Archive for December, 2012

Intangible Assets In 2013: Where Businesses Must Be…!

December 31st, 2012. Published under Intangible asset strategy, Intangible asset training for management teams., Managing intangible assets. No Comments.

Michael D. Moberly   December 31. 2012

Recognizing how and strategizing where and when intangibles ‘fit’ in a company’s 2013 strategic business plan is a New Year’s resolution that will almost guarantee efficiencies, profitability, and sustainability!  But first, we must agree at the outset, that, globally speaking, 65+% of most company’s value, sources of revenue, and building blocks for growth, sustainability, and profitability today either lie in or evolve directly from intangible assets!

That’s an economic fact – business reality that no, heretofore reluctant, reticent, or dismissive management team, c-suite, or board should needlessly squander any time debating or arguing, rather, just press forward with the knowledge that if executed correctly will, not may, produce impressive strategic outcomes, i.e., competitive advantages, more secure and profitable transactions, and equally important, extend a companies’ sustainability.

Far too often, this economic fact – business reality is dismissed and/or disregarded by management teams who either lack understanding, harbor misgivings, or simply don’t possess the necessary interest to unravel the embedded and sometimes camouflaged benefits and multipliers that well nurtured intangibles can consistently deliver for a company and the various transactions undertaken and/or engaged.  One rationale is that a percentage of management teams, c-suites, and boards, are quick to dismiss intangibles as being (too) esoteric, or worse, somehow irrelevant to their company, the nature of its business, and it strategic positioning.

Any unfamiliarity and/or uneasiness among some management teams, c-suites, and stakeholders about what intangible assets are, how to identify them, and assess their contributory value, and then utilize and/or extract value (from them) efficiently and profitability can and should be overcome.

An initial step is designing and executing the proverbial, but always essential business case (rationale), which, for intangible assets, require some intellectual capital to design and integrate an enterprise-wide (intangible asset) awareness campaign that include…

  • developing congenial asset identification, stewardship, management, and oversight practices
  • sustaining control, use, ownership, and monitoring value, materiality, risk, and assess asset performance.

Each component above represents an essential element to achieving success as measured by elevated profitability, growth, and sustainability.

Those possessing the requisite fortitude and business acumen already know that designing and executing a company-wide initiative will inevitably present its own set of challenges, in this instance, the reality that intangible assets that…

  • lack physicality, and
  • seldom, if ever, are accounted for – reported on company balance sheet or financial statement.

The following represent (some) key factors which I personally recommend, that management teams, c-suites, boards, and relevant stakeholders should fully consider when conceiving and designing the necessary business case for making their intangible assets an integral part of their business routine and strategic planning and positioning…

  1. Bring operational clarity to intangible assets through a repertoire of relevant examples applicable to a variety of industries and sectors in terms of not just their value, rather their contributory value…
  2. Draw attention to the importance of practicing consistent stewardship, oversight, and management of intangible assets, framed as fiduciary responsibilities, not merely as additional or unnecessary tasks…
  3. Describe how and why it’s necessary to not just identify intangibles, but unravel their origin, evolution, nurturing, ownership, control, defensibility, sustainability, and contributory value…
  4. Incorporate best practices for sustaining control, use, ownership, and monitoring value, materiality, and risks to the assets, why each it’s necessary and who the adversaries are likely to be in addition to – other than sector competitors…
  5. Articulate (intangible) asset valuation, contributory value, revenue conversion, and performance measure in understandable (plausible) ‘economics 101? contexts…
  6. Describe how to determine asset ‘suitability and contributory fit’ to particular initiatives, projects, and/or transactions relative to their transferability, life/value cycle, and risks, and retaining/transferring ownership rights…
  7. Demonstrate relationships between the production (acquisition) and use of intangibles relative to how they produce multiplier-effects, add company value, and deliver competitive advantages, sources of revenue and specific contributory value…
  8. Describe ways to position and/or bundle particular assets (when/if feasible) to achieve broader leveragability, competitive advantages, and value potential…
  9. Avoid reliance on subjective – worst case scenario anecdotes or tactic to convey (asset) risks and threats as a tool to attract attention…

My blog posts are researched and written with the intent they serve as a venue to elevate awareness and appreciation throughout the the global business community for the identification, use, contributory value, and measuring performance of many forms of intangible assets.  My blog posts are not intended to be either quick sound bytes or merely commentary or references to other existing blogs.  Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any of my posts, attribution is expected and always appreciated. While visiting my blog readers are also encouraged to browse other topics (posts) which may be relevant to their circumstance or transaction.  And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com.

Intangible Assets…Prosecuting Theft – Misappropriation!

December 28th, 2012. Published under Enterprise risk management., Insider Theft of IP and Intangible Assets. No Comments.

Michael D. Moberly    December 28, 2012

An intriguing question was posed by Stuart Green, a Rutgers law professor, in a New York Times article (March 28, 2012), in which he frames in a very ‘forward looking’ manner whether the terms theft and/or stealing actually fit today’s business circumstances?  That is, when company’s most valuable assets likely to be stolen, misappropriated, or infringed, are intangible, (non-physical) in the form of intellectual, structural, and relationship capital, will the conventional (prosecutorial) definition and/or application of theft and/or stealing fit?  Or, do (will) prosecutors, to maximize court understanding, find it necessary to portray intangible assets in a tangible context?

This question, in my view, should not be misinterpreted as merely constituting an issue that best belongs in a law school lecture hall espoused as merely legal theory.  Rather, in my view, it actually underlies an important aspect to company’s ‘sustaining control, use, ownership and monitoring the value, materiality, and risk’ to their intangible assets.  In that sense, it should carry considerable relevance to the responsibilities associated with CSO’s (chief security officer), CIPO’s (chief intellectual property officer), CISO’s (chief information security officer), CTO’s (chief technology officer), CRO’s (chief risk officer), and corporate legal counsel alike.

Having developed and taught various asset protection courses in a university criminology department for 20 years, it’s widely recognized that acts of theft and/or stealing of ‘property’ have conventionally been taught and interpreted to mostly involve tangible-physical assets or property, with intangible (non-physical) assets seldom, if ever, being addressed.

I suspect some readers, particularly those in the security – asset protection profession, may find this question unnecessary, or perhaps worse, opening a much unwanted ‘legal can of worms’.

For a significant percentage of prosecutors, and presumably the music and film industries too, I assume they would prefer, and are quite willing to devote the necessary resources to ensure the relevant (criminal justice) institutions continue applying the conventional and time-honored language, i.e., (a.) an individual or entity acquires (takes) property belonging to another, (b.) without their permission, and (c.) with the intent to permanently deprive the rightful owner of its use. Or, what Professor Green and others characterize as a ‘zero sum game’.  That is, one party loses an asset (property) rightfully belonging to them, while another party gains that asset or property.

In other words, there is no significant distinction between tangible and intangible assets when it comes to theft and/or misappropriation.

However, in the current knowledge – intangible asset dominated global (business, transaction) economy in which, conservatively speaking, 65+% of most company’s value and sources of revenue lie in – evolve directly from intangible assets, it does beg the legal question; can those conventional, time-honored definitions regarding theft, misappropriation, and infringement be consistently applied to non-physical (intangible) assets, or will challenges be forthcoming?

To add complexity, but, perhaps reality to this position, Professor Green suggests, when particular types/categories of intangibles are stolen, the rightful owner is likely to retain some  use of those assets, albeit perhaps in a depreciated and/or undermined form insofar as reduced value and fewer sources of revenue.  Had, for example, music, video-based assets not been illegally downloaded, they presumably would have delivered greater sources of revenue to the rightful holder, i.e., artist, copyright holder, producer, etc.

The reality is, as readers know well, companies are producing, acquiring, and, inventing significantly fewer tangible or physical assets today in lieu of assets which are more likely to be intangible and non-physical. So how does this globally universal and irreversible circumstance mesh with the conventional perspective of prosecutorial ‘zero sum gain’ relative to (asset, property) theft and stealing?

As we know, various courts and legislative bodies have adjusted some of the conventional language found in theft and misappropriation statutes to accommodate growth in intangibles. Thus, has the time come, as Green posits, for specialized legal doctrines to be developed to specifically reflect the theft, misappropriation, infringement, and counterfeiting of intangible assets and its subset, intellectual properties, i.e., patents, trademarks, copyrights, etc.

Actually, in the mid-1960’s, some would-be reformers of criminal law became frustrated with how courts and legal practitioners were endeavoring to distinguish tangible and intangible property. One outcome of their frustration was that the American Law Institute developed a ‘model penal code’ which essentially defined property as constituting ‘anything of value.’ Personally, I remain unconvinced this was the most appropriate way to handle this problem. Admittedly though, in 1962, intangible (non-physical) assets were hardly part of mainstream business or legal vocabulary.

On a relevant note, a trust and estate attorney I met recently was asked about how she intended to address intangible assets clients had accumulated when drafting trusts, wills, or estate documents. The attorney expressed virtually no interest, nor seemingly a clue about how to identify, unravel, value, divide, or incorporate intangible assets in a will or trust other than to characterize them merely as issues which were referred to accountants, but only for asset valuation which she would accept without challenge. This perspective prompted me to wonder if this attorney was indeed operating in the 21st century, or perhaps worse, had her clients’ best interests in mind, and worse, understood intangible assets at all.

Today, of course, intangible asset intensive – driven businesses have sprouted globally, brimming with all forms of intellectual, relationship, and structural capital, intellectual properties, brands, and reputation interests, each of which play critical economic and competitive advantage roles relative to a company’s profitability, sustainability, and growth potential.  So, if intangibles are not addressed in wills, estates, and trusts, it’s quite possible there will be many opportunities for same to be contested and challenged, thereby minimizing the significance attached to otherwise well constructed documents.

So, for me, and my colleagues in the information asset protection and insider threat – risk arena, it seems, the more engaged we become in intangible assets and businesses and transactions in which intangibles are routinely in play, the more complex and broader the dilemma becomes.

This post was inspired and adapted by Michael D. Moberly from a piece authored by Stuart P. Green published in the NYT’s on March 28, 2012.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

 

Intangible Asset Valuation Should Focus On Contributory Value…!

December 27th, 2012. Published under Intangible Asset Value. 1 Comment.

 Michael D. Moberly     December 26, 2012

When clients I serve, find it necessary to have their intangible assets valued, I draw their attention to the necessity for the valuation to address – reveal much more than merely the assets’ standalone value, that is, without regard to their relationship – connection to other (revenue, competitive advantage producing) assets.

Instead, I prefer (intangible) asset valuations be framed (conducted) on the basis of what I refer to as their contributory value, i.e., as individual and/or integrated clusters of intellectual, structural, or relationship capital relevance or contribution to (current) projects, products, services, new ventures, R&D, efficiencies, competitive advantages, and/or revenue streams, etc.

My rationale for encouraging intangible asset valuations be conducted in this manner are…

  • 65+% of most company’s value, sources of revenue
    and ‘building blocks’ for growth, sustainability, and profitability today, lie in – evolve directly from intangible assets.  In other words, in this knowledge-based global economy, companies are becoming more intangible asset intensive!
  • this approach will provide boards, c-suites, and management teams with much needed, but frequently overlooked insights about their intangible assets, i.e., best practices for their management, stewardship, oversight, monitoring, and protection based on their contributory value and functionality cycles, not for the lifetime of a company, and
  • most conventional (asset) valuation methodologies are variously subjective or speculative which tends to inflate or minimize asset value.

The ‘contributory value’ approach, allows assets to be more readily tracked, traced, and  measured relative to their origins and contributions which minimizes subjective and/or speculative inputs that have little or no bearing on assets’ actual contribution to a company’s and/or business unit’s core objectives.

When intangible asset valuations are applied specifically to intellectual property, i.e., patents, I wonder, particularly as auctions of standalone patents are becoming a global fixture, whether, by applying the ‘contributory value’ approach, it may lessen or perhaps even alleviate the need for conventional IP-only valuations, other than to establish a minimum bid. An example of such a patent auction was the ICAP Patent Brokerage Auction held in San Francisco in July, 2012.

Should this ‘contributory value’ approach be recognized as a viable methodology for valuing intangibles, it will, in my judgment provide business decision makers with much needed and practical (additional) strategic insights and options for optimizing the contributory value of their company’s intangibles.

Too be sure, conventional (business) valuation practitioners will surely critique and possibly find some disagreements with my ‘contributory value’ methodology as described here.  I am the first to admit the methodology warrants more study.  However, I do not believe it should be summarily dismissed, particularly during a time when management teams, c-suites, and boards are assuming more fiduciary responsibilities (regulatory) mandates for the management, stewardship, and oversight of intangible assets under their control, use, and ownership.

After all, it is my genuine intent to not only elevate operational awareness of intangibles, but contribute to learning how to develop, utilize, and exploit intangibles in the most efficient, effective, and profitable manner possible.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Transaction Analysis For Intangible Assets!

December 21st, 2012. Published under Business Transactions, Due Diligence and Risk Assessments, Intangible asset assessments/audits.. No Comments.

Michael D. Moberly    December 21, 2012

As stated here on numerous prior occasions, it’s absolutely essential for business decision makers to recognize that in a vast majority of transactions they either initiate or otherwise become engaged, correctly identifying and assessing intangible assets plays an increasingly significant role in achieving a desired, presumably profitable and sustainable, outcome!

The reason of course, is that steadily rising percentages, at least 65+% of most transactions’ value and potential resides exclusively in the effective stewardship, oversight, and management of the intangible assets in play, and, as noted above, critical to achieving a favorable transaction outcome. So, if a transaction management team overlooks or dismisses the intangible assets, it’s tantamount to excluding how and where deal/transaction value is created, revenue is generated, and further strategic planning will be executed.

This makes it all-the-more-important, and, according to many, rising to a level of fiduciary responsibility insofar as transaction management teams’ incorporating intangible assets in their task of strategic oversight. When executed effectively, a transactions’ intangible assets will be collectively addressed in due diligence, inventory, audit, and valuation contexts. On the otherhand, if transaction management teams are deaf to the intangibles underlying most any deal, i.e. by doing neither, it’s quite fair to say it’s time to either change transaction management teams or engage them in relevant training to elevate their operational familiarity with intangible assets, i.e., their ability to identify, unravel, make quantitative-qualitative judgments regarding their status, stability, fragility, contributory value cycle, and overall sustainability.

As readers know, there is an abundance of research that consistently paints a very convincing picture that if and/or when a merger, acquisition, strategic alliance, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will very likely be determined to be rooted in mishandling or disregard for the relevance or contributory value of one or more intangible assets necessary for achieving sustained transaction success.

One technique to mitigate or even remedy the probability that the latter will occur is for decision makers to require (receive) a ‘heads up’ from their transaction management team in the form of what I broadly describe as a ‘before transaction consumation asset impact analysis’. As the phrase implies, this specialized analysis should bring greater (business) clarity, i.e., a more definitive picture of the stability and strategic contributory value of key assets, particularly should certain risk(s), reputation and others, materialize that carry a high probability for adversely affecting one or more of the intangible assets integral to achieving a favorable transaction outcome. The most usable analysis (report) will address

  • the inter-relatedness of intangible assets’ contributory value and associated risks and threats as well as key assets identified as being impaired in some manner, or are found to be already misappropriated, infringed, and/or counterfeited.
  • the probability that particular risks/threats will materialize to adversely affect the projected economics, competitive advantages, and/or synergies of a transaction
  • strategies for mitigating and containing certain risks/threats relative to the resiliency and sustainability of the transactions’ key intangible assets.

The obvious rationale for incorporating a  ‘before transaction consumation asset impact analysis’ is for decision makers to be apprised of circumstances and scenarios that should be revealed which can (may) influence decisions and outcomes.

I am a strong advocate of  ‘before transaction consumation asset impact analysis’ because I believe the three, most challenging intangible assets to sustain and preserve their contributory value (pre/post transaction) are, (a.) intellectual, (b.) relationship, and (c.) structural capital because they are individually and collectively highly mobile and attitudinally based.

Too, a ‘before transaction consumation asset impact analysis’  can reveal other cautionary circumstances/scenarios while retaining the option to proceed with a (a.) plan for risk mitigation, or (b.) re-negotiate a deals’ terms in light of the risk(s) and/or asset impairment(s) that have been identified.

But, the objective remains the same, that is to facilitate a more secure and profitable transaction going forward, not impede it!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Protect Intangible Assets Only Throughout Their Contributory Value and Functionality Cycles’…

December 20th, 2012. Published under Intangible asset protection. No Comments.

Michael D. Moberly   December 20, 2012

By now, readers know that it is an irreversible economic fact (business reality) that steadily rising percentages (65+%) of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability globally evolve directly from intangible assets!

Ensuring the necessary control, use, ownership and value of those assets is sustained, but only for their respective contributory value and functionality cycle is a significant departure from  the conventional practice of lifetime safeguards, but is, in my view, a more practical, efficient, and probably a more prudent strategy given the extraordinary pace and speed assigned to business processes, transactions, and the accommodation of consumer preferences and demands.

I am the first to admit there will be exceptions. However, my primary rationale for safeguarding key intangibles for periods commensurate with their contributory value and functionality cycle is, in large part, due to the assets’ increasingly integral, but, at the same time, often short-lived role and/or relevance to a particular business process or transaction.  In other words, intellectual, structural, and relationship capital can translate into very lucrative ‘magic’ when generated and applied to accommodate specific business needs, i.e., activities, processes, or transactions. But, in today’s globally competitive, nanosecond, and predatorial business (transaction) environments, most any assets contributory value can erode, be undermined, its competitive advantages existinguished, or simply be overtaken by improvements in very quick order.

Central to this perspective is the the necessity to incorporate continuous monitoring of intangible assets’ contributory value, particularly the intellectual, structural, and relationship capital which the assets are premised.

But, companies are essentially on their own to find the requisite services and expertise to not just understand intangible assets and their respective contributory values, but identify, unravel, safeguard, preserve, and monitor their stability, fragility, sustainability, defensibility, i.e., contributory value. Too, such services and expertise are rapidly becoming fiduciary responsibilities which fall exclusively to management teams, c-suites, and boards to articulate and execute as a foundation to gain and sustain asset value and competitive advantages efficiently, effectively, and consistently.

More specifically, the actual and contributory value of many, if not most intangible assets fluctuates, sometimes in cyclic fashion in accordance with an assets contribution and/or functionality to a particular project, initiative, business unit, transaction, or a company as a whole.

A perhaps crude, but relevant characterization of an assets life, value, and/or functionality cycle is akin to what a doctor once told me about the need for a particular prescription medicine, i.e., ‘you will know when you don’t need it anymore when you start forgetting to take it and realize you’re feeling fine without it’.

Too, the cyclic aspect to intangible assets’ (contributory) value, renders most conventional, snap-shots-in-time or one-size-fits-all (asset) valuation techniques less relevant and certainly less useful, because among other things, they…

do not factor materialized risks threats to assets that can literally diminish their contributory value to zero almost instantaneously, and

provide little, if any, strategic (post transaction) context to certain intangible asset’s contributory value, in light of the consistent presence of asset risks and threats.

I can say with a high degree of confidence that once an (intangible) asset is compromised, infringed, misappropriated, or undermined, etc., its contributory value to a company or to a specific initiative can begin to unravel and hemorrhage rapidly, globally, and in many instances, irrevocably.

For me, this makes it all-the-more-prudent to monitor intangible assets life, functionality, and contributory value cycles! The point in time in which assets’ contributory features no longer carry the value they once did, i.e., deliver competitive advantages, sources of revenue, etc., it’s logical to assume there is less need to devote time and costly resources to preserving – safeguarding their proprietary status and/or value. This suggests those resources and that time should be devoted elsewhere, perhaps to newly developed and more valuable intangible assets!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Patents Are Just Intangible Assets Suitable For Framing…!

December 19th, 2012. Published under Intangible asset strategy, Intangible asset training for management teams.. No Comments.

Michael D. Moberly    December 19, 2012

There’s really no difference between a patent and an intangible asset. In fact intellectual properties, of which patents are one, are merely one type or category of intangible asset. The only difference is that a patent, once issued by the U.S. Patent and Trademark Office (USPTO) can assume sort of a tangible or physical property insofar as it can be framed and hung on an office wall as a testament of one’s work. Frequently, much to the chagrin of intangible asset strategists, intellectual property, i.e., patents particularly, are the presumptive ‘brass ring’ which technology transfer managers, researchers, inventors, and legal counsel, etc., set their sights, sometimes, I believe, merely because there is no intangible asset specialist – strategist available to identify and articulate alternatives. Too, obtaining a patent conveys expertise, a sort of instantaneous, but sometimes, short-lived credibility, particularly in the academic arena.

I also suspect, somewhat respectfully, that deference is often attached to patent (only) strategies based on the time honored perspective that an issued patent conveys a sense of ownership and certain legally defensible rights, technically speaking.

Feeding this ‘patent only’ strategy is the widely held, but mistaken assumption that an issued patent constitutes a stand alone deterrent to, or safe harbor from would be infringers. However, the costs associated with obtaining, maintaining, and defending patents are considerable, making the proverbial ‘patent only’ tract, at least in my view, more risky, out-of-reach for frugal inventors and innovation regimes, absent committed and deep pocketed investors.

In today’s increasingly aggressive, globally predatorial, and winner-take-all (global) R&D and business transaction environments, patents are in a constant state of risk to infringement, counterfeiting, misappropriation, theft, etc., from a host of legacy free players, independant brokers, and state-sponsored entities most of whom are engaged in some form of economic (industrial) espionage.

That said, those who have participated in venture capital forums where inventor’s seeking investment make the proverbial ‘elevator pitch’ to a shrinking audience of venture capitalists and other types of prospective investors know that the inevitable ‘what is your IP position’ question will be asked, as sort of a faux affirmation that a patent only strategy is both the preferred and necessary option.

To be sure, at the 30,000 foot level, an inventors’ answer to the ‘what is your IP position’ question may appear to be a deal breaker for ‘invest – don’t invest’ decisions, or constitute a duty of sorts levied against the inventor.

But, in a growing percentage of circumstances, and I say this with the utmost respect, there are comparatively few researchers – inventors working at the 30,000 foot level, rather most are working at the ground floror level, and should realize the ‘gatorades and royalties’ (University of Florida, 1965) are really few and far between.

Again, patents are expensive to obtain, maintain, and defend. And, even if the entire patenting process goes smoothly for an inventor (company, institution, etc.) issued patents still remain at risk with the inventor, along with other professionals associated with an R&D process or its adminstration may stumble. That is, the research product will become entangled and/or ensnared in various legal disputes and challenges, fail to be effectively marketed, and/or resources being curtailed or withdrawn which are necessary to maintain the patent.

In far too many instances, I find the intangible asset offspring (enablers) of IP. e.g., patents, are overlooked, dismissed, or overshadowed by the assumption that the time honored practice – strategy of pursuing conventional intellectual property, i.e., patent applications, provisionals, issuances, licensing, etc., are perceived as either the best or only option. Of course, I disagree!

To that point, an analogy may be in order. When one seeks the guidance of SEO (search engine optimization) firms for example, to promote one’s website and/or blog, etc., the SEO’s business development – marketing officers’ lead statement will consistently be some variation of the following, ‘we’ll get you on page one of Google’! The reality is, there is no guarantee that getting a website or blog post on page one of Google will produce conversions that many mistakenly assume will evolve merely because something one has written has successfully maneuvered its way through the ‘google algorithm gods’ and found its was to page one, temporarily.

Yes, entrepreneurs can rationalize that all it takes is one good (the right) ‘conversion’ to kick start a company down the path to riches. But, reaching ‘page one of Google’ may not be all that a startup company really needs to achieve sustainable success. Instead, they are likely to be in need of a well-coordinated, focused, and specific strategy that effectively utilizes an array of internet resources and social media that presents many different options for exposure and conversion potential, not merely one!

So, for the foreseeable future, inventors, researchers, companies, and institutions who engage in R&D, perhaps their initial call should not be to (intellectual property) legal counsel, rather to an intangible asset specialist-strategist who can identify, unravel, and assess the enabling intangible assets and offer a variety of options and strategies that ‘fit best and work best’!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Privacy In Social Media Apps: A Valuable Intangible Asset…!

December 13th, 2012. Published under Enterprise risk management., Fiduciary Responsibility. No Comments.

Michael D. Moberly   December 13, 2012

The assurance of privacy for social networking apps is a valuable, competitive advantage driving intangible asset that should be integrated before launch and certainly not dismissed or squandered!

As an admitted intangible asset advocate and strategist, personal privacy, and, I mean real and consistent personal privacy, not just the sort conjured in legal ease as a ‘check the box’ prelude to joining a social networking platform, is an incalculably valuable intangible asset that unfortunately, some ‘app’ developers appear to be squandering and/or ‘turning a blind eye’ in an effort to achieve near term revenue streams.

What’s’ really being squandered when such technological indiscretions occur are consumer presumptive trust, the company’s reputation, and its relationship capital.  Each is an intangible asset, and each has significant value, but, when those assets experience erosion and/or undermining, i.e., user privacy did not appear a primary factor in the apps’ development, substantial reputational, financial, and market space losses can materialize very rapidly.

Here’s just one example, probably among thousands, which I believe goes to the heart of the issue. Parker Higgins highlighted a privacy problem in Electronic Frontier Foundations’ blog (March 8, 2012), i.e., how apps need to respect user privacy rights from the start.

In the post, Higgins’ describes a Texas developed app that facilitates, ‘ambient social networking’. Translated, that means the app runs in the background of one’s phone collecting and sharing location data, etc., and then notifies the user when your friends and/or others with shared interests are in proximity, thus, enhancing serendipitous meetings.

I am certainly not suggesting these types of apps are inherently wrong or necessarily violate the increasingly tenuous and blurred presumptions of privacy app users have some right to expect. After all, one must willingly purchase the app, therefore buyers/consumers presumably understand (are forewarned about) the apps features and its often requisite connection to other social networking sites.

As Higgins quite correctly points out though, it certainly doesn’t require much imagination to foresee how sending a steady stream of data and information of all types to a third party, that may not have a (personal) privacy or data retention policy in place, can, and therefore, as the number of users increase, will inevitably give rise to a host of potentially significant personal privacy issues, particularly when the primary target market for the apps are children.

So, I reiterate, personal privacy, presumed or not, is, in my view, an extremely valuable, yet very fragile form of intangible asset and should be treated as such.

There is no question, if I were a board member or shareholder of an app developing firm, I would make every effort to obligate management (app development) teams to consider ‘personal privacy’ as being integral, if not a fiduciary responsibility to app development and not just ‘play fast and loose’ with app privacy features, and instead incorporate it as a real (business, added value) intangible asset!

The personal privacy issues Higgins and I claim are being dismissively disregarded, bring to the forefront, as they are today, a larger problem in app development, which is, initially building and marketing a ‘minimum viable product’ only to see how it’s received by niche consumers, and then adding personal privacy features later.  But, cutting personal privacy corners that are likely to undermine the relationship capital, trust, and reputation that is essential for the app sector’s sustainability is, to be sure, much more than mere shortsightedness. As aptly noted by Marissa Levin (Successful Culture Blog) a lifetime that has become largely ‘app driven’, we also must consider safeguarding the humanity of our companies!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Corporate Reputation Risk: Do Political Expressions By CEO’s Count…?

December 10th, 2012. Published under Reputation risk.. No Comments.

Michael D. Moberly    December 10, 2012

A question regarding reputation risk occurred to me over the course of the past two weeks, e.g., are political – ideological acts, behaviors, and/or verbal expressions uttered by senior (private sector) executives more likely to be overlooked and/or pardoned, hence having less, if any, adverse impact on a company’s reputation had they not been uttered in circumstances unrelated to an election cycle?

As readers recognize, a company’s reputation is largely comprised of relatively stable sets of expectations, held by consumers, stakeholders, and markets.   Readers also know when managed correctly, reputation can be a substantial and consistent source of contributory value manifested through such expectations, in the form of competitive advantages, profitability, market space, and sustainability.

This recent national election cycle, has, one might assume due to several, primarily fiscal ‘game changing’ pieces of legislation, prompted numerous company CEO’s and senior executives, representing various industry sectors, to assume an unusual public voice, i.e.,  ‘gone on front street’ to express their opposition to, among other programs, the enactment of the ‘healthcare affordability act’ or Obamacare. That is, numerous senior executives have publicly stated they would either lay off employees and/or reduce employees work hours to part-time, along with various other overt moves to offset the presumed added expense required to comply with Obamacare.  We can assume some portion of  their expressions of frustration may also evolve from angst associated with how the ‘fiscal cliff’ issue will ultimately play out in the House and Senate.

For a particular act, behavior, and/or verbal expression to rise to the level of constituting a full blown (company) reputational risk, conventional thought is that there needs to be a direct and measurable ‘clash’, if you will, stemming from the adverse act(s) (events, expressions, wrong doing, etc.) and consumer, stakeholder, and/or market expectations (perceptions).  This in turn, ignites some level of adverse consequence to a company’s reputation, e.g., in the form of losses in consumer loyalty, sources of revenue, company value, market position/share, stock price, etc., stimulated even further through social media. The bottom line is that reputation risk can ultimately and rapidly manifest itself as temporary, permanent, and/or irrevocable harm to a company.

I’m engaging in a little speculation now, but when such expressions are interpreted as originating from a CEO’s personal political ideology for example, adverse (reputational risk) consequences – impact, insofar as I can tell, tend to be minimal and sort of self-mitigating.  On the other hand, CEO’s who express a politically ideological opinion publicly, in opposition to the current administration’s legislative agenda, particularly pinpointing aspects which the electorate and legislative bodies are already deeply mired and polarized, ala same-sex marriage, Obamacare, government’s role, expenditures, national debt, etc., these too can be a self-assessing, but, in the opposite (favorable) direction because, for a segment of otherwise loyal consumers, stakeholders, and markets such expressions are more likely to reflect an expectation n the growing ‘blood sport’ of not just politics, but the increasingly aggressive, globally predatorial, and winner-take-all business transaction environment which we are growing more accustom.   As we witnessed numerous such examples in both pre – post (2012) election campaign, this phenomenon becomes a new variant to company reputation risk which we’re likely to see more in the future.

To be sure, I’m not suggesting all political – ideological views expressed by senior executives, in the midst of a political campaign cycle are welcome, will be embraced, or disregarded by consumers, stakeholders, or markets, as some may be inclined to assess such expressions as a poor reflection on the companies’ reputation and image and act accordingly.

The First Amendment to the U.S. Constitution not-with-standing, there may be legitimate questions whether politically ideological expressions as conveyed here by senior (private sector) executives are contradictory to a company and its boards’ fiduciary responsibilities ala Stone v. Ritter.   In Stone, a Delaware court (2006) drew attention to board – director oversight (management, stewardship) of compliance programs and company assets. In part, the court’s decision read…

’…ensuring the board is kept apprised of and receives accurate information in a timely manner that’s sufficient to allow it and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’

Thus, a not-so-outlandish interpretation of Stone may be particularly significant when senior executives’ political – ideological expressions carry many of the known requisites for producing at least some consumer push back, i.e., reputation risk.  In these instances, political neutrality, at least publicly, may be the better, and more ‘expected’ course of action.

While I have accumulated no objective data as yet to support or invalidate the suggestive viewpoints expressed here, neither have I seen objective evidence that contradicts them.

To further speculate, this may prompt some to wonder if Citizens United v. Federal Election Commission, 558 U.S. 310 (2010) working in tandem with the exhaustive negative campaign advertising in the recent election cycle has anesthetized consumers, stakeholders, and markets to what may have otherwise been sure reputation risk, had the statements been uttered prior to the recent 18+ month campaign (election) cycle.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

Intangible Assets: Better Explanations – Definitions Will Make Them Part Of Business Management Lexicon!

December 6th, 2012. Published under Intangible asset teaching and training., Intangible asset training for management teams., Intangibles as strategic assets. No Comments.

Michael D. Moberly   December 6, 2012

Readers, let there be no question, I am a strong and unapologetic advocate of intangible assets!

One of the more frustrating aspects to my and numerous colleagues various work, research, and professional association initiatives intended to elevate awareness and use of intangibles’ throughout, and at various levels within the business – financial services community as a whole is what I contend is the sometimes rather obscure and/or esoteric language used to actually define (describe, distinguish) intangibles, e.g., they

  • are the non-physical ‘things’ of value that a company owns.
  • have no set monetary value and little or no objective (consistent) means of measurement.
  • lack conventional sense of physical presence, i.e., they’re not necessarily subject to being seen or touched.

I am not suggesting my particular frustrations can, or necessarily should be extrapolated across-the-board, or fit the increasing number of ‘knowledge-based, knowledge intensive’ firms regardless of the dual realities they (a.) lack that conventional sense of (asset) physicality, and (b.) their performance and value is challenging to objectively monitor and measure.

I, like many of my colleagues, have encountered countless circumstances in which uninitiated management teams, boards, investors, and employees alike, whom we’re approaching, struggle to make sense of intangibles, or what the British often describe as the invisibles.  Respectfully, the Brit’s characterization of intangibles is quite realistic and understandable because, among other things, seldom, if ever, are intangible assets singularly, per se, reported on company balance sheets or financial statements. That is, unless they’ve been acquired or ‘lumped together’ as goodwill.

Still, business decision makers, i.e., management teams, c-suites, boards, etc., should be hard pressed to deny the reality that steadily rising numbers of companies have fewer tangible (physical) assets in their inventory. Instead, their ‘inventory’ is being replaced with intangible assets!

Nonetheless, intangible asset strategists routinely say, and I might add, quite correctly, the development and effective use of intangible assets is absolutely essential to most companies’ near and long term success, i.e., viability, sustainability, and profitability and form – serve as ‘building blocks’ for growth.  To the uninitiated, or those unfamiliar with intangibles however, as well as those who are suspect and/or dismissive about intangible’s contributory role and value, poorly conceived or challenging definitions of intangibles’ contribute little to achieving the much needed ’ah ah’ moments or, ‘I get it’, which are so essential to this irreversible, growing, and no doubt permanent knowledge-based global economy which I believe we’re only in the initial stages.

A glaring, but often overlooked or misunderstood reality is that most every company, not just the new, knowledge intensive ones,, through their management teams, c-suites, and employees, create substantial intellectual, relationship, and structural capital for example, most, if not all of which constitute intangible assets!  Unfortunately, such creativity tends to be less apt to be recognized or acted upon in conventional ‘brick and mortar’ that may appear, at first blush, to remain dominated by or largely dependent on physical – tangible assets as their perceived key sources for building value and developing sources revenue.

In my view, and my colleagues agree, there are infinite types – categories of intangible assets, many of which are knowledge-based or, more specifically, the intellectual capital held between our ears, stored on our CD’s, issued to our company as intellectual property, i.e., patents primarily, or merely the accumulation of experience and specialized (operational) know how.  When these ‘assets’ (or, know how) are prudently and optimally linked to understanding how and when to effectively, efficiently, and profitably use/apply them, that’s likely to produce enviable competitive advantages and an otherwise strategic win-win circumstance.

Whether we’re operating a successful business or conducting a scientific project, we tend to seek a comfort zone comprised of facts, figures, formulas, and ratios, etc. In other words, qualitative and quantitative components that with more regularity, constitute the framework for business decisions and strategic planning. Under these circumstances, most business decision makers’ comfort zone is fairly easy to sustain because the measurement tools we are accustom to using and relying on for decision making, strategic planning, and/or formulating prognostications tend to possess tangible characteristics wherein a high number or percentage is interpreted one way and a low number or percentage is interpreted differently.

But sometimes, that comfort zone of ‘hard (physical) numbers’ may be more obscure or fuzzy than we are accustomed, in other words, intangible. In such instances, management teams, boards, and employees alike, are challenged to push their conventional understanding and decision making criteria beyond the tangible to the intangible relative to the relationship and contributory value the latter consistently delivers to companies and organizations globally.

So, welcome to the specialized, but ever expanding corner of the information age and its outgrowth, the knowledge-based economy, wherein intangible assets now routinely play key roles as contributors – facilitators to most company’s value, sources of revenue, competitive advantages, sustainability, and ‘building blocks’ for growth and future wealth creation.

But, despite the rising importance of intangible assets and the contributions they consistently deliver to companies in all (industry) sectors, they unfortunately remain, for some management teams and boards, challenging to define, recognize, distinguish, and measure.

(Adapted by Michael D. Moberly from the work of Thomas A Stewart, ‘Trying To Grasp The Intangible’.)

In my view, an important and initial step to achieving a more intangible asset conscious business community, we need to bring more operational clarity and benefits derived by identifying and utilizing intangible assets. Unfortunately, there remain some challenges throughout much of the business community insofar as defining and explaining precisely what intangible assets are, how and by whom are they’re produced, and how they contribute to a company’s value, etc.

I find even with more experienced, astute, and successful business management teams the words ‘intangible assets’ are seldom part of their routine discourse or integrated in their business lexicon and frankly, often prompt their eyes to glaze over rather quickly.  The reasons respectfully vary, along a continuum of…

  • not fully understanding or appreciating what intangible assets actually are
  • being unaccustomed to identifying, assessing, or exploiting intangible assets
  • erroneously assuming intangible assets are the (exclusive) domain of accountants and/or intellectual property (legal) counsel
  • dismissing intangible assets because they’re not characterized as standalone assets, reported on company balance sheets or financial statements, instead they’re often ‘lumped together’ as goodwill.

Thus, recognizing the necessity to engage and exploit their intangible assets or determine – measure their contributory value and performance is unfortunately and frequently perceived as being unnecessary and/or not justifiable even though today 65+% of most company’s value, sources of revenue and building blocks to achieve growth, sustainability, and profitability lie in –  evolve directly from intangible assets, economic facts that absolutely should not be dismissed, overlooked, or disregarded as somehow not being relevant to them or their company.

Too, intangible assets are often mistakenly characterized as being more aligned with business accounting practices best espoused as mere theories in university lecture halls rather than actionable agenda items in boardrooms, c-suites, or even the new version of the proverbial ‘shop floor’.

The challenges associated with really explaining the relevance and importance of intangible assets to business decision makers also evolves, in part, from the reality that intangible assets are just that, they’re intangible!  As stated previously, they lack a conventional sense of physicality.  But, even though management teams are unable to necessarily see or touch these assets, intuitively they ‘feel or visualize’ their presence, absence, and/or changes, in, for example, declines and/or erosion of a company’s reputation, image, goodwill, intellectual capital, value, market space, competitive advantages, etc.

So, regardless whether they’re called assets or not, it often boils down to management teams’ inclination and ability to identify, unravel the origins, assess, manage, monitor, and measure these increasingly important, valuable, and strategic assets.

Interestingly, conversations with countless business owners and management team members, I find they can readily identify a variety of companies, across industry sectors, that have effectively captured and exploited their intangible assets compared to those who haven’t can’t of don’t, even though they seldom, if ever, use the term ‘intangible asset’ in their critique.

Thus, for all of the above reasons, intangible asset specialists-strategists who conduct briefings, awareness training, and consult with companies about their intangible assets should always be prepared to field an array of skeptical, dismissive, and critical questions, particularly with respect to asset valuation and/or contributory value.

A responsibility intangible asset specialists-strategists must assume with respect to defining and explaining what intangible asset are is articulating and demonstrating smarter and more effective techniques and rationales for companies to capture, utilize, manage, monitor, and monetize/commercialize their intangible assets.

This again, includes clearly distinguishing…

  • what intangible assets are
  • what they’re not
  • the various forms they take
  • how they originate, and equally important
  • how and when intangibles can be effectively and profitably applied as ‘building blocks’ to enhance a company’s value and create sources of revenue and competitive advantage.

Ironically, at least in my view, in the midst of this extended economic downturn, conventional wisdom would suggest that company management teams and boards would be seeking and be receptive to alternative and proven strategies to engage and exploit their company’s intangible assets particularly as they endeavor to weather this lingering recession.

The bottom line though is, some management teams, c-suites, and boards find it challenging to step outside their conventional comfort zones to engage concepts and strategies which…

  • they have not personally tested
  • appear to depart from past practice, and
  • are well under conventional ‘mba – b-school radar’.

Successful companies are typically ran by successful management teams. For the most part, those management teams are realists and pragmatic risk takers. Therefore, quite understandably, they may express some well-intended skepticism about intangible assets for all the reasons cited above.

However, when such skepticism translates into companies being restrictively tied to practices and strategies of a tangible (physical) asset based economy versus a knowledge-intangible asset based global economy, they’re not likely to experience the growth which they are probably capable!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to the circumstance. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!

Unnecessary Transaction Expediency = Hemorrhaging of Intangible Assets

December 4th, 2012. Published under Business Transactions, Mergers and Acquisitions. No Comments.

Michael D. Moberly    December 4, 2012

First, when structuring and executing any deal and/or business transaction today, particularly the due diligence component, it’s essential to recognize that IP and other forms of intangible assets are going to play increasingly significant roles insofar as affecting outcomes.

Second, when either, i.e., deal structuring, due diligence, and execution, etc., is conducted in a gratuitously hurried fashion as if one really believes the Christmas season retailer hype of ‘buy now, only two at this price left’, then it’s quite likely the opportunity (vulnerability) and probability that asset hemorrhaging will occur, possibly substantial, rises, particularly in today’s increasingly aggressive, predatorial, and winner-take-all global transaction environment.

Having been actively engaged in information – intangible asset protection and risk – threat management for 20+ years, my counsel is straightforward.  Decision makers responsible for deal structuring, i.e., c-suites and boards have fiduciary responsibilities that include sustaining control, use, ownership, and monitoring value and materiality of the about-to-be-purchased (acquired) intangible assets.

In my view, these responsibilities must and should commence at the point in which the deal/transaction is being initially structured and due diligence planned.  That’s because today, 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets!

Thus recognizing and making preparations to mitigate the vulnerability and probability there will be financial – competitive advantage hemorrhaging of any of the about-to-be-purchased (intangible) assets before the ink dries on a transaction agreement, is an essential factor to achieving  the desired (successful, profitable, sustainable) outcome.

The kind of (intangible) asset hemorrhaging I am referring to broadly consists of theft, misappropriation, and/or infringement of proprietary assets, e.g., intellectual, structural, relationship capital and operational knowhow, anyone of which can undermine assets’ contributory value, competitive advantages, market space, or reputation, that likely prompted the transactions’ initial conceptualization.

Intangible asset hemorrhaging (in deals and transactions) is frequently facilitated, in my experience, when two frequently held attitudes held by decision makers converge, i.e.,

  • unnecessarily high or unjustified sense of urgency attached to deal execution. (Urgency and speed often mutate to become a dominant driver of a transaction which in turn can constrict – impede a thorough due diligence, especially with respect to unraveling the origins, stability, sustainability, value, and ‘mergability’ of the intangible assets in play.)
  • assumption that deals-transactions can be consummated and revenue streams commence before the (intangible) assets in play (in the form of intellectual, relationship, and structural capital and proprietary operational know how) will fall prey to theft, misappropriation, or simply walk out the front door with departing employees.

Again, because overwhelmingly rising percentages of company value and revenue evolve from intangible assets, any short-cuts or ‘rush job’ due diligence routinely leads to grief, frustration, and disappointing (asset) performance.  That’s why it’s so essential for asset buyers (and that, in my view, is precisely what’s occurring in business transactions, i.e., the purchase of bundles of intangible assets) to ‘get out front’ of a transaction by acknowledging and preventing the aforementioned attitudes from adversely influencing how a transaction will be structured, due diligence conducted, and ultimately executed.

Readers who remain unconvinced are encouraged to think about transactions in this context.  If a company’s decision makers and/or legal counsel convey dismissiveness about the attitudes described above and their potentially adverse effect on transaction outcomes, they presumably would have to know precisely, the most opportune time…

  • when acts of (intangible asset) misappropriation, theft, infringement, misappropriation will occur, and,
  • required for an adversary to integrate the misappropriated – stolen (intangible) assets into a competitor’s or economic/competitive advantage adversary’s products and/or services as enhancements, efficiencies, and competitive advantages.

In other words, decision makers would need to possess psychic powers in their prognostications, which I am skeptical and certainly reluctant to award.

Exacerbating these increasingly probable events even more, is the rarity that asset buyer’s due diligence plan will include asset value  and competitive advantage monitoring components to alert, stop, or stabilize the inevitable asset hemorrhaging or recover compromised assets before substantial and many times irrevocable asset value loss, harm, and/or reputation risk ensues.

The fact is, the lost and/or compromised intangible assets constitute a ‘head start’ of sorts for those engaged in their illicit acquisition and use.  While actual asset losses in these circumstances, i.e., dollar value, remains largely subjective, it’s pragmatic, in my view, to try to measure it less in dollar values, and more in in terms of the speed which such adverse acts can and do frequently occur, i.e., hours and days, not weeks, months, or quarters.  So, is a well-constructed and thorough due diligence plan warranted, specifically one that fully addresses intangible assets,you bet!

Unfortunately, there are numerous actual and would-be (intangible) asset buyers that I characterize as being engaged in ‘permissive neglect’ with respect to identifying, monitoring, and safeguarding, about-to-be purchased intangible assets, by erroneously assuming…

  • any economic and/or competitive advantages an economic or competitive advantage adversary or employee of the about-to-be-purchased or merged firm may glean from the (intangible) assets they compromise or illegally acquire will be short-lived and/or outpaced by the rapidity of changes in consumer and market demands which only the legitimate (asset) originator will be able to deliver, and,
  • intangible assets are (readily) renewable resources.

Respecting the narrowness of (profit) margins today, in any business transaction, management teams, legal counsel, c-suites, and boards alike, would be prudent to re-consider both assumptions!

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to the circumstance. And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!