Archive for February, 2010
Michael D. Moberly February 23, 2010
Intangible assets are embedded in – integral to most every company, regardless of its size or industry sector! And, presumably, readers of this blog believe the economic fact, like I do, that increasing percentages (65+%) of most company’s value, sources of revenue, ‘building blocks’ for future wealth creation, and sustainability evolve from – are embedded in internally produced and/or (externally) acquired intangible assets.
But, why is it that significant numbers of SME, SMM, and early stage company management teams’ familiarity with, or even perhaps, interest in intangibles, i.e., (a.) what they are, how they’re produced, where they exist, and the different forms they take in their company, and (b.) how they can be effectively and profitably utilized, leveraged, and exploited, appears to be relatively low?
What’s this attributable to? Numerous studies, many referenced in this blog, consistently report senior executives in ‘fortune 1000’ types of companies, consider the management, utilization, and risks to intangibles a priority (top three) issue facing their company. For various reasons though, again many discussed in this blog, there is little objective evidence and even fewer examples that these consistent, and seemingly convincing findings are (a.) reaching, (b.) resonating, or (c.) prompting SME, SMM, and early stage management – leadership teams and boards to action.
Perhaps, there lies the crux of the problem or challenge that intangible asset (management, monetization, risk, and protection) specialists should focus. That is formulating a stronger and better articulated repertoire of business (plan) oriented messages directed to SMM, SME, and early stage management-leadership teams and boards, that (a.) bring clarity, (b.) stress universality, and (c.) describe efficient strategies to identify, manage, utilize, and exploit intangible assests, i.e., to actually enhance a company’s value, deliver new sources of revenue, and provide foundations (building blocks) for future wealth creation.
Also, perhaps, part of the challenge lies in SME, SMM, and early stage management team attitudes toward intangibles. That is, for many management teams in publicly traded companies, their initial exposure to intangibles was literally thrust upon them, sometimes in near ‘crisis-mode’, to rapidly comply with Sarbanes-Oxley mandates, FASB statements, and/or ISO standards in relatively narrow time frames, which routinely required extraordinary staff time, new procedures, additional resources, and costs.
In most instances, compliance was burdensome and, most respectfully, left little time, inclination, or curiosity to look (explore) beyond the compliance mandates to strategize about the potential benefits and options to utilize and exploit those already identified intangibles to enhance a company’s value, revenue, competitive advantage, and sustainability, etc.
Other reasons that contributed to management team reticence to pursue intangibles beyond meeting SOX, FASB, and ISO compliance minimums, include:
1. there was no (regulatory) obligation to disclose (share, be particularly transparent with) information about intangibles to shareholders or other external groups.
2. many managers have limited experience with intangibles and thus retain a tendency to rely on (their) intuition versus seeking and applying objective tools to quantify their contributions, value, and otherwise devise projective (return-on-investment) business plans to justify devoting resources to their utilization and exploitation.
Michael D. Moberly February 22, 2010
In every business transaction today, whether its across the street or around the globe, but particularly acquisitions in knowledge-intellectual capital intensive sectors, growing percentages of the deal will inevitably consist of intangible assets.
For acquisition management teams, the prospect of acquiring (intangible) assets that are (a.) complimentary, readily transferable and exploitable, and (b.) quickly facilitate/enable execution of strategy, should be key drivers for acqusition proposals. This is especially relevant given the economic fact that 65+% of most company’s value, sources of revenue, building blocks for future wealth creation, and sustainability lie in and/or are directly related to intangible assets! In other words, intangible assets will be integral to the deal’s value and outcomes, e.g., achieving the near term and strategic objectives which the acquisition team presumably foresaw.
For the acquiring firm, not-to-be-overlooked factors that underly – add to the probability that the acquisition will be as successful, contributory, and profitable as intended, requires the acquisition team:
1. to recognize that its not solely about asset acquisition, rather it’s about their effective integration and utilization which is an exercise quite different from the acquisition of purely physical/tangible assets, because intangibles (a.) lack physicaliy, and (b.) evolve from – are embedded in intellectual, relational, and structural capital, therefore,
2. acquisition due diligence and management should be designed and conducted to include pre and post contexts (components), e.g.,
a. to unravel and assess the assets’ status, stability (fragility), (legal) defensibility, and transferability – integratability factors, and
b. ensure the assets’ control, use, ownership, value, and materiality are sustainable and monitorable, particulary in post acquisition contexts.
Any acquisition today, or business transaction for that matter, in which the pre and post perspective is not considered or poorly executed, the probability that costly and morale deteriating post-deal challenges will evolve that adversely affect shareholder-stakeholder attitudes and undermine the deals’ success, are almost inevitable!
in today’s extraordinarily predatorial and winner-take-all transaction environment, these (pre-post) perspectives cannot be overstated insofar as the role and contribution of the acquisition management/due diligence team. Why?, because (intangible) asset contributions and value are sometimes quite fragile, that is, they can rapidly erode, be undermined, and/or their potential benefits literally unravel in hours, not days or weeks.
Michael D. Moberly February 19, 2010
Intuitively, the speed which a start-up company can actually deliver its innovation is a critical factor to it’s sustainability and attractivity for (continued, future) investment. The question presented here is, can consistent stewardship, oversight, and management of the ancillary-complimentary intangible assets the start-ups’ innovation produces make the process even more speedy?
A quick, but obviously biased, answer by a person who writes a ‘business IP and intangible asset blog’ is an unequivocal yes!
More convincingly though, in a still relevant study produced by Ans Heirman and Bart Clarysse formerly of Ghent University and now with ScientificCommons, put forth the notion in their paper titled ‘Do Intangible Assets at Start-Up Matter for Innovation Speed?’, that intangible assets such as:
1. start-up management team and founder experience, tenure, routines, and their cross-functionality, and
2. alliance and/or collaboration agreements with other relevant parties and organizations
…combine to serve as important and contributing factors to innovation speed!
As successful entrepreneurs realize, innovation speed (i.e., product launches and time to market) are important for many reasons, key among them are to:
1. gain early investment to achieve more (greater) financial independence,
2. gain broader external visibility and legitimacy as quickly as possible,
3. gain early competitive advantages, i.e., market position and possibly market share, which collectively,
4. elevates the probability that the company will survive , in other words, be sustainable.
The study’s researchers state however, and I agree, new product innovation/development cycles vary. For one, they may not consistently or immediately commence at the start-ups founding, and two, the speed of innovation development will vary relative to product development tasks and phases, and technologies required, among other variables.
Again, no surprise here, other than making the argument once again, that identifying individual and/or inter-connected clusters of intangible assets that frequently emerge as ancillary and complimentary by-products of innovation should not be dismissed, overlooked, or neglected as potential (and additional) sources of value, revenue, and building blocks for complimentary (future) innovation. And, their stewardship, oversight, management, and protection, like the primary innovation itself, should be routine considerations by management/leaderships teams, in board rooms, and among investors.
Michael D. Moberly February 18, 2010
In the current global, knowledge-based economy and business transaction environment in which intangible assets and IP are routinely in play, there is, unfortunately, little direct insight about how or whether c-suites and boards assess and/or attach concern about doing business in country’s that do not have, apply, or enforce intellectual property laws and protections.
Admittedly, I know several instances in which this issue is not only a routine fixture in c-suite and boardroom agendas, but is deliberated in the context of known vulnerabilities-probabilities, i.e., those left unchecked, ill-considered, or ill-conceived will surely become inevitabilities!
A key second question those company’s seek consensus is (a.) their (business, strategic) tolerance for IP – intangible asset risk, and (b.) if losses – compromises to those assets occur, how quickly will either begin to erode, dilute, and/or undermine company value, market share, competitive advantages, and revenue?
In other words, are that countries IPR’s protections (enforcement scheme) particularly weak or sufficiently strong enough to satisfactorily protect a company’s IP for the duration of its admittedly, abbreviated life-value cycle. This argument presumes, that the value, sustainability, defensibility, and projected returns of IP developed and/or brought into a country with weak IPR’s, will experience lower projected returns.
I am aware of a few instances, in SME and SMM arenas, in which companies have actually elected to wholly withdraw operations (and their IP and proprietary competitive advantages) from a country they found to be especially weak in IPR’s. I can’t say for sure whether those company’s were exercising particularly forward looking or risk averse strategies on behalf of their investments in IP and intangible assets, or whether their decision was influenced by a significant loss or compromise?
A 2004, University of Minnesota study/survey of U.S. headquartered companies titled ‘Doing R&D In Countries With Weak IPR Protection: Can Corporate Management Substitute For Legal Institutions?’ reasoned that (1.) technologies developed in weak IPR countries will be used more for internal purposes, and (2.) companies conducting R&D in weak IPR countries will likely have tighter IP-asset protection measures in place to compensate, and therefore, try to take advantage of such gaps across countries.
Insofar as whether ‘doing R&D in countries with weak IPR protection’ is a relevant action item for c-suites and boards, prudent starting points for either to consider are, (1.) if the decision is made to conduct IP bearing R&D and/or bring IP into a country in which a signficant percentage of that country’s GDP is linked to – dependant on the production, distribution, and sale of infringed or pirated (IP) products, it’s likely your company’s IP will experience the same or similar fate, and, (2) the presumption that my company can invent, innovate, and produce IP faster than others can steal or infringe it, and even it it does occur, the stolen/infringed IP will rapidly become obsolete and therefore hold little, if any, market value; therefore, why devote extraordinary resources to its protection and preservation, beyond the minimum?, is likely ill-conceived.
February 12th, 2010. Published under Analysis and commentary, Organizational resilience and business continuity/conti. No Comments.
Michael D. Moberly February 12, 2010
The need for company’s to have greater assurance of (their) operational continuity in an envirionment in which there are (a.) increasing business interdependencies and alliances, (b.) lengthier and ‘just in time’ supply chains, interwoven with (c.) elevated vulnerability to – probability of disruptions with (d.) the capability of producing immediate adverse cascading impacts that ripple throughout an enterprise (internally and externally), is prompting management teams to look more objectively and critically at their standard, but seldom executed, ‘business continuity and contingency plan’.
In other words, putting a much needed and warranted 2010 ‘spin’ on the conventional business continuity and contingency plan by re-framing it as ‘organizational resilience’ is a good thing!
Determining (assessing) with some degree of precision, just how resilient a company really is to the growing array of asymetric risks and threats is challenging. Many of those risks, if they materialize, their criticality can be relentless and immediate insofar as undermining and eroding a company’s value, standing, market share, and revenue streams, etc., in ways that cannot be readily mitigated or reversed without having well grounded, practical, and objective organizational resilience plans in place.
A ‘virtual’ reality (exacerbating) making organizational resilience all the more challening for company management teams, is that most company’s consumers, clients, and suppliers, (a.) have a propensity to be skeptical, synical, and less-believing of a company’s (obviously) resiliency motivated communications following an incident (ala Toyota), and (b.) can readily find satisfactory alternatives to meet their needs, either in the interim, or for the long term.
Perhaps the single greatest challenge to designing and executing an organizational resilience plan is objectively identifying, evaluating, and achieving internal consensus about those assets, services, and business processes (all of which are intangible assets) that are the most essential insofar as measuably elevating – contributing to a company’s overall resilience, i.e., returning to a state of reasonable operational normalcy following an adverse event or act.
Management teams that inadvertently overlook or do not specifically include a company’s intangible assets in their organizational resilience planning are, in my judgment, not merely being near-sighted or neglectful of their fiduciary responsibilities, they’re actually taking their company down a much more riskier path because:
1. 65+% of most company’s value, primary sources of revenue, building blocks for future wealth creation and sustainability lie in or directly evolve from intangible assets including intellectual property, and
2. intangible assets are typically more fragile, volatile, transportable, and susceptible to adverse information whether real or ‘hyperized’ than physical/tangible assets.
(Some aspects of this post were modified by Michael D. Moberly from ASIS Internationals’ 2009 ‘Organizational Resilience’ standard.)
Michael D. Moberly February 11, 2010
Today, for many intangible asset specialists, its puzzling, even occasionally frustrating, but more importantly, unfortunate anytime we hear company management teams, leadership, c-suites, and/or boards express-convey a sense of dismissiveness about intangible assets, or a reluctance to utilize intangible assets in general, and their company’s intangible assets in particular.
Its become a universally accepted economic/accounting fact and business reality, in the knowledge-based (global) economy, not merely theoretical ‘academic speak’ or self-serving marketing jargon, that 65+% of most company’s value, sources of revenue, building blocks for future wealth creation and sustainability today, lie in – are directly related to intangible assets and intellectual property.
Given this, It seems appropriate then to respectfully ask, are management teams listening?, when far too few of them are benefitting from those realities.
Intangible asset specialists are professionally obligated to respectfully and aggressively engage business leadership globally, to bring relevance and clarity for the full and efficient utilization of a company’s intangible assets. One requisite to helping companies and management teams achieve this state of awareness, is by incorporating more relevant, timely, and respectfully simplified narratives designed to more effectively, but quickly, articulate three key-essential things, (1.) the practical existance of intangible assets, (2.) their contributory value to a company, and (3.) how to identify, utilize and exploit them to benefit a company.
An obvious, and perhaps one of the biggest challenge for intangible asset specialists however, aside from issues related to intangible asset monetization, is articulating that intangible assets are just that, they’re intangible. That is, they lack physicality. But, their lack of physicality does not mean their performance and value cannot be objectively measured and benchmarked.
So even though most management teams readily understand and recognize intangible assets’ existence, and appreciate their singular/individual contributions and importance to their company, e.g., brand, reputation, image, goodwill, customer/client (external) relationships, and internal know/intellectual capital, etc., there still remains a sense of reluctance and/or desire among some management teams to advance to the next level of intangible asset utilization and exploitation.
That next level would entail-encompass, in my judgment, four key elements, i.e., taking a more active role in…
1. engaging best practice fiduciary responsibilities for the management, stewardship, and oversight of the intangibles,
2. identifying, unraveling, positioning, leveraging, and efficiently utilizing a company’s intangibles,
3. recognizing how to effectively exploit intangibles to generate revenue, enhance company value, create building blocks for future wealth creation and company sustainability, and
4. put in place measures to ensure control, use, and ownership of the assets is indeterminately sustainable, and their value and materiality (to the company) is consistently monitored.
Michael D. Moberly February 8, 2010
Not unlike other enterprise-wide (business) initiatives, advocates of, and those charged with implementing an enterprise risk management program will likely encounter some internal obstacles and resistance.
Initially, ERM advocates should strive to achieve acceptance and consensus on the following two points, (1.) business risks are real, pervasive, and asymmetric, and (2.) business risks today extend well beyond financial risks to include intangible assets.
Its also essential for ERM advocates to recognize the importance of bringing a wide range of business and operational units to the (ERM) table’, all-the-while recognizing they will be inclined to conceive and portray (enterprise) risks narrowly to fit their interests, perspectives, and operating ‘turf’ as being the lynchpins to the company’s sustainability. Entering initial ERM planning discussions absent a clear, respectful, and well articulated repertoire of dialogue geared toward elevating awareness and achieving consensus will likely exacerbate, not mitigate or ameliorate those obstacles, that resistance, and/or their ‘turf protection’ inclinations.
The initial ERM planning discussions should especially focus on team member recognition that today’s business risks are seldom subject to compartmentalization or containment to single (targeted) business units. Instead, business risks today are internally inter-connected and will likely produce cascading effects that ripple throughout a company posing particularly adverse affects on a company’s intangible assets, i.e., brand, reputation, image, goodwill, internal/exteral relationships, know how, etc.
An especially prudent (ERM) strategy is to avoid the common (risk management) pitfalls, i.e., subjective, and often times argumentative ‘dark hole’ types of questions, i.e., proving a negative. This can be best avoided by preparing business focused responses to the proverbial, (a.) if it (the/a risk) hasn’t materialized yet and adversely affected the company, why do you think it will now?, (b.) why should the company assign resources (beyond the very minimum) to try to mitigate risks that have yet, and may not ever materialize?, and (c.) if a risk does materialize, demonstrate how it will have the dramatic-adverse (enterprise-wide) affects suggested.
An equally important preparatory responsibility for the ERM team is to integrate respectful and well articulated business plans in the initial ERM planning. This cannot be underestimated. These plans should clearly (a.) demonstrate how ERM will favorably affect each business unit, (b.) objectively and dispassionately describe business operating options should ERM be rejected, and (c.) provide plausible return-on-investment metrics for decision makers should they elect to undertake-execute an ERM program,
A key to successfully intergrating an ERM program, is getting the ERM team, business unit management, and company leadership to reflect on and recognize the universality of business risks and their rapidly cascading elements (ripple effects) as constituting the primary business rationale for ERM. That is, converging business risks (enterprise-wide) to achieve collaborative, coordinated, and timely responses to truly prevent some risks from materializing, and effectively and rapidly mitigating other risks that do materialize!
(This post was adapted by Michael D. Moberly from a document produced by ASIS Internationals’ CSO Roundtable titled ‘Enterprise Security Risk Management: How Great Risks Lead To Great Deeds’.)
Michael D. Moberly February 4, 2010
Without argument, there are countless events and circumstances that can present ‘risk’ to a company’s stability, or perhaps more appropriately stated, its equilibrium. A particular risk which various studies, reports, and professional association papers of late portray as receiving more (elevated) attention from company management-leadership teams is ‘reputational risk’, and for good reason.
A relevant and very timely adage about a company’s reputation is ‘it takes years to build a reputation, but today, a company’s reputation can literally be severely damaged, if not irrevocably lost, in a single day’! It’s certainly conceivable to assume then, in light of the current Toyota debacle, company reputational risk will be ratcheted up even further on the priorities of c-suites and boards across the globe, as well it should.
What is reputation? In a 2006 report produced by the Opinion Research Corporation and authored by Jeffrey T. Resnick, reputation was described (defined), and appropriately I might add, in the following manner, i.e., ‘reputation is as much about perception and the perception of behaviors as it is about fact’. The ORC report goes on to say ‘reputation is about ethics, trust, relationships, confidence, and integrity, and is built on the fundamental belief that management knows how to run its business and will win in the long run’.
What is reputational risk management? Again, as cited in the ORC report, reputational risk management was rather broadly and unceremoniously defined as ‘a process, effected by an entity’s Board of Directors, management, and other personnel, applied in a strategy setting and across the enterprise, designed to identify potential events that may affect the entity and manage risk to be within its risk appetite, to provide reasonable assurances regarding the achievement of entity objectives’.
How is company reputation built? Few would argue with the perspective that a key (principle) tenent of a company’s reputation is that it ‘cannot be manufactured’. In other words, a company’s reputation will not likely evolve from an advertising agency or public relations firm. Rather, a company’s reputation is generally characterized as being built as a result of consistent (on-going) interactions between a company and its primary (key) stakeholders. More specifically, the experiences of the company’s various stakeholder groups, i.e., customers, consumers, clients, etc., are perceived (by them) as being consistent with the values conveyed and claimed (to be upheld by) the company itself, as well as the perceived promises it (the company) makes through advertising and other forms of marketing and communication directed to its consumers, customers, and clients.
Economic value of company reputation! Most practitioners engaged in reputational risk management would find consensus in the notion that (company) ‘reputation is about walking the talk’! However, those management-leadership teams that still assume reputational risks are merely public relations problems which are temporary, or can be pre-empted, mitigated, and/or quickly remediated through PR campaigns, would be considered out-of-step with what I refer to as ‘the 24×7 realities’!
My so-called ’24×7 realities’ point to company reputation challenges as being substantive ‘wake-up calls’ for management/leadership teams to immediately, closely, and objectively examine how or whether their internal (company) culture is genuinely aligned with – reflective of its public behavior and the previous and expected experiences of its customers, consumers, and clients? If there is no alignment, or perhaps, more likely, the one time alignment is now ‘out of sync’, then, of course, the economic value of the company’s reputation will likely fall short, and again, using my ’24×7 reality’ metaphor, company reputation that’s taken years to build, can go to zero very rapidly!
A good approach for management/leadership teams to perceive-conceive their company’s reputation is by understanding that it (reputation) is an intangible asset, and, as an intangible asset it (reputation) lacks conventional properties of physicality, unlike, for example, tangible (brick and mortar) assets which can be readily replaced, rebuilt, and re-sold. To be sure, its not that easy for a company’s intangible assets, ala reputation!
Michael D. Moberly February 3, 2010
It’s prudent today to assume there are – will be risks embedded in every business operation or transaction. And, since 65+% of most company’s value, sources of revenue, building blocks for future wealth creation and sustainability lie in intangible assets (IA’s) and intellectual property (IP), it’s also prudent to assume that IA’s and IP will be in play, that is, either or both will be integral and negotiated elements and/or features to those business operations and transactions.
In other words, intangible and IP assets can be sold, licensed, and/or transferred to other parties or ‘shared’ with other companies in strategic alliances or partnerships. In the latter (in enterprise risk management – ERM contexts) the assets’ holder/owner should expect the assets’ will be returned intact to the rightul owner/holder upon conclusion of the alliance/partnership.
By intact I mean, (1.) the assets’ value, revenue producing capability, and ability to contribute to future wealth creation and sustainability has been sustained, (2.) no costly, time consuming, and momentum stifling disputes or legal challenges have been lodged or are on the horizon, and (3.) no circumstances have arisen in which the asset(s) have been infringed, stolen, misappropriated, counterfeited, and/or pirated (during the course of the alliance/partnership) that will undermine the assets’ contributory value, competitive advantages, and jeopardize the company’s continued (future) use of the asset!
Simply stated then, the key objectives with respect to intangible asset enterprise risk management, lie with…
1. company management teams executing relevant processes, procedures, policies, and practices to position their company (internally and externally) to identify, unravel, assess, and effectively utilize and exploit their IA’s through,
2. consistent and effective stewardship, oversight, and management of the assets so as to enable the company to,
3. sustain indeterminate control, use, ownership, and retrieval capabilities of the assets, and monitor their value and materiality and associated risks, in both pre and post operation and/or transaction contexts.
Embedded within ERM IA objectives, as conveyed above, are even more specific management and leadership ‘skill sets’ which encompass the absolute need to acquire a genuinely holistic and ‘big picture’ understanding and appreciation for the company’s business, its direction, and the globally interconnected business operations and transactions environment in which it operates.
(This post was adapted by Michael D. Moberly from a document produced by ASIS Internationals’ CSO Roundtable titled ‘Enterprise Security Risk Management: How Great Risks Lead To Great Deeds’.)
Michael D. Moberly February 2, 2010
In 2010 it would seem to be a management team, board, and c-suite ‘no brainer’ that enterprise risk management initiatives should universally encompass, without much argument or opposition, a company’s intangible and intellectual property assets!
The full inclusion of intangible assets in ERM initiatives is epecially relevant today in light of the global economic fact (business reality) that steadily rising percentages (65+%) of most company’s value, sources of revenue, building blocks for future wealth creation and sustainability lie in – are directly related to the (a.) production, (b.) acquisition, and (c.) effective utilization of (a company’s) intangible assets and intellectual property.
Taking this perspective one, and perhaps obvious, step further, it would also seem prudent, when the risks to those valuable, yet frequently fragile, assets are experiencing elevated vulnerability (probability) to loss, infringement, misappropriation, value erosion-dilution, and/or competitive advantage undermining, as they are today, that designing a position to oversee a company’s intangible asset risks would be an equally prudent consideration that would compliment management teams’ mounting fiduciary responsibilities for consistent and effective stewardship, oversight, and management of those assets.
And, even more complimentary, the intangible asset risk positions’ overall performance (results, outcomes, and contributions, etc.) would be readily observable (transparent), measurable, and quantifiable.
At this point, risks to the intangible assets that a company produces and/or acquires is often spread, sometimes haphazardly and absent coordination or consensus, across an enterprise and subject to the sometimes subjective (risk taking) perspectives and spirit of business unit management. While it is entirely imprudent to dismiss or disrespect the perspectives espoused by business unit management, stakeholders, and/or owners, it is true that efficiencies and effectiveness can be achieved when there is consenus and collaboration (enterprise wide) regarding the:
1. stewardship, oversight, and management of a company’s intangible and IP assets
2. abiliy to sustain control, use, ownership, and monitor the value, materiality, and risks to intangible and IP assets is articulated and understood as requisites integral to a company’s success, profitability, and sustainability.