowledge/know how (based) economies and companies continue to build steam and literally become the global norm.
This economic fact – business reality also establishes (more clearly) the need for company management teams to develop in-house best practices to achieve (at minimum) three objectives:
a. recognize how – when intangible assets are created, used, underused, or not used.
b. identify, unravel, and assess those assets and put (align, bundle) them into contexts where they can be utilized, i.e., exploited (positioned-used-leveraged) to maximize and extract as much value as possible and create (additional) competitive advantages.
c. monitor the assets relative to their status, i.e., stability, durability, fragility, and materiality.
A well managed – monitored company portfolio of intangible assets can produce – deliver the following benefits to companies:
1. identify under-utilized intangible assets
2. improve coordination between business units insofar as identifying – bundling – aligning intangible asset commonalities to produce – deliver ‘new’ sources value
3. serve as foundations for company management teams to strengthen their strategic leadership relative to increasingly competitive and global markets
4. strengthen the alignment of R&D, intellectual property, and intangible asset production, utilization, and/or acquisition with company business strategies
5. lengthen (strengthen) the value and competitive advantage life cycles’ of intangible assets.
(This post was adapted by Mr. Moberly from a 2009 article by Michael J. Yachnik (PWC) titled ‘Identifying and managing intangibles: what’s in your closet’?)
Michael D. Moberly November 25, 2009
Remember in 1998 and 1999 when every IT system-computer worldwide was facing a presumptive technological Armageddon. Individual users and entire companies were scrambling to become ‘y2k’ compliant.
At the time, a widely known, but, somewhat embarrassing aspect of meeting the deadline, i.e., achieving y2k compliance, was finding – locating individuals with the requisite legacy skills – historical expertise of a company’s original IT system configuration necessary to bridge and/or align the aging (non-compliant) systems with the y2k mandates.
Interestingly, the y2k phenomena came at a time when many companies were experiencing two other phenomena:
1. engaging their second generation of computing, but, computing-IT ‘generations’ in the 90’s were calculated in years, not months or quarters, as they routinely are today.
2. the initial peak of the IT off-shoring, that is, for a variety of reasons, most of which were financial, companies were shedding their internal (proprietary) IT expertise to an off-shore model.
There’s little argument today that intellectual capital did then, and still does, represent one of a company’s most valuable (intangible) assets. So, as many companies learned during the y2k period, intellectual capital adds-sustains value for a company and, if recognized and effectively exploited, can permit companies to be more efficient and avoid reinventing (or, finding) the proverbial wheel each time a new venture is undertaken.
Ultimately, whether a company’s intellectual capital goes out the front door through off-shoring or downsizing or out the back door through theft, misappropriation, or infringement, several questions should be on management team and board agendas. One of which is, will companies again find themselves in a predicament not unlike the y2k period, in which their internally developed and proprietary intellectual capital (know how) becomes hollow, i.e., lacks the necessary depth, organizational framework, and infrastructure to quickly and effectively respond to on-the-horizon challenges, risks, and threats.
Michael D. Moberly November 24, 2009
It’s probably safe to assume that the moment our earliest ancestors realized that (their) speech was capable of communicating ideas, rather than mere emotions, they likely began to exchange facts, judgments, and (their) observations.
Not surprisingly then, control of and access to information began to evolve as a tool of power with information ultimately being bought, sold, and/or bartered by those who not only recognized its value, but also, were able to communicate (articulate) it best.
Fast forward many thousands of years, and the frequently used adage ‘talk is cheap’ is an indicator of a more general, perhaps dismissive, attitude some company’s (management teams) hold regarding the value of (their) business’ information. In Branscomb’s, ‘Who Owns Information? From Privacy to Public Access’, she offers some insights and misconceptions which ring true today, that is, we tend to:
1. consider information as having value only if, or when, some specific action can be taken as a result…
2. believe there is a relationship between the ‘classification’ of information (e.g., secret, sensitive, proprietary, etc.) and its value…
3. apply (use) information in ways that emphasize short-near term orientations versus strategic, long term application.
It’s important that management teams recognize (appreciate) that, in most instances, information can be and frequently is, a commodity warranting clearly defined rights of ownership linked to effective safeguards for sustaining its control, use, and monitoring its value (indeterminately).
Gross, Reischl, and Abercrombie, in the ‘The Idea Factory’ point out that today’s companies find themselves producing the product of knowledge which has become the primary economic driver of the knowledge-based economies. Nearly all of the world’s most innovative, successful, and wealthy companies, they say, are those that wield their knowledge (information) effectively.
One obvious example which Gross, Reischl, and Abercrombie take special note of, is that a significant percentage of Wal-Mart’s market capitalization (perhaps 80+%) is not attributable to (conventional) book value, rather to its intellectual capital, i.e., the market’s valuation (assessment) of Wal-Mart’s ability to continue to use its intellectual capital (knowledge, information) assets to sustain and generate profits.
Wow, what a revelation…!
November 18th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Insider Theft of IP and Intangible Assets. No Comments.
Michael D. Moberly November 18, 2009
Since 1995, the Office of the National Counterintelligence Executive (ONCIX), has been mandated to gather data and submit a report (annually) to Congress on the state of (a.) foreign economic intelligence collection, (b.) industrial espionage, and (c.) export control violations. Data for the report is collected from government agencies that comprise the counterintelligence community.
What’s new in ONICIX’s most recent report (unclassified version) are remarks regarding (1.) ‘the increasing new modes of communication and social netorking providing uncharted opportunities for (a.) transferring information, and (b.) spying by enterprising foreign intelligence services’, (2.) ‘companies encouraging (a.) outsourcing of (their) R&D, and (b.) establishing foreign bases of operation providing foreign entities with more opportunities to target U.S. information and technologies, and (c.) mask their collection activities’. A consequence is that ONCIX’ report states it is ‘increasingly difficult to fully (accurately) measure the extent of espionage and illegal acquisitions (of U.S. trade secrets).
In contrast, the Department of Defense’ Personnel Security Research Center (PERSEREC) produced a 2005 study (report) titled ‘Technologicial, Social, and Economic Trends That Are Increasing U.S. Vulnerability To Insider Espionage’. I am not suggesting that ‘insider’ (threats, risks) are synonymous with economic-industrial espionage or export control violations as a means to (illegally) acquire trade secrets. What I am suggesting is that the PERSEREC study findings exacerbate – make significantly more complex the challenges most every company faces relative to its ability to sustain (indeterminate) control, use, ownership, and value of its most valuable assets, i.e., intellectual property, trade secrets, proprietary information, know how, and other intangible assets, e.g.,
1. Fewer employees are deterred by a traditional sense of (employer) loyalty.
2. Employees are more inclined to view espionage (theft of information assets) to be morally justifiable if sharing those assets will benefit the world community or prevent armed conflict.
3. For employees engaged in multi-national trade and transactions there is greater inclination to regard unauthorized transfer of information assets and technology as a business matter, rather than an act of betrayal or treason.
4. A growing allegiance exists among employees to the/a global community, i.e., an increasing acceptance of global as well as national values.
5. Tendency for employees to view human society as an evolving system of ethnically and ideologically diverse and inter-dependant people which makes illicit acts (i.e., theft of trade secrets) easier to rationalize.
As increasing percentages of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation (in global, knowledge-based economies) lie in – are directly related to intangible (information-based) assets and intellectual property, to be sure, the challenges conveyed in ONCIX’s report are formidable and will persist!
Michael D. Moberly November 16, 2009
Intangible asset value; how long can it be sustained? Three points to consider. First, unfortunately for management teams and boards, the answer to the question is its not indeterminate! Second, in today’s globally predatorial business (transaction) environment, risks/threats to intangible assets, e.g., the capability of economic-competitive advantage adversary’s to execute strategies to erode and undermine another company’s asset value, are persistant and assymetric. Third, 65+% of most company’s value lie in – are directly related to intangible assets and intellectual property.
In their Deloitte report titled, ‘The Economic Role of Intellectual Property’ (Noonan Haque and Greg Smith) identify/describe the ‘key issues’ knowledge-based company’s confront as being, (1.) rapid R&D breakthroughs, (2.) diffusion of knowledge, information, and data, and (3.) increasingly abbreviated asset lifecyles. An assets’ life (value, function) cycle can of course, be influenced by a range of factors.
Consequently, a worthy exercise for management teams and boards to engage today, is to devote time to examining and understanding the variety of intangible assets being produced (by their company) and reach consensus on the asset value protection-preservation-maximization strategy (model) that best fits their company, their sector, their innovation, and their core business goals. One objective is to put in place a viable strategy to practice effective and consistent management, stewardship, and oversight of those assets to strenghten and lengthen their respective life-value-function cycles.
Other practical and immediately useable products of this exercise will be (a.) determining how to monitor (asset) value and materiality, and (b.) ensuring the production and utilization of the company’s (intangible, IP) assets are effectively aligned with the company’s core mission.
Those engaged in business (IP, intangible asset) management who are unfamiliar with this position or dismiss its relevance are certainly doing a disservice to their company and/or client!
Michael D. Moberly November 10, 2009 ‘A blog where attention span really matters’!
Anytime I am in a engaged in a conversation with a member of some companies’ management – leadership team, I find it revealing if they express indifference toward intangible assets in general, or worse, trivialize or dismiss intangible assets their company has produced, particularly intellectual, structural, and relationship capital. Too me, as an intangible asset strategist and risk specialist, such expressions are akin to a ‘climate change denier’ and revealing in the sense that it’s probable this business leader…
- does not understand what intangible assets are,
- is operationally unfamiliar with intangibles’ contributory value to a company,
- does not recognize how certain intangibles’, again, intellectual, structural, and relationship capital are already firmly embedded in their companies’ key – mission essential processes, procedures, and practices, or
- relegates intangibles’ stewardship, oversight, and management into one the proverbial boxes, i.e.,
- it’s too difficult to do,
- I don’t have time for it,
- what difference does it make, or
- I will do it only when I see my competitors doing it.
Not surprisingly, the opposite should occur, particularly for early stage – newly launched companies that are seeking investment capital to expand and grow. In these circumstances (seeking investment capital), I find it useful to apply a very straight forward strategy, i.e.,
- anticipate (know) what information prospective investors will be seeking – demanding, and
- how that information can best be articulated (communicated).
My experience clearly suggests a significant percentage of prospective investors in early stage – newly launched companies have already achieved operational familiarity with intangible assets and their strategic contributory role and value to a companies’ trajectory for growth, profitability, and commercial success. That said, prospective investors frame their ‘invest – don’t invest’ decisions in a fairly conservatively.
Collectively, I am suggesting that whenever one is positioned to seek investment capital engages a venture capitalist or angel investor absent a thorough operational familiarity with their companies intangible assets, they may well be operating at a irreversible deficit.
I can say with some surety that, at minimum, savvy prospective investors, as part of their ‘invest – don’t invest’ decision making process, will want to know and see evidence of…
- what the company identifies as their key (mission essential) intangible assets, and
- how the company assesses, utilizes, manages, and safeguards those intangible assets.
While the answers to these important questions will vary, relative to a company’s sector and product and/or service offerings, the attention any business leader gives to their language – narrative to prospective investors should never be taken lightly or underestimated. In other words, responses should be conveyed in clear and understandable business contexts, but, most importantly, each must be immediately recognized as being viable.
For example, managing a company’s intangible assets should be articulated on, at least, two levels:
– The first is a company’s ability to identify, unravel, position, leverage, and extract value from its intangible assets.
– The second is a company’s ability to sustain control, use, ownership, and monitor the value, materiality, and risk to its intangible assets.
In any communication with investors about how a company manages its intangible assets, the collective importance the company attaches to both ‘levels’ is essential as is how both levels are managed (executed) simultaneously. There is certainly no shortage of information available to management teams about all facets of intangible assets.
As always, reader comments are welcome and respected.
Michael D. Moberly November 9, 2009
I have yet to find a company that does not want to survive this recession. While that statement is self-evident and may sound literally obsurd to most, similarly, I’ve come across countless companies and management teams who have yet to fully realize that perhaps the key, to sustaining, even strengthening their business in this recession, is to understand their cheese has been moved.
For those unfamiliar with this notion, a very brief, but reflective book by Spencer Johnson titled ‘Who Moved My Cheese’ may be worthy of the 30 minutes it requires to read.
The ‘cheese that’s been moved’ in this instance, are company’s tangible assets! That is, for a vast majority of company’s (their) tangible (physical) assets, i.e., property, buildings, equipment, inventory, etc., have been permanantly moved. Tangible assets no longer, as they did in previous decades, represent the dominant drivers or sources of most company’s value, revenue, and/or foundations (building blocks) for future growth, wealth creation, and sustainability.
Instead, for most company’s, their primary sources of value and revenue have irreversibly transitioned, in the increasingly ‘knowledge-based’ economy, to intangible assets. Intangible assets include such (intangible) things as brand, reputation, image, intellectual property, employee intellectual-human capital, and internal/external relationships, etc. (For a comprehensive list of intangible assets see http://kpstrat.com and ‘click on’ brochure and scroll to ‘what are intangible assets’.)
If you elect to read Johnson’s book, one suggestion to make the concept of ‘who moved my cheese’ more palatable and relevant to business decision makers and management teams, is to substitute the words ‘tangible’ or ‘intangible assets’ every time the word ‘cheese’ appears in the (book’s) narrative. This will help the reader identify with intangible assets and the importance of recognizing their (individual, collective) role and contribution to company value, revenue, and sustainability.
To bring further clarity to this point, I recently I attended a gathering of entrepreneurs. The keynote speaker was a well known and highly successful area restauranteer. For those listening carefully to the 30 minute presentation, at least 20 minutes included the speakers’ obviously heart felt and experienced sense of the internal culture that underpins the sustained success of this 35+ restaurant enterprise. Without exception, each of the factors the speaker addressed (including the internal culture) as contributing to building and maintaining this company’s success (even during the current recession, and the ever broadening competitive dine out market space) were, in fact, intangible assets!
Interestingly however, the words ‘intangible assets’ were never uttered during the presentation, nor in the Q&A that followed, to contexualize this restauranteer’s success. Clearly, another instance of c-suites’ genuinely needing to know how they and their company should best react ‘when their cheese is moved’. That is, its an economic fact – business reality that 65+% of most company’s value, sources of revenue, and foundations for future wealth creation today lie in – are directly related to their intangible assets, not their tangible assets. To be sure, that is the case for restaurants.
For those dedicated to elevating awareness, alertness, and accountability for intangible assets throughout the business and financial community, the process often starts with management teams literally acknowledging (verbalizing their) success and profitability is routinely attributed to, in large measure, by the effective and sustained utilization of intangible assets, i.e., development, execution, delivery, quality assurance, etc.
Michael D. Moberly November 4, 2009
The frustrations and skeptisims regarding the valuation of intangibles frequently expressed by members of the business asset valuation (accountantancy, value investor) community are not wholly without some justification/merit. But, those frustrations – skepticisms do tend, I find, in a number of instances, to be focused on a single (intangible) asset, not necessarily all intangible assets.
For example, in a recent (October 5th) post at The Value Investor titled ‘Red Flags for Investors: Intangible Assets’ the author expresses dislike for “giving financial credence to a resource that he/she can’t see, can’t touch, and can’t prove generated a cent of revenue”. Again, a quite understandable perspective.
But, then the author proceeds to say that “surely the brand Coca-Cola carries some value in its name alone, i.e., if a consumer is provided with the option of buying Coke or a noname (generic) product for the same price, there will be a pronounced inclination (the author states) towards the Coke product”. Case made! There is value in intangible assets, i.e., the brand name Coke delivers distinguishable value and revenue.
So, perhaps the more appropriate question may not be whether intangible assets, in this case ‘brand’, has measureable value or should be assigned a specific dollar value on a balance sheet. Rather, commence the asset valuation process by identifying – separating – distinguishing how much independant value-revenue is specifically attributable to the – a brand, apart from other company assets.
And, perhaps drilling down a little deeper, a consumers’ motivation – presumed inclination to purchase the Coca-Cola product over a generic brand, when they’re both offered at the same price, translates as ‘brand value’. Again, it seems to me, case made! There is value in the intangible asset of brand.
After all, intangible assets are unique blends (combinations, collections) of assets, activities, processes, relationships, history, and market conditions that a company (can) exploit to differentiate itself from its competitors, and thus, create value. (Michael Porter)
With the aid of Weston Anson’s ‘The Intangible Asset Handbook’ (see October 12th book review at this blog) I have identified 15+/- categories of intangible assets. Each (category) of course, has multiple (distinctive, separate) sub-categories, and each carries a distinguishable and contributory value to a company, at least it should, if effectively managed.
Michael D. Moberly November 3, 2009
Of the many take-aways I consistently receive from Smart Cities’ Radio program hosted by Carol Coletta (CEO’s For Cities) are the not so subtle references to city’s ‘missed opportunities’ which, in many instances, represent intangible assets, i.e., overlooked, neglected opportunities (intangibles) embedded in many city’s rich historical, cultural, architectural, and/or epicurean past.
Many city’s intangible assets, which Coletta routinely eludes to in her weekly radio program, have the potential for being re-conceived, re-captured, re-invested, and ultimately re-branded to add, produce, and deliver value to a city or even a particular neighborhood. Intangible assets can be the impetus for producing genuine value not only to city’s, but company’s as well. In most instances, this will only occur when management teams – decision makers genuinely understand, recognize, and set viable strategies to effectively and efficiently utilize their intangible assets. This entails, among other things, identifying them, unraveling them, investing in them, positioning them, leveraging them, managing them, and putting best practices in place to sustain their control, use, and ownership, along with monitoring their value and materiality.
All that said, there are commonalities and analogies to be drawn to city’s, investors, university R&D, health care institutions, and start-up/early stage companies coming together, usually under a larger ‘governance, investment, and motivational umbrella’ to form bio-tech communities, or so-called cooridors, which typically link government, university, and private sector institutions and facilities in variously collaborative arrangements.
Commencing those well intended endeavors though should include strategies to address – focus on the foundational underpinnings necessary for (project) sustainability. In today’s extraordinarily competitive, predatorial, global, and winner-take-all business transaction environments, ‘sustainability’ does not lie solely in patents and other intellectual property centric practices and strategies that tend to frame the commercialability of project R&D in very vertical contexts that may not always attend to these types of ‘community’ projects’ long term sustainability. That is, it is in a city’s interest, that projects of this nature build – deliver value not solely for the investors, which they are rightfully due, but also, deliver real, long term strategic value in the form of multipliers and spillovers that spread throughout a community in the form of tangible, but most importantly, intangible assets.