Archive for January, 2011

Management Teams and Boards Need To Demand That HR Data Be Framed As Intangible Assets and How They Contribute To Business Performance and Risk!

January 28th, 2011. Published under HR. 1 Comment.

Michael D. Moberly  January 28, 2011

Most HR (human resource), or ‘people’ departments, and their directors/managers, are very good at gathering data and information to identify and track the conventional (HR related) trends, e.g., absenteeism, recruitment, on-boarding, retention, training, terminations, attrition, layoffs, and outplacement, etc. 

But, framing the HR function, and its contributory value to a company, as an accumulation of intangible (intellectual, structural, relationship) assets, remains for some, more challenging and certainly unconventional. 

The inclination and/or ability of most HR units to re-frame the data and information they have conventionally tracked, i.e., the trends noted above, into more strategic and comparative contexts or a ‘road map’ of sorts to assess and achieve more effective use of a company’s (intellectual, relationship, and structural) intangible assets, largely remains, in my view, under the radar of most ‘mhr and mba oriented’ practitioners. 

And, that’s what this post is about!  Management teams and boards should be demanding that the information and data their HR units churn out, be more relevant by going well beyond the conventional, such as the number of job candidates in the pipeline, recruitment and training costs, and/or skill shortages, etc.  Today, HR would be well served to collect, analyze, and explain data and information that will provide management teams and boards with strategic insights about the impact, inter-connectedness, and use of the full range of intangible assets which fall within the purview of forward looking HR units, again, those intellectual, structural, and relationship capital (intangible) assets.

To be sure, there are many HR managers/directors that clearly ‘get it’ by understanding…

1. that un-used, under-used, or under-valued intellectual, structural, relationship capital will frequently result in irreversibly lost opportunities. 

2. that HR’s role and contributions to a company should be executed through a comprehensive intangible asset lens, and

3. the economic fact that today, 65+% of most company’s value, sources of revenue, competitive advantages, and ‘building blocks’ for growth are grounded in – evolve directly from intangible assets. 

There remain however, numerous HR units that continue to track the conventional data and information that, in my view, likely provides little, if any, strategic insight, clarity, or context that positively contributes to a company’s strategic planning in this increasingly knowledge-intangible asset based economy. 

Those conventional measuring points are, while they may be nice to know or have at-the-ready in some instances, they’re simply not the real (new) drivers of most company’s performance and business outcomes. In other words, some HR units simply haven’t expanded their (data) collection and reporting mission to conceptually or operationally include the new business realities in which intangible assets have become the dominant underliers to revenue, value, and growth.  HR’s role and contributions to a company now should be executed through an intangible asset lens.   

In other words, there is insufficient clarity being brought to strategic planning tables relative to HR’s potential contributory value in terms of how it could favorably affect business outcomes, transactions, and/or new initiatives in a business economy that is clearly and irreversibly tethered to knowlede-based intangible assets.  

It’s certainly no secret that management teams, boards, and prospective investors are primarily interested in outcomes, favorable and profitable outcomes that is.  Thus the kind of data and information they not only need, but want, are things like, (a.) a company’s organizational capacity, (b.) its readiness, and (c.) its ability to rapidly accommodate changes in global business environments.

While I’m confident few, if any HR unit heads would argue against the importance-relevance of demonstrating (reporting) the relationship between intellectual, relationship, and structural capital and business outcomes, more, in my view, need to execute on that position.  One challenge though, lies in how HR makes the connection between and understands the relevance of the data and information they’re selecting to measure (track, monitor) and ultimately provide to management teams and boards relative to its ‘connectedness’ to business performance and transaction outcomes. 

So, I’m advocating a new mantra for HR and it starts by, (1.) telling your management team and board precisely why (through objective analysis) your HR unit is tracking-monitoring the ‘things’ it is, and (2.) describing how and why those ‘things’ really matter.  In other words, are they relevant to achieving more positive and profitable business outcomes?

Respectfully, I believe a key challenge for some HR directors/managers will be ‘crossing the proverbial chasm’, i.e., making the (business focused, oriented) connection between what HR is and shoud be measuring and company (business) performance and outcomes.  More to the point, HR finding a new roadmap for contributing (adding) value to a company.

For discussion purposes, here is an example that would advance HR’s contributory value (role) and help make it (HR) more strategically relevant.  One way it can start is by providing information and data that includes – integrates a risk assessment feature that links intellectual, structural, and relationship capital assessments to specific challenges and/or risks a company faces relative to current – routine operations as well as new (business) initiatives or transactions being considered. 

Doing this can more effectively define, quantify, and clarify ‘business risks’ that fall within HR’s purview.  Risk, in this context, would mean including an HR focused perspective about a company’s ability and/or capacity, i.e., (a.) to be innovative, (b.) to compete effectively, (c.) its receptitivity to rapid change and flexibility,  (d.) the speed in which it can create and deliver new products/services, (e.) its ability to collectively solve problems, (f.) the level of enthusiasm (employees) invest in their work, and (g.) the sum of employee’s attributes, training, specialties, skills, and know how, etc.

It’s worthy to remember, each of the above are, in fact, intangible assets, so again, when steadily rising percentages (65+%) of most company’s value and sources of revenue evolve directly from (those and other) intangible assets, it’s time HR ‘put more skin in the game’!

(This post was inspired by and adapted from the work of Mike Prokopeak (Talent Management Perspectives) and his article titled, ‘What Financial Analysts Think of Human Capital’)

Company’s Need A More Complete and Strategic Picture Of Their Value And Ways To Compete That’s Not Found In Conventional Financial Statements…

January 17th, 2011. Published under Uncategorized. 1 Comment.

Michael D. Moberly   January 17, 2011

In a world in which 65+% of most company’s value, sources of revenue, and and ‘building blocks’ for development and growth evolve directly from intangible assets, it’s fair to say that conventional   financial statements and balance sheets, wherein intangibles largely go unreported, under-valued, and otherwise, unaccounted for, do not provide a complete picture of a company’s soundness, its value, or its strategic and competitive health and potential.

There’s no argument here that identifying whether or not financial targets have been achieved, something readily gleanable from conventional financial statements and balance sheets, are essential elements to business oversight and management.  And, as noted in previous posts, conventional financial reports (balance sheets) were not really designed to capture (describe) the many and various qualitative aspects of business operations that we now know are directly related to businesses success, like those found in a company’s intangibles. So, this post is not advocating the elimination of either, nor is it about conveying a dismissive or obsolescent attitude about the role and function of conventional financial statements and balance sheets.
 
For management teams, boards, entreprenuers, and others operating in knowledge (intangible asset, IP) intensive sectors, as most are today, there’s no news being made here by suggesting there are conceptual and language differences between (a.) the accounting, and (b.) the intangible asset communities. 
But, the formalized rituals and rigidity associated with existing accounting systems and language, leaves little, if any, room for those company management teams and boards, who are so inclined, to reflect on the more creative, albeit alternative, business strategies embedded in the exploding role and contributory value of intangible assets. 

Respectfully, accounting is largely a mathematical language that allows companies to communicate about their respective business performance in a standardized manner that is largely free from cultural (or other less objective) connotations by adhering to codes of officially sanctioned standards and laws.  Of course, absent that, some believe subjectivity would creep into accountancy with one outcome being that ‘too much gray area’ would be injected into business assessments, perceptions, and understandings.

So yes, accounting language and systems do adhere to such standards and laws in which (more tangible) factors of production and performance are dominant.  But, should they continue to be so, inasmuch as such accounting rules underplay, if not ignore, the evolution of company’s internally developed value, i.e., knowledge, IP, and other intangibles, which have become so integral to business operations as well as the development, framing, and execution of (business) transactions.

So, my advocacy in this post is to respectfully communicate the economic fact – reality that we’re literally in the midst of a knowledge, some say, intangible asset-based based economy, in which, factually speaking, steadily rising percentages of company value, revenue, development, and growth lie solely with intangible assets.  However, these ‘one size fit’s all’  accounting parameters, leaves little opportunity, and thus less inclination for management teams and boards to engage their intangibles in productive ways, let alone start using language that reflects the influence of intangible assets.

And, therein lies the basis for many of the current challenges between accountants and advocates of fuller utilization and acknowledgement of intangible assets insofar as mitigating expressions of skepticism and/or dismissiveness about the relevance and contributory value of intangibles.  Today though, there is a growing necessity to find common ground to converge both (accounting) language and systems so company management teams and boards can literally put their intangible assets in play, and ultimately, to better use.

The bottom line to this post is that conventional financial statements and balance sheets simply don’t paint a complete picture about a company, even though its fact that intangible assets have become the real drivers of most company’s economic and competitive advantage health and, as such, serve as increasingly objective, strategic, and sound financial indicators.    So, the time has come to strike a balance between the current, horizonal, and fiduciary responsibilities associated with a company’s 

 
 
 
 

 

The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies – http://kpstrat.com.  The intent of Mr. Moberly’s blog is to provide insights and perspective to aid in a cross-disciplinary approach for identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets.  Your comments regarding my blog posts are welcome at m.moberly@kpstrat.com

 

 

While visiting my blog, you are encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry about consulting, conducting an assessment, training program, or speaking engagement to your company or professional association at 314-440-3593.

 

(This post was adapted by Mr. Moberly from the work of Professor Roya Ghafele and her article titled ‘Accounting for IP?’ recently published in the Journal of Intellectual Property Law and Practice and inspired by the perspectives of Gabe Fried and Jim Catty, members of the Intangible Asset Finance Society.)

CFO’s: Financial and Strategic Competitive Advantages In Intangible Assets

January 10th, 2011. Published under CFO's, Measuring Performance. 1 Comment.

Michael D. Moberly  January 10, 2011

In today’s increasingly knowledge (intangible asset) based business economy, company’s that possess the inclination and ability to achieve long term and sustainable success must recognize that a key pillar to that success lies in (a.) developing, and (b.) sharing internally, information and data about the performance of the intangible assets they develop and possess.

But, this post is not about quick fixes or silver bullets though, as there’s nothing particularly new, nor necessarily quick, about…

– searching for competitive and financial advantages that can help put and keep a company on the leading (competitive and financial) edge of their industry and/or market space, or

– trying to better understand and develop practical and measurable ways to improve the financial and competitive health of a company.  

What may be new or innovative for some though, lies in the premise of a 2007 Deloitte survey which states (paraphrased) that…financial indicators coming from conventional balance sheets and financial statements alone, neither capture nor characterize a company’s (competitive, financial) strengths and weakenesses internally or within its value-supply chain.  

It’s simply imperative that more management teams and boards recognize that relying solely on conventional balance sheets and/or financial statements to supply the ‘complete picture’ and the necessary strategic perspective to compete effectively is inadequate, if it does not include intangibles.  In other words, competitive stagnation and missed opportunities can flow from a company’s exclusive reliance on conventional financial statements as the primary information source for their strategic planning and outlook.  

To spark dialogue with CFO’s, management teams, and boards to engage this perspective, I use several dialogue initiators.  One, is revisiting the adage attributed to Dr. Deming, ‘you can’t manage what you don’t measure’.  As we all know, value and revenue drive the markets and, by extension, most company’s destiny.  So, when 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and future wealth creation evolve directly from intangible assets, as they do today, management teams and boards would be well served to devote the necessary time and energy to developing defensible approaches to measuring and managing (a.) which, and (b.) how intangible assets are performing in their company and relative to their competitors!

A second dialogue initiator I use, is discussing the actual content and rationale of my training for CFO’s and other members of a company management and leadership team.  The foundation of the training includes creating and elevating operational familiarity and (business) confidence about intangible assets.  Within that dialogue, attention is brought to…

1. what intangible assets are, what they aren’t, where they’re located, and how to assess their status and contributory value,

2. strategies for utilizing, measuring, and extracting value from intangibles, and 

3. what constitutes effective stewardship, oversight, and management of a company’s intangibles.

These dialogue initiators prompt most CFO’s and management teams to (a.) consider how they can become better positioned, from a business perspective, to actually deliver a more financially and competitive advantage healthy company, and (b.) become more favorably inclined to…

–  ask more questions and demand more answers about the performance of their company’s intangible assets, and

–  drill down far enough (companywide) to determine precisely what asset performance indicators their company should be measuring.

Admittedly, some of the existing intangible asset performance – measurement methods (tools) need some refinements to confidentally and objectively paint the complete picture of a company’s financial and competitive advantage health that’s so necessary today, e.g.,

1. the actual tools (techniques, formulas, measurement points, etc.) need more internal-external reliability and validity testing to become more defensible and mitigate skepticisms about their relevance and use.

2. overcoming the often repeated mis-perceptions that measuring intangibles is too time consuming and doesn’t deliver a timely return-on-investment. 

3. addressing the relevant concern that developing and sharing intangible asset metrics, internally, or otherwise, could potentially make a company more vulnerable – at risk to competitive advantage undermining and/or asset value erosion, etc., should competitors acquire that information.

Ultimately, in my view, it’s the CFO who, in most instances, should take the lead in stewarding, overseeing, and managing a company’s intangible assets.  But, that must be premised on:

1. getting the correct information/data to the CFO.

2. the CFO being receptive to and confident in that information/data, and

3. the CFO recognizing how to effectively utilize and execute on that information/data to achieve the desired results.

(This post was inspired by a 2007 survey/report produced by Deloitte titled ‘In The Dark II: What Many Boards and Executives Still Don’t Know About The Health Of Their Business’.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies – http://kpstrat.com.  The intent of Mr. Moberly’s blog is to provide insights and perspective to aid in a cross-disciplinary approach for identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets.  Your comments regarding my blog posts are welcome at m.moberly@kpstrat.com

While visiting my blog, you are encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry about consulting, conducting an assessment, training program, or speaking engagement to your company or professional association at 314-440-3593.

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

CFO’s, Intangible Assets, Strategic Planning, and the Information Gap!

January 6th, 2011. Published under CFO's, Fiduciary Responsibility. 1 Comment.

Michael D. Moberly   January 6, 2011

 

I’m starting this post with what I believe are two, equally important views.  First, intangible assets are relevant – should be integral to most every company’s strategic planning initiatives.  Second, CFO’s, perhaps as much as any other member of a company’s management/leadership team, play an essential role, dare I say (fiduciary) responsibility, to ensure employees, business units, and all members of the management team, etc., are effectively oriented (educated) about the intangible assets the company produces, acquires, and possesses. 

 

The basis for intangibles’ relevance and importance to company strategic planning today is due to the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and future wealth creation lie in – evolve directly from intangible assets! 

 

That said, companies, (and their management-leadership teams) who may not have the operational familiarity, skill sets, or inclination to effectively engage and and profitably use their intangible assets, a real information gap becomes evident particularly in business transaction negotiations or during strategic planning in which intangible assets could, and probably should be in play.  Instead, what a company will likely experience are lost opportunities, ineffective strategic planning, poorly structured  transactions, and asset value and competitive advantage hemorrhaging, etc.  

 

As we start 2011, there should be little question that companies genuinely need information about their intangible (asset) resources to form the foundation for making better – best (strategic) decisions that reflect the (national/global) shift to the ‘knowledge economy’ which we’re all now in the midst.  

 

One of the most straight-forward ways of illustrating this shift, ala the knowledge-based economy, is to examine the stock market.  Ten to fifteen years ago there was a fairly consistent and strong correlation between a company’s stock price and the book value of its assets.  Today however, only 20+/-% of the stock price of S&P 500 companies, for example, is explainable via their balance sheet book value.  And that readers, represents the ‘information gap’ referenced above and demonstrates why it is so essential that companies (CFO’s) acquire and pass along an operational familiarity about intangible assets throughout their enterprise.

 

The implications-adverse consequences to companies stemming from this accounting/value discrepancy, or information gap, can be significant.  Traditionally, balance sheets are a quick read tool to identify the resources (assets) which a company has available – can use to literally build its future.  In the context of today’s knowledge-intangible asset based economy, balance sheets provide few insights insofar as a strategic view of a company’s potential, because a company mos essential resources and drivers of value, i.e., intangible assets, don’t appear on the balance sheet other than in a genericized form of goodwill. 

 

A respectful reality is, in most companies, information about a company’s intangible assets is likely to be scattered throughout the enterprise, seldom consolidated, and therefore, seldom applied.  It’s not difficult to speculate then, that CFO’s who lack fundamental information/insights about the intangible assets their company produces, has acquired, and possesses or how to use those (intangible) assets effectively, it literally leaves the most important questions about a company’s future not merely off the strategic planning table, but out of the strategic planning process altogether.

 

If information about a company’s intangibles was included, it would provide answers to such questions like; a.  does the company have the right people, knowledge, technology and network in place to meet its goals?, 

 

b.  is the company correctly positioned for continued innovation?, and

 

c.  where is the company at risk?  

 

If the truth be known, in many instances, if such questions are raised, absent relevant and quality information about a company’s intangibles, the answers would likely to be anecdotal or intuition driven.  Either way, that doesn’t make for very effective strategic planning.

 

The first step for maneuvering entire companies to get on the right strategic planning road, with respect to intangible assets, is to develop a mechanism that iidentifies, assesses, monitors, and consolidates all information about intangibles.  This would allow strategic questions, as noted above, to be answered objectively, not anecdotally, and would bring business, economic, and competitive advantage clarity about a company’s intangible assets into the strategic planning process.

 

Ultimately, the CFO’s role and contribution to a company’s strategic planning may well be dependent on whether he/she considers themselves as being the keeper of the traditional (asset-liability) accounting process or the new, more informed source of objective, consolidated, and strategically oriented data about their company’s total resources, especially its intangible assets!

 

(This post was inspired by the work of Mary Adams in her 2007 ‘Business Edge’ article titled ‘Will CFO’s Keep Their Seat at the Strategy Table’?)

 

The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies – http://kpstrat.com.  The intent of Mr. Moberly’s blog is to provide insights and perspective to aid in a cross-disciplinary approach for identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets.  Your comments regarding my blog posts are welcome at m.moberly@kpstrat.com

While visiting my blog, you are encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry about consulting, conducting an assessment, training program, or speaking engagement to your company or professional association at 314-440-3593.