Archive for March, 2012

Intangible Assets and Organizational Resilience

March 30th, 2012. Published under Intangible asset protection, Intangible asset strategy, Organizational resilience and business continuity/conti. No Comments.

Michael D. Moberly   March 30, 2012

Some management teams consider ’organizational resilience’ to merely be a tweaked version of conventional continuity and contingency planning. Be assured, it’s not!

If anything, organizational resilience (OR) is business continuity and contingency planning on steroids.  That is, OR is more inclusive and evolves from a multifaceted ‘attitude’ of:

  • prevention
  • protection
  • preparedness
  • response
  • mitigation
  • continuity, and
  • economic – competitive advantage recovery

From an operational standpoint, OR differs markedly from conventional security and/or risk management approaches because of its focus on:

  • preparedness
  • drawing a balance between asset vulnerability, risk probability, and criticality (consequences) of certain risks, and
  • shifting away from managing risk reactively, to a highly proactive, adaptive and continually improving series of activities and responses.

Ultimately, a well-designed and executed OR plan can serve as a strategic path for moving a company from a conventional defensive and reactive posture to a proactive (forward looking, forward thinking) risk posture.  By doing so, companies become more anticipatory and ultimately resilient to a broader range of risks and adverse events, should they materialize

In my view, OR is particularly well suited to the ‘systems approach’ which compels management teams to identify and examine risks in independent and dependent variable contexts relative to (a.) asset vulnerability, (b.) probability of occurrence, and (c,) criticality, i.e., potential for significant adverse cascading effects throughout a company and its stakeholders should they materialize.

An OR approach to risk would entail examining business risk(s) that may, for example, have a relatively low probability for occurrence, but carry inordinately high consequences (criticality) making it more challenging to return to a state of operational-financial normalcy.

Thus, OR is much more than mere defensive posturing.  It involves proactive attitudes and practices that recognize 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets. Ironically, this requires management teams, c-suites, and boards to recognize that materialized risks or adverse events may, for organizationally resilient firms, present opportunities to further exploit its intangible assets, presuming other industry sector companies and/or competitors are experiencing similar risk events simultaneously.

A firm’s ability to rapidly, efficiently, and effectively adapt to change and uncertainty (risk) are being ratcheted up on company agendas as action items requiring higher priorities. In OR parlance, the vulnerability, probability, and criticality associated with potential and/or materialized risks, be they natural, intentional, or unintentional, represent a strong rationale why companies need to achieve a level of resilience that fits their respective market, industry sector, and business (transaction) environment.  More specifically, a recovery and adaptive oriented OR strategy can no longer be dismissed or relegated to merely being an ’after thought’.

An initial step toward achieving an organizationally resilient firm puts the onus on management teams and c-suites to recognize the unique elements and features (intangible assets) that are routinely embedded in company operations and functions. In other words, preserve (intangible) assets that underlie a company’s profitability, competitive advantages, and sustainability, i.e., reputation, brand, intellectual – relationship capital, goodwill, image, etc.

Intangibles though, often go un-noticed and un-protected in conventional risk management and business continuity-contingency planning.  I say this in the context that I have yet to engage a management team or board member that does not hold the view that every business or company, particularly theirs, possesses nuanced and unique features that contribute to its success.  Referring to such features as intangible assets though, seldom occurs.

Another step toward achieving an organizationally resilient company is to identify ways to measurably improve on its ability to adapt and rapidly recover from significant (business) disruptions, materialized risks, and/or significant changes in the business (value-supply chain) environment. In other words, remain financially and competitively viable for the duration of the adverse – disruptive event!

(This was inspired by the work of Gregg Goble, Howard Fields, and Richard Cocchiara of IBM’s Resilient Business and Infrastructures Solutions unit and the work of Dr. Marc Siegel, ASIS.)

Intangible Asset Due Diligence: Pre – Post Transaction

March 29th, 2012. Published under Due Diligence and Risk Assessments, Intangible Asset Value. No Comments.

Michael D. Moberly    March 29, 2012

Identifying and distinguishing intangible assets and recognizing their contributory value should be routine components to any transaction due diligence process today.  An increasingly critical aspect of intangible asset (transaction) due diligence is assessing the assets’ status to ensure their control, use, ownership, value, defensibility, and materiality is sustainable in both pre and post transaction contexts. Unfortunately, a significant percentage of due diligence teams have yet to include – address a target’s intangible assets.

Including – addressing intangible assets in all (business) transaction due diligence is essential because…

  • 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability today evolve directly from intangible assets.
  • intangibles are increasing valuable assets and consistently in play as requisites to a transaction’s projected returns and achieving the anticipated competitive advantages, synergies, efficiencies, and enhancing value following deal consummation.
  • the value and materiality of intangibles are seldom static, instead they can fluctuate, sometimes very rapidly in today’s globally competitive, aggressive, and predatorial, business transaction environment.

Intangible assets (i.e., intellectual property, proprietary know how, intellectual – relationship capital, brand, reputation, goodwill, etc.) unlike tangible/physical assets, can advance a company economically – competitively only so long as the assets’ control, use, ownership, value, and materiality are sustained and monitored for (value, competitive advantage) erosion, compromise, undermining, etc.

Effective starting points to achieve this is for transaction (due diligence) teams to have codicils in place (upfront) to facilitate/enable…

  • verification of the (targeted) assets’ status, stability, defensibility, and mapping their contributory value
  • monitoring the (targeted) assets’ value and materiality for a specified period of time after a transaction has been executed relative to the assets’ risk-threat-vulnerability assessment.

In most instances, a company’s portfolio of intangible assets, particularly its proprietary knowhow, IP, and intellectual capital are seldom the product of spontaneous acts or even resource dedicated initiatives rather they evolve over time within a company.

Regardless, transaction due diligence teams must now possess, in their repertoire of competence, the ability to identify, unravel, and preliminarily assess any and all, but particularly, the targeted intangible assets.  An informed due diligence team must also be alert to uncovering newly developed or variants of existing intangible assets which can produce valuable competitive advantages.  These competencies are also useful for identifying asset risks and developing risk mitigation initiatives in advance of a deal’s closing.

Like most intangible assets, left unidentified, unprotected, and/or unmonitored (pre and post transaction) valuable and competitive advantage delivering features can become compromised, impaired, or entangled in costly and time consuming legal disputes that stifle transaction momentum or even nullify many projected benefits.  Under these circumstances the result, all too frequently, is that asset value and competitive advantages can quickly go to zero!

Lastly, when engaging in any business transaction in which intangibles are being bought, sold, transferred, licensed, or shared, it’s essential to recognize

  • the production of intangible assets is a dynamic and on-going process within a company
  • due diligence must as good on the front end (pre transaction) as it is on the back end (post transaction)
  • due diligence must not succumb to a faux sense of urgency, and
  • conventional templates or ‘check the box’ types of due diligence are generally insufficient because 65+% of a transactions’ value (success, profitability, etc.) lie in intangible assets, thus the ability of the buyer to sustain control, use, ownership, and value of those assets, through on-site interviews and assessments is essential.

The over-arching objectives for an intangible asset inclusive – focused due diligence process, as conveyed above, is to:

  • elevate the probability that the buyer can use the (intangible) assets being purchase with minimal risk, impairments, and/or value – competitive advantage erosion.
  • bring greater surety to the buyer they will be able to capture and exploit the assets’ value, functionality, synergies, efficiencies, and competitive advantages uncontested.

In my view, this approach to (business) transaction due diligence is absolutely essential today with virtually no room for negotiation!

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

Intangible Assets: Management Team Familiarity Is Essential

March 28th, 2012. Published under Intangibles as strategic assets, Managing intangible assets. No Comments.

Michael D. Moberly   March 28, 2012

As stated many times previously, steadily increasing percentages of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets!  The important take-away from that statement for management teams, is that, while its important to know what intangible assets are and which one’s your company produces and possesses, it’s equally important today to:

  • know precisely how those (intangible) assets contribute to company value, revenue, and growth potential…
  • put in place effective techniques for their consistent stewardship, oversight, and management…
  • understand how to leverage, position, and/or bundle those assets to maximize their usefulness and the competitive advantages they produce…
  • recognize strategies to extract value from those assets…

Familiarity with intangible assets can also produce numerous multipliers, e.g.:

1.      Add predictability to business transactions when intangible assets are in play…by knowing how to identify and assess their stability, defensibility, and sustainability.

2.       Elevate the probability for achieving projected returns, sustaining competitive advantages, enabling asset synergies-efficiencies, and affirming projected exit strategies.

3.      Reduce probability of costly, time consuming, momentum stifling legal challenges…by recognizing circumstances that can ensnare and/or entangle (intangible) assets to impede, erode, or undermine transaction value, competitive advantages, and/or projected performance.

4.      More effective convergence of accounting, reporting, and valuing assets…by providing portals to (a.) knowledge management programs, (b.) intellectual property development and enforcement, (c.) Sarbanes-Oxley and FASB, and (d.) balanced scorecard approaches.

5.      Build an ‘intangible asset’ company culture…that (a.) recognizes, produces, and sustains control, use, ownership, and value of intangibles, and (b.) provides more timely awareness and pursuit of asset rights issues, i.e., ownership, value, infringement, misappropriation, theft, etc.

6.      Develop more comprehensive business continuity-contingency (organizational resilience) planning…that encompasses all forms-contexts of intangible assets to produce stronger and quicker recovery following significant business disruptions and/or disasters.

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

Pre-Employment Screening: An Insider’s Propensity – Receptivity Can Change After Date Of Hire

March 27th, 2012. Published under Analysis and commentary, Insider Theft of IP and Intangible Assets, Insider Threats. 1 Comment.

Michael D. Moberly    March 27, 2012

The findings of numerous well researched studies, most notably those produced by DoD’s Personnel Security Research Center (PERSEREC) and Carnegie-Mellon University’s CERT unit, describe significant and persistent challenges (risks, threats) posed by insiders, primarily employees, to company’s intangible (information, IP) based assets.

The risks ‘insiders’ pose to a company’s intangible assets, i.e., trade secrets, intellectual property, and proprietary know how, reputation, goodwill, etc., are most troubling and challenging too me, because of their persistence, stealthy ingenuity, and non-reaction to conventional (general and/or specific) deterrents.  Therefore, companies should not be too celebratory when a single insider is apprehended and the risk/threat they posed is neutralized or mitigated.  The reason, it’s highly probable numerous other insiders are already engaged in comparable or more detrimental acts which merely have yet to surface.

Both PERSEREC’s and Carnegie-Mellon’s published research on insider risk/threat matters brings much needed clarity and understanding about who, what, how, and the various influences and circumstances which information asset compromises and/or losses occur.  Most importantly too me however, are insights the research sheds on the proverbial and sometimes not-so-obvious why insiders engage in the illegal acts, i.e., their rationale and/or motives.

The research clearly suggests that (a.) the challenges associated with effectively safeguarding the increasing amounts of valuable proprietary information-based intangible assets, e.g., IP,  trade secrets, and know how, etc., and (b.) the losses-compromises attributed to insiders, is on the rise.

However, the insider threat-risk findings revealed by PERSEREC, Carnegie-Mellon, and others, indicate there are three aspects that remain somewhat blurred or perhaps incomplete, i.e., the

  1. precise number of insider executed incidents
  2. actual value of those losses measured in dollars, competitive advantages, reputation, goodwill, etc., and
  3. who the real end user – beneficiary of the information loss and/or compromise is, i.e., a state sponsored entity, an industry/sector competitor, or one of a myriad of legacy free players or brokers.

Some key reasons such revelations are not as clear and/or complete as needed is the:

  • evidence of insider executed threats/risks is largely anecdotal and/or company specific
  • victim companies/organizations are occasionally predisposed to assume the culprit is a foreign national, i.e., an economic or national security adversary
  • instructive evidentiary-investigatory elements of an unknown number of incident(s) are classified because the victim – target is a government agency, thus there is no public report of the incident
  • self (public) admission of a successful insider attack can rapidly diminish a victim company’s reputation, goodwill, image, etc., therefore companies seldom find it in their interest to report such events unless mandated by state/federal law.

Every company – organization today should be vigilant about the risks-threats posed by insiders. The actual level of vigilance that’s necessary today largely lies, in my judgment, in the nine attributes of insiders who engage in ‘IT sabotage’ which Carnegie-Mellon researchers identified.   Vigilance should ultimately be operationalized (translated) into effective practices, policies, and procedures to address, mitigate and/or counter the following:

  1. Access – an insider can target a company from behind its primary defensive wall, i.e., perimeter and may not arouse suspicion…
  2. Knowledge, trust, familiarity – of both a company’s IT system and the targeted assets within that system permits insiders’ to engage in acts of discovery, again, frequently without arousing suspicion…
  3. Privileges – an insider (employee) often can obtain the privileges necessary to conduct their attack…
  4. Skills – insiders can engage in an attack by working within a target’s (company’s existing) domain of expertise…
  5. Risk – insiders tend to be risk averse in preparing for and conducting their attack…
  6. Method – insiders are likely to work alone, but may recruit and/or co-op a trusted colleague for facilitation and/or enabling purposes…
  7. Tactics – the attack tactics applied by an insider are various and can include  (a.) an attack, hit and run, (b.) attack, and eventually run, (c.) attack until caught, and/or (d.) economic/industrial espionage…
  8. Motivation – an insider may engage in an act for (a.) profit, (b.) getting paid to disrupt the target, (c.) provoke change in a/their company and/or target, (d.) blackmail, (e.) subvert/undermine the mission of the target, (f.) a personal motive, or (g.) revenge…
  9. Predictable Processes – the motivation for an attack by an insider can evolve from (a.) a particular, usually adverse, event, (b.) personal sense of discontent, (c.) being ‘planted’ in a company to conduct an attack at some future time, (d.) adversary identifies a target and mission that meets their (or, another parties’) needs…

These nine attributes still give rise to three important questions:

First – with respect to the nine attributes above, can they be extrapolated – are they applicable to the risks/threats presented by insiders to a company’s information assets, in addition to IT system sabotage?

Second – if so, can these attributes be consistently identified and assessed (legally) using existing pre-employment screening – interviewing techniques?

Third – presumably, while each attribute need not be present in every incident, can each attribute be validly translated (converted) into pre-employment screening processes?

What’s at stake for companies when insider threats – risks materialize is substantial financial losses, civil actions, and diminished reputation etc.   Management teams who remain dismissive about their asset protection fiduciary responsibilities and elect to either not put in place safeguards to prevent and/or mitigate insider threats-risks do so at their own peril.

On the other hand, it would again seem useful if CERT’s nine attributes associated with IT sabotage could be validly translated-converted into pre-employment screening practices.  Presumably then, the presence of certain proclivities, propensities, and/or an applicant’s overall receptivity to engage in such adverse acts or policy violations could be revealed in advance.

But perhaps, that’s too much to ask or expect at this point!

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

Intangible Assets: Building A Compelling Business Case In Ten Steps!

March 26th, 2012. Published under Fiduciary Responsibility, Intangible asset strategy, Managing intangible assets. No Comments.

Michael D. Moberly    March 26, 2012

Let’s agree at the outset with the economic fact that, globally speaking, 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability today evolve directly from intangible assets.

My 20+ years of work and research in the intangible asset and IP arena clearly suggest there remains considerable unfamiliarity and even uneasiness among some management teams, c-suites, and an assortment of stakeholders what intangible assets really, but also, how to identify them, assess their contributory value, and utilize and/or extract value efficiently.

Building the proverbial, but always essential business case (rationale) for any new initiative can present some challenges.  For intangible assets, it will require intellectual effort to design and integrate an awareness campaign and develop procedures to identify, monitor, and assess asset performance.  But each represents an essential element to achieving success as measured by elevated profitability, growth, and sustainability. In most instances, it begins by achieving a practical and operational appreciation for intangible assets and understanding how to identify, develop and utilize this distinctive and increasingly valuable category of assets.

Those possessing the requisite fortitude and business acumen, surely acknowledge that integrating – executing any company-wide initiative generally presents its own set of challenges, notwithstanding one involving assets that (a.) lack physicality, and (b.) seldom, if ever, are accounted for – reported on company balance sheets or financial statements.

Consequently, some management teams carry misunderstandings and misgivings about intangibles and are quick to dismiss them as being (too) esoteric, or worse, irrelevant to their company by not recognizing how, where, or when they ‘fit’ into either tactical or strategic business planning.

The following represent (some) key factors which in my view, should be considered when conceiving and presenting a business case to a company’s decision makers regarding intangible assets:

  1. Bring operational clarity to intangible assets through a repertoire of relevant examples applicable to a variety of industries and sectors…
  2. Draw decision maker attention to the importance of practicing consistent stewardship, oversight, and management of intangible assets, framed as fiduciary responsibilities…
  3. Describe how and why it’s necessary to not just identify intangibles, but unravel their origin, evolution, ownership, and defensibility…
  4. Describe best practices for sustaining control, use, ownership, and monitoring value and materiality of the assets, and, why they’re necessary…
  5. Articulate (intangible) asset valuation in plausible and understandable –‘economics 101? – contexts…
  6. Describe intangible assets in revenue conversion and performance measurement contexts…
  7. Describe how to determine asset ‘suitability’, i.e., recognition, severability, transferability, life cycle, and risks…
  8. Demonstrate relationships between the production (acquisition) and use of intangibles relative to producing contributory value, multiplier-effects, company value, competitive advantages, and sources of revenue…
  9. Describe ways to position and/or bundle particular assets (when/if feasible) to achieve broader leveragability, competitive advantages, and value potential…
  10. Avoid (over) reliance on subjective – worst case scenario risks and threats as a maneuver to attract decision makers’ attention…

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

 

 

Intangible Asset Literacy: Avoid Being A Management Team That’s Reluctant To Engage Intangible Assets

March 23rd, 2012. Published under Managing intangible assets, SME's. No Comments.

Michael D. Moberly   March 23, 2012

I have found many management teams and business decision makers in SME’s (small, medium enterprises) and SMM’s (small, medium multinationals) are inclined to interpret the phrase ‘knowledge-intangible asset based global economy’ to be more cliché than reality and more relevant to Fortune 1000’s, presumably rich in intellectual property, know how, and R&D.

Frankly, I don’t share those interpretations.  Instead, I advocate this reality…unless and until more management teams, c-suites, D&O’s, shareholders, investors, and other SME and SMM stakeholders recognize:

  • intangibles today comprise 65+% of most company’s value, sources of revenue and building blocks for growth and sustainability
  • the prudence of engaging intangibles through consistent stewardship, oversight, and management
  • the necessity to develop practical strategies to sustain control, use, ownership, and monitor asset value and materiality

such interpretations and perceptions will likely persist.

Should such intangible asset illiteracy persist, two, among numerous potential adverse outcomes will be; significant unrealized (asset) value and exploitation opportunities are left on the proverbial table, and the assets will remain vulnerable to the myriad of economic and competitive advantage adversaries (globally) to acquire and exploit to enhance their company or client.

In a respectful defense of SME and SMM management teams and decision makers though, many lack sufficient familiarity with intangibles or perhaps the inclination today to take the time to try to turn their intangibles into potentially revenue generating assets.  Too, SME decision makers are, broadly speaking, realists and exhibit more aversion to what they interpret as risk, i.e., engaging in a new initiative like intangible assets.  Admittedly, such sentiments may be more central to their decision making and planning during this extended recessionary period in which business futures remain unsteady.

Also, experience suggests, many leaders of SME’s with their inclination for pragmatism, recognize that before embarking on any new initiative, particularly one that departs from what they interpret as being very workable past practices, i.e., engaging intangible assets, three things, at minimum, must be in place (up front):

  1. availability of practical and relevant training that provides sufficient familiarity with intangibles to be immediately useable/applicable with respect to identifying, assessing, and exploiting, i.e., maximizing and extracting value from the assets as sources of revenue, enhancing company value, and/or foundations for growth and sustainability
  2. financial incentives, i.e., specific tax advantages and direct (immediate) financial inducements, etc., and/or
  3. regulatory mandates that require every company to commence reporting and accounting for their intangible assets.

While #1 and #2 above would obviously require legislative action, #3 is essentially independent. That is to say, forward looking – forward thinking SME management teams, decision makers, boards, and stakeholders are obliged in my view, as a fiduciary responsibility, to seek and achieve the necessary familiarity with intangible assets that enables them to successfully engage those assets through effective stewardship, oversight, management, and monitoring practices.

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

Intangible Assets: They Need To Be On The Agendas Of Boards And Senior Managers

March 22nd, 2012. Published under Analysis and commentary, Board oversight, CFO's, Fiduciary Responsibility. No Comments.

Michael D. Moberly   March 22, 2012

I am extrapolating somewhat, but in Rob McLean’s fine article titled ‘Intellectual Asset Strategy and the Board of Directors’ (IAM December/January 2006), which I believe is still very relevant today, he says ‘boards are frequently drawn into intellectual asset management issues when there is a crisis, such as a lawsuit involving intellectual property rights’. ‘Few boards’, McLean suggests, and which I believe still reflects reality, ‘deliberately allocate time to intellectual asset issues as a matter of course’.

It’s unclear whether the references to boards in McLean’s piece are directed solely to large, Fortune 1000 types of companies or also include small medium enterprises and multinationals, i.e., SME’s and SMM’s respectively? While my professional interests tend to focus on the latter, my 20+ years of experience in intangible asset issues suggests that boards and senior management as a whole, convey little interest in the consistent stewardship, oversight, and management of those assets.

Consequently, as McLean points out, intangibles remain largely relegated to being only periodically included on board and/or c-suite agendas. In part, that’s because intangibles are still frequently perceived as being primarily legal and/or accounting processes/functions versus fiduciary (strategic business) decisions.  McLean describes four levels of engagement to characterize boards’ interest, i.e., in…

Level I – boards’ are generally unaware of the importance of intangible (intellectual) assets and related strategies relative to company strategy or competitive industry trends…

Level II – boards’ may be peripherally aware that intangible (intellectual) assets have some importance in strategy and competitive trends at the company level…

Level III – boards’ have a high-level understanding that intangible (intellectual) assets have some importance in strategy and competitive trends at the company level…

Level IV – boards’ have a detailed understanding of the role that intangible (intellectual) assets and strategy play in strategic planning at both the company and business unit level…

McLean believes that if boards are being honest, most would characterize themselves as being in either Level I or II, a perspective which I believe is probably most reflective of today’s circumstance even though it suggests, if true, boards may well be out of touch with their fiduciary responsibilities as described in Stone v Ritter.  I suspect many readers find themselves in agreement with McLean’s assessment as being reflective of their personal observations and experiences.

So, however full board and senior managers’ plates may already be, their stewardship, oversight, and management of intangibles (intellectual) assets, i.e., leadership in sustaining control, use, ownership, and monitoring their value and materiality should become permanent fixtures on their respective agendas.  From the board and senior management perspectives, there are three broad, yet quite plausible, starting points to achieve this:

First – consider making changes in company governance structure and practices to genuinely reflect and be aligned with the economic fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability evolve directly from intangible (intellectual) assets.

Second – takes steps to ensure the right people receive the right information that allow them to focus on the right areas with respect to effectively and efficiently utilizing the company’s intangible (intellectual) assets. This includes information and insights related to maximizing, leveraging, and extracting value and whatever else can position those assets to deliver (more) value and competitive advantages.

Third – ensure the underlying responsibilities for identifying, assessing, and sustaining (protecting, preserving) control, use, ownership, and monitoring value and materiality of those assets is collaborative by including intangible asset specialists, legal counsel, accounting, risk management, IT, and relevant business units where intangible (intellectual) assets routinely originate and percolate!

While visiting  my blog, you are respectfully 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 at  314-440-3593 or m.moberly@kpstrat.com

Economic – Industrial Espionage: It’s The Intangible Assets They’re After, Not Just The Intellectual Property!

March 21st, 2012. Published under Due Diligence and Risk Assessments, Economic Espionage, Intangible asset assessments/audits., Intangible asset protection. No Comments.

Michael D. Moberly    March 21, 2012

I routinely hear presumed experts on various media, C-SPAN in particular, but broadcast and cable news programs as well, describe how intellectual property is being targeted and stolen, via industrial – economic espionage and/or cyber-attacks.  These experts usually make compelling cases, further suggesting IP theft is occurring at rates that equates to multiple trillions of dollar losses annually to U.S. held IP.

Many of these experts self identify as current or former employees of agencies within the U.S. intelligence community, federal law enforcement and/or Washington-based ‘think tanks’.

A significant difference I, and I presume many other advocates of protecting IP rights have noticed, is that these experts are more comfortable today, than in years past, in naming the presumed culprits and/or countries where a significant percentage of the attacks – thefts originate.  In a growing number of instances, these experts freely cite either state sponsored or independent operators as the origin of the problems, often citing China, Russia, Brazil, India, eastern Europe and various other legacy free player countries as the primary culprits (recipients and/or beneficiaries) of the stolen IP.

Naming the culprit countries in open source carries some potential benefits, i.e., the adverse publicity can, in some instances:

  • bring political – diplomatic pressure on some of the named country’s legislative and enforcement bodies to be more aggressive and consistent in their pursuit of infringers.
  • prompt holders of valuable intangible (IP) assets to strengthen their business transaction due diligence and reduce asset vulnerability by putting in place practices and procedures to sustain control, use, ownership, and monitor the value and materiality of all of the (intangible) assets in play in both pre and post transaction contexts.

It’s worthy to note that much of this information has been available for many years through the U.S. Trade Representatives’ Section 301 list as well as the Department of States’ Overseas Security Advisory Council.

While I don’t dispute these expert’s positions about the significance of the problem, I do find reason to dispute their consistent characterization of it solely as an ‘IP problem’.  Intellectual property is comprised of patents, trademarks, copyrights, and trade secrets.  In today’s increasingly competitive, predatorial, and winner-take-all global business transaction environment it’s rapidly becoming a given that company’s intellectual properties are not merely vulnerable, rather the probability that theft, misappropriation, or infringement will occur at some point during the assets’ life-value-functionality cycle is highly likely.  Just how likely, remains somewhat subjective and carries many variables, i.e., asset demand, attractivity, effectiveness of safeguards, etc.

I do hold however, a somewhat different view about what most of the economic and competitive advantage adversaries are targeting and it’s not solely a company’s IP.   I have worked, studied, and conducted much research on intangible assets and economic espionage over the past 25+ years.  A cursory understanding of the adversaries (referenced by the experts) social, political, economic, and legal history suggests most are just now commencing the early stages of a second generation of individuals who possess the capability to create large scale manufacturing facilities to produce the various products and/or services that sometimes emanate from infringed – stolen – misappropriated IP.

What’s missing in my judgment, from the experts’ economic espionage and cyber-attack equation is the adversary’s ability to understand and/or replicate the intangible assets, i.e., the intellectual and structural capital and know how that’s embedded in any (misappropriated – stolen) IP.  Intangible assets today comprise 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability. It’s quite correct then to say intangible assets are absolutely essential in the global economy to building product/service quality, securing supply chains, and creating efficiencies in distribution, etc.  Be assured, those engaged in using stolen IP have, in most instances, an equally strong desire to compete globally and in the same market space as the IP’s rightful holder-owner.

Know how (intellectual capital) can, to be sure, be classified as trade secrets (providing the holder consistently meets the six requisites of trade secrecy) or proprietary.  Either way, I can confidently report that companies would be well served if they identified and safeguarded the contributory value of the intangible assets that underlie all IP, because that’s what the adversaries need most.

Intangible Assets Are Targets of Competitor/Business Intelligence and Data Mining

March 20th, 2012. Published under Enterprise risk management., Fiduciary Responsibility. No Comments.

Michael D. Moberly   March 20, 2012

I’ve never met a business decision maker yet who doesn’t claim to have engaged in competitor (business) intelligence. Such statements are often prefaced or followed by some blend of rationalizing the relevance – importance of competitor intelligence that range from (a.) everybody does it, to (b.) you’re foolish if you don’t.

While there is scant data that goes to the accuracy of those positions, my many years of work and research in this arena leads me to being confident that a significant percentage of businesses regularly, if not consistently, engage in some form of, or their own version of competitive-business intelligence collection and analysis.

When I use the word ‘businesses’ here, I’m not referring only to the Fortune 500’s, but literally to thousands of SME’s (small, medium enterprises) and SMM’s (small, medium multinationals) as well.  And, while their collection techniques and analysis may not be quite as sophisticated, analytical, or strategically oriented as those conducted by large corporations or the countless private (independent) competitive intelligence firms operating globally, they still usually provide SME and SMM decision makers with useable insights (reasonable prognostications) about the plans, intentions, and capabilities of their competitors.  In other words, what they’re doing now, what they have already done, or, are about to do!

The product of competitve/business intelligence initiatives can, and often is, applied in either a defensive or offensive mode.  Simply stated, the product can be used to (a.) undermine, (b.) erode, (c.) stifle, and/or otherwise (d.) maneuver ahead of a competitors’ initiatives, competitive advantages, market position, or strategic planning.

In my judgment, there are two starting points for any company management team that wishes to counter or mitigate the very real and generally adverse effects of sophisticated and persistent competitor/business intelligence and/or data mining operations:

  • The first is to fully understand and identify each intangible asset and its contributory value. This begins by recognizing that intangible assets comprise 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability.
  • The second is recognizing that competitive advantages are intangible assets, and it’s those assets which are really being targeted for analysis and understanding.

True, some companies actually mount well intended initiatives to try to counter and/or mitigate the effects of persistent competitive intelligence. On numerous occasions though, I have been the recipient of arrogantly phrased and dismissive statements from management team members who readily acknowledge the challenges of operating in today’s increasingly competitive and globally predatorial business (transaction) environment.  But, such statements are often offered in conjunction with a brazen assumption that a (their) company can innovate, market new products and services, and execute transactions faster than competitive and economic adversaries can undermine those initiatives or compromise the (intangible) assets that are in play.

The short answer to such assertions lies in three realities which every management team needs to recognize:

1.  Any business advancement and/or transaction strategy that does not factor the speed and predatorial nature of today’s extraordinarilsophisticated data mining (scanning) technologies that enable – facilitate business/competitor intelligence, information brokering, and economic (industrial) espionage operations to function faster and at earlier stages is short-sighted and will inevitably lead to:

    • elevated (unnecessary) risk
    • lower probability for transaction success, and
    • unrecoverable loss of intangible assets value.

2. Competitor/business intelligence (and data mining) operations are not directed solely to the Fortune 1000?s.  Rather they can and  consistently target (scan) every company’s innovation, strategic alliances, and transactions, etc.

3.  The key reason for the elevated risk is that steadily rising percentages of company value, sources of revenue, innovation, and competitive advantages lie in intellectual capital, proprietary know how, reputation, goodwill, image, and brand, etc., all of which are intangible assets.

Thus, in today’s increasingly high stakes global business arena, trying to stay ahead of industry – sector competitors by assuming one company can move faster than their economic – competitive advantage adversaries can learn about, undermine, and/or counter innovation, transactions, and/or commercialization capabilities represents an increasingly risky position.

Management teams’ that continue to advocate – make such assertions often adopt the position – rationale, particularly in the technology sector, that most of their ‘at risk’ or targeted assets will quickly become obsolete, i.e., their functionality, commercial value, and consumer demand is increasingly abbreviated anyway, therefore, any potential economic – competitive advantage  illicitly gleaned through competitive intelligence data mining, or economic espionage will be short lived and ultimately have minimal adverse impact on the victim company.

Such assertions run parallel, in my view, to the challenges companies face insofar as the necessity – fiduciary responsibilities to sustain control, use, ownership, and monitor the value and materiality of its intangible assets throughout their respective functionality – life – value cycle.

So, from a fiduciary responsibility perspective such rationales closely resemble permissive neglect, in my view.

Managing Your Company’s Intangible Assets In Five Steps!

March 19th, 2012. Published under Analysis and commentary, Managing intangible assets. No Comments.

Michael D. Moberly    March 19, 2012

Today, the management, stewardship, oversight, and monitoring of your company’s intangible assets is certainly not a passive ’I’ll do it when I have the time’ task that can be delegated (or relegated) to the uninitiated who lacks, what I consider, the requisite ’fire in the belly’ understanding  and advocacy for the economic fact that…

65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets!.

Rather, that task is akin to, if not, wholly, a fiduciary responsibility.  The task itself need not be an extraordinarily time consuming or costly undertaking. What is required however is a forward thinking and forward looking business acumen to:

  • recognize specifically what intangible assets are in the context of the products and/or service your company produces relative to its industry or sector
  • examine your company’s internals through an intangible vs. tangible asset lens to allow one to identify, unravel, and assess the assets stability, vulnerability, defensibility, and contributory value
  • consider how the assets (intangibles) can be (better) utilized, collaborated, and/or  leveraged which entails identifying viable strategies in which additional contributory value and competitive advantages can be extracted and exploited.

Dr. Nick Bontis of McMaster University, identified five additional steps for managing intangible assets in an appropriately titled article ‘The Rising Star of the Chief Knowledge Officer’ published in the Ivey Business Journal.  They are as follows:

1. Conduct an initial assessment to identify and unravel each intangible’s status, stability, fragility, value, sustainability, and linkages to producing-delivering-enhancing revenue and competitive advantages for your company!

2. Integrate knowledge – awareness programs about intangible assets throughout the company with linkages to employee training and evaluations!

3. Identify and integrate ‘best practices’ to ensure the intangible assets that have been identified as contributing to value and creating sources of revenue are sustainable, that is, the assets’ value, control, use, and ownership, value, and materiality are monitored and effectively safeguarded!

4. Develop an ‘internal map’ of the companies intangible assets to identify (confirm):

  • the assets’ producers, location, value, linkages, contributory value, and status
  • relevant/appropriate strategies (how) to effectively utilize, exploit, and leverage the intangibles’ through internal and external collaboration, alliances, and
  • strategies to align the assets with the company’s core business and strategic business plan!

5. Monitor (re-assess, re-evaluate, audit) the processes and/or practices related to:

  • sustaining and monitoring control, use, ownership, and value of the intangible assets, and
  • identifying gaps and/or lapses that should be addressed relative to extracting value from the assets!

An equally important (strategic) addition to these steps is that if any company unknowingly, or is unwilling to undertake the proper initiatives to sustain control, use, ownership, and monitor the value and materiality of its intangible assets, those assets’ value and competitive advantages can quickly diminish or ‘go to zero’.   It’s important to recognize that the business (transaction) environment is global, predatorial, increasingly competitive, and often functions in a winner-take-all context, so managing your intangible assets are not tasks that can be overlooked or neglected!

(Adapted by Michael D. Moberly from the work of Dr. Nick Bontis, McMaster University in his published article titled ‘The Rising Star of the Chief Knowledge Officer’ , Ivey Business Journal, March/April, 2002)