Archive for May, 2010

Measuring Performance – Value Of Intangible Assets

May 28th, 2010. Published under Fiduciary Responsibility, Measuring Performance. No Comments.

Michael D. Moberly   May 28, 2010

Effective and consistent utilization and management of a company’s intangible assets is one of the most important and significant interventions a management team and board can undertake.  This is not merely over-dramatized conjecture, rather it’s a business reality and fiduciary responsibility that will deliver returns.

So, as has been conveyed in this blog on numerous occasions, there is another way to evaluate a companies performance other than what appears solely on balance sheets.

First of all, the ‘intangible value’ of a company is, put quite simply, the difference between its market value (share price multiplied by the number of shares issued) and its net book value (recorded value of all tangible assets).  So, if a companies intangible assets were valued at 100 million dollars, even a 1% loss – erosion in (intangible) asset value would be significant, whereas (conversely) a 1% gain (in intangible asset value) would translate as substantial shareholder profits.

For most companies today, seldom does their (intangible asset) value fall below 50% of the market value.  Clearly, the more knowledge, know how, brand, reputation, competitive advantage (intangible asset) intensive a company is, the higher its intangible value which routinely ranges (again, for most companies) from 65% to as high as 90+%.

Still, within some companies, there remains a management-board ‘blind spot’ regarding intangible assets.  In part, that blind spot can be attributed to management teams and boards clinging to the adage of ‘what gets measured,  gets managed’.  Thus, if a management team and board, and their internal operation support apparatus are unfamiliar with and/or reticent about engaging – managing (their) intangible assets, it exacerbates that blind spot to produce adverse implications for both the near and long term.

One example of an (adverse) implication is when a company does not practice effective management, stewardship, and oversight of its intangibles, i.e., have practices and policies in place to sustain control, use, ownership, and monitor asset value and materiality, such inaction can and does translate as losses for shareholders and overall erosion of company value.  

What’s more, when a company’s most valuble assets are overlooked, dismissed, or neglected, the contributions and competitive advantages those assets deliver frequently become diluted, meld away, or unwittingly relinquished to competitors who are likely to know how to use them and will do so without hesitation!

I welcome your comments m.moberly@kpstrat.com.

(This post was inspired by the work of Dr. Bruce Copley.)

 

 

Cloud Computing and Company’s Information-Based Intangible Assets

May 26th, 2010. Published under Cloud computing.. No Comments.

Michael D. Moberly   May 26, 2010

Is ‘cloud computing’ merely a 2010 version of outsourcing?  To be sure, the availability of ‘cloud computing’ opportunities reflects the rising and global need for access to not only computing services, but, computing power, and its stemming from both the private and public sectors. 

Advocates of cloud computing point to its elasticity, flexibility, scalability, and instantaneous self service (on demand) pay-as-you-go format which are obviously attractive features that can create substantive efficiencies.  Advocates are also quick to say cloud computing is not a new technology, rather its (merely) a new business model – way of offering – delivering computing services.

There’s little question that cloud computing is a viable and efficient service option, particularly I believe, for the millions of start-ups, SME’s and SMM’s globally, many of which possess the potential for positive growth, revenue, and sustainability merely b being able to access additional computing services and power literally from their desktops.  In that regard, like many other technological advances and options, there’s no turning back, nor should there be! 

In light of the efficiencies and user options it brings, the ‘global cloud computing race is on’, but, as many like me, seek to fully grasp it operationally and its presumed 2011, 2012, and beyond versions/generations, I believe before companies and governments fully commit themselves to it, there remain some legitimate (risk oriented) questions that warrant, at minimum, an airing.

The intent of this post however, is not solely to point out potential risks associated with cloud computing, some of which, I suggest, have yet to be fully addressed or satisfactorily mitigated.

Instead, I approach cloud computing, as I do most other new business (client) initiatives, as one who endeavors to be an enabler and facilitator to those initiatives, not an inhibitor.  So, with respect to cloud computing, I respectfully ‘bring to the table’ what I believe are relevant, timely, and important questions related to user risks and their ability to consistently safeguard company information and data ‘going into the cloud’.

Having engaged numerous members of business management teams that are unabashed advocates and users of cloud computing as conveyed through their enthusiastic portrayals of it constituting a ‘business lifesaver and growth enabler’.  With all the objectivity I can muster, it appears evident, from those conversations, that many have given little or no consideration to engaging ‘the cloud’ with some of their company’s most sensitive, valuable, and proprietary information, in other words, information-based intangible assets.

Without going into a full litany of potential risks and threats potentially associated with cloud computing, I believe a key one, particularly in light of recent international events, ala Google, is the aspect of cloud computing users’ essentially ceding control to their provider, relative to the actual location and/or jurisdiction where their cloud computing occurs.  In my view, this represents a priority item on management team, board and CIO, CTO, CSO, and CISO agendas that presents significant, potentially instaneous, and debilitating reputational risks!

I welcome the opportunity to learn your perspectives and views on this important and expanding arena, m.moberly@kpstrat.com.

(This post was inspired by an excellent presentation conducted by Dr. Giles Hogben.)

Trade Secrets Are Intangible Assets: Questions Management Teams and Boards Should Ask?

May 19th, 2010. Published under Analysis and commentary, Trade secrecy.. No Comments.

Michael D. Moberly   May 19, 2010

A company’s trade secrets and proprietary information are intangible assets because they provide both objective and subjective value.  Objective value in the sense that they are directly related to the continuity of a company and subjective value in the sense that their value follows-flows from its nature.

And, when 65+% of most company’s value, sources of revenue, ‘building blocks’ for future wealth creation and sustainability lie in intangible assets, as they do today, it’s prudent for management teams and boards to have operational clarity about (a.) their decision to delare certain information assets as trade secrets, (b.) the requisites of trade secrecy, and (c.) recognize that designating a particular information asset as a trade secret is a strategic business decision, not solely a tactical legal process.

The intent of this post is not to convey trade secrecy as an extraordinarily complex, cumbersome, or burdensome process, rather, to provide management teams and boards with:

1. Relevant insights, perspectives, considerations, and equally important, options regarding decisions to declare – not declare certain information assets as a trade secret.

2. Important and necessary context for describing the (adverse) economic and competitive advantage impact to a company if a particular trade secret were lost, stolen, misappropriated, or compromised, etc.

In engagement conversations with management teams and boards about trade secrets and trade secrecy, often, the first items on my agenda are to thoroughly discuss – bring clarity to (a.) the six requisites to trade secrecy, and (b.) the absolute necessity for a company to be consistent, in their practices and procedures in meeting those requisites.  In other words, describe to them what’s required operationally and procedurally, for a company (on a enterprise wide basis) to ‘keep secrets secret’!

The second items on my discussion agenda with management teams and boards about trade secrets, equally important as the first in my judgment, is the actual value of the trade secret.  My rationale for assigning such significance to information (trade secret) asset value-valuation is that numerous and respected studies and surveys, as well as anecdotal experiences, clearly conclude that:

1. The indeterminate protection of proprietary information – trade secret assets is an increasingly challenging, but never-the-less essential undertaking for companies today.

2. The probability that a company will experience a breach, theft, compromise, or misappropriation of one or more of its trade secret assets and that it will it have been facilitated, enabled, or fully executed by a trusted employee (insider) is on, what may experts believe to be, an irreversible rise.

3. If the holder of trade secret is unable to build a legally persuasive, objective, and replicable case for (a.) the value of a stolen/misappropriated trade secret, and (b.) the consistency in which they met/followed the requisites to trade secrecy, then the assets’ trade secrecy status, when challenged or disputed, may not be conferred by a court if there are legal actions filed and litigation.

In this regard, the following are aspects of trade secret value and valuation that management teams and boards should find relevant, prudent, and beneficial to (a.) anticipate, (b.) consider, (c.) monitor, and (d.) prepare objective responses in advance, e.g.,

1. Does the trade secret have multiple and/or separable components, i.e., it consists of a specific formula in addition to a specific process to operationalize that formula?  If so, what would the value of the trade secret be if separated on a piecemeal basis?

2. Does the trade secret deliver and/or enhance the value of an entire enterprise/company or to an individual operation, business unit, technique, and/or method related to conducting-operating the business?

3. Does the existance of a trade secret add to the knowledge-competency of a single employee or particular group of employees?  If so, the resulting/subsequent intellectual capital those employees create and use/apply in their work (through the use of that trade secret) should be acknowledged and valued.

4. What would happen, in an organizational criticality context, if a trade secret were to literally disappear tommorrow? Could the company continue to function profitably?  If so, for how long?  Or, would significant and adverse operational difficultes/impacts and economic-competitive advantage hemorrhaging commence immediately and rapidly contribute to a ‘shut-down’ of the company?

5. What level of economic-competitive advantage benefit can a company objectively expect (project) from declaring a particular information asset as a trade secret?  Is the value of a trade secret indeterminately sustainable, or does it fluctuate – change over time?  if so, what is the range and frequency of such fluctuations?

6. Respecting the reality that maintaining certain information assets in a trade secret status requires time, resources, and money, is there a specific (observable, meaurable) point when a trade secret either becomes obsolete or its value (permanently) depreciates to a level that it is no longer prudent to retain its trade secrecy status and allow it to enter the public domain.

7. Have the transactions and/or litigation by competitors or other industry sector firms in which there’s  been a trade secret loss, misappropriation, and/or compromised been suffiently studied relative to identifying a basis-framework for approximating comparable trade secret value?  If so, would the market for this particular information (trade secret) asset be considred active in the context of elevating validity to the value a company has assigned to one of its comparable trade secrets?

8. Does each information asset a company has declared to be a trade secret have independant economic value that can be directly attributed to it ‘being kept secret’?

9. If a trade secret were stolen, misappropriated, or otherwise compromised, what would its ‘re-development value’ be, assuming it could be re-developed?  Can the management team and board attach a ‘price to the process’ for acquiring – re-acquiring a particular trade secret asset?

To be sure, the above are not intended to represent an exhustive list of issues or questions for management teams and boards about their decision to declare – not declare certain information assets as trade secrets.

Admittely, and for multiple reasons, there remain some arguable challenges when trying to objectively calculate and assign value to a trade secret.  One of which is that trade secrets are sometimes used in multiple ways within the same firm, and thus may exhibit higher value in one business unit compared to another business unit.

Hopefully, a memorable ‘bottom line’ to this post about trade secrets, is that management teams and boards must be able to demonstrate the consistent use-application of the trade secret in a manner in which the company obtains either economic or competitive advantage value!

I welcome your comments and suggestions.

Intangible Asset Risk Mitigation: Getting The Attention Of Management Team And Board!

May 18th, 2010. Published under Enterprise risk management.. No Comments.

Michael D. Moberly   May 18, 2010

This post describes strategies for making presentations to management teams and boards about mitigating business risks.  An important underlier to this discussion however, is to recognize that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for future wealth creation and sustainability today lie in intangible, not tangible assets.   Accordingly, in my view, business risk management today should be largely focused on intangible assets.

Unfortunately, as many risk management specialists know all too well, a disconserting, and often costly prelude to executing an enterprise wide (business) risk management/mitigation program, is for a risk to materialize in a company (or, a close competitor) that produces:

1. Significant and sudden hemorrhaging of value, revenue, brand, reputation, image, goodwill, competitive advantages, etc.

2. Adverse public, political, and/or regulatory spillovers that lead to even further and more long term hemorrhaging of market share and value.

When business risks do materialize, its common for previous expressions of disinterest to give way to setting a more receptive stage for a substantive committment to business risk management planninng thats particularly directed to sustaining control, use, ownership, and value of intangible assets.

I have found there are (generally) two factors that influence how business risks will be received (interpreted, assessed) by management teams and boards and ultimately influence their propensity for action, i.e., if the business risk is…

1. Presented in subjective vs. objective contexts.  Any tendency for risk advocates to over-dramatize a company’s vulnerability and probability, to the exclusion or minimalization of criticality, i.e., near-long term business impacts, will inevitably allow the decision to boil down to competing interpretations and assessments (vs. consenus) of the risk relative to the company’s vulnerability, probability, and criticality.  Therefore, an essential requisite to making a business risk presentation is to recognize that while management team and board may not be familiar with the intricies of current business risks/threats, they typically grasp the ‘big picture’ and have already framed certain perspectives, albeit from their managerial – fiscal position.

2. Portrayed as a single occurring event rather than conveying the potential for multiple risks materializing simultaneously that produce enterprise-wide cascading affects that significantly elevate both the cost and challenge to stop the value, revenue, and competitive advantage hemorrahging that’s occuring.

I welcome – look forward to learning your perspectives.

 

Trade Secrets and Proprietary Information: Laying The Groundwork…

May 3rd, 2010. Published under Fiduciary Responsibility, IP strategy.. No Comments.

Michael D. Moberly   May 3, 2010

When I discuss trade secrets and trade secrecy, I am not necessarily talking about the Coca-Cola’s of the world that have literally built an incalculably valuable and global brand around its trade secret formula for ‘Coke’.

Instead, I focus on the literally millions of small and mid-size companies (SME’s) that have built their brand (reputation, image, and goodwill, etc.) albeit on a smaller scale, by utilizing information they have developed internally.  Often times, that distinctive information provides SME’s with significant competitive and economic advantages that should be, but generally have yet to be formally recognized or treated as being either proprietary or a trade secret.

I am an advocate of openness and transparency under most circumstances.  But, in today’s extraordinarily competitive, predatorial, and winner-take-all global business environment, declaring and treating certain information as proprietary or a trade secret is simply prudent and necessary, particularly when that information serves as an underlier and driver ro elevating a company’s market (brand) value, securing sources of revenue, contributing to its sustainability, and laying foundations for future growth and wealth creation.

Still, there remain misunderstandings among management teams, boards, and employees about trade secrets and trade secrecy which I see being manifested in various ways and on different levels in companies.  For example, (a.) what are the costs of declaring certain information a trade secret, (b.) what are the legal requisites of trade secrecy and what resources must be committed and/or procedural changes executed, etc., to meet those requisites, (c.) how will shareholders and consumers react to having certain information being declared a trade secret, and (d.) are there downsides to declaring certain information a trade secret, etc.

These questions are legitimate and should be thoroughly vetted:

1. By anagement teams, boards, and include the internal contributors and partners that will ultimately have a direct role in execution.

2. In the context of a companies overall operational, brand building, and marketing strategy. 

Make no mistake, there is business prudency, if not fiduciary responsibility, in taking affirmative steps to keep certain information, especially that which delivers economic returns and competitive advantages not merely out of the public domain, but out of the hands of and probable use by competitors and other (economic, competitive advantage seeking) adversaries.

In many instances, the challenge to companies to declare certain information proprietary or a trade secret lies in a commitment to devote the necessary time to quite literally conduct an inventory of their internally developed information-based (intangible) assets.  In many instances, such an inventory reveals that those valuable assets have become embedded in operational processes, procedures, and practices that directly contribute to (underlie) efficiencies, competitive advantages, and customer/client goodwill, reputation, and image, etc., which, in turn, deliver value and revenue.  That information, along with the knowledge how to use that information competitively, should at minimum, be declared and treated as being proprietary!

I look forward to learning your thoughts and perspectives.