Archive for 'Intangible asset teaching and training.'
Intangible Assets: Better Explanations – Definitions Will Make Them Part Of Business Management Lexicon!
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!
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Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!
Michael D. Moberly June 18, 2012
Business management and marketing curriculum content in universities must address intangible asset identification, management, stewardship, oversight, and risks! While preparing to teach a graduate (MBA) business management course for a mid-west university last year, I purposefully framed and sequenced my teaching/course materials to reflect my determination and eagerness to introduce students to intangible assets and strategies related to their management, stewardship, oversight, and risk mitigation.
Being a long time proponent/advocate of intangible assets insofar as their contributory value to companies of all sizes and sectors, I believe intangibles must be an integral teaching-learning component in most every business management course taught today! That’s because steadily rising percentages (i.e., 65+%) of most companies’ value, sources of revenue, and ‘building blocks’ for growth and future wealth creation evolve directly from these non-physical assets, e.g., intellectual, structural, relationship capital, brand, reputation, goodwill, competitive advantages, and intellectual property, etc. Not introducing students to the fundamentals of intangible asset identification, development, valuation, exploitation, management, and risk mitigation, especially in business management and marketing curricula, in my view, is tantamount to business school heresy.
Once my aforementioned class commenced and the subject of intangible assets was introduced as constituting an integral component of the course, it became apparent that, for even the most experienced and already employed (MBA) students, intangible assets were yet to be part of their lexicon and/or skill set repertoire other than in the context of individual and generally unrelated assets. That is, a percentage of students possessed a fundamental, but sometimes limited familiarity for specific intangible assets, once they were identified, particularly intellectual property (patents), reputation, and brand. Students generally portrayed intangibles in standalone (individual) contexts, not reliant on or connected to other company assets.
Teaching assessments coupled with student responses to essay questions related to intangible asset issues revealed remaining challenges relative to achieving a sufficient (operational) grasp of intangibles in several key areas, among them being how…
- intangibles’ could be subject to a collective framework of management, stewardship, and oversight.
- to recognize and assess intangibles’ contributory value (to a company, a particular product, service, or launch).
- to related and distinguish particular intangibles’ as contributing to – driving specific sources of revenue, and
- the assets’ could be subject – vulnerable to persistent, various, and asymmetric risks that if materialized, could erode and/or undermine company value, the value of competitive advantages and (company, product) reputation, and new product launches, etc.
Respectfully intangible assets (and their management) admittedly represent a variously challenging concept to grasp and apply in quantifiable (value-add, revenue generation, and exploitation) contexts. I sensed then, and still do, that an important initial (intellectual, conceptual) hurdle with respect to the understanding intangible assets lies largely in the word ‘intangible’. That is, intangible assets are just that, they’re intangible, they lack a conventional sense of physicality, unlike tangible (physical) assets which one can see, touch, and report on balance sheets and financial statement such a property, inventory, vehicles, buildings, machinery, etc.
Again, respectfully, this was, for most, if not all, of these high achieving MBA students, quite literally their initial (in-depth) introduction to intangible assets. I sense their reactions and ability to grasp the management, stewardship, and oversight was not reflective of this university’s graduate programming or curriculum as it was, and remains, in my view, a reflection of the larger business community and its management teams, who themselves respectfully struggle with how to effectively and efficiently engage and utilize the intangible assets their company’s produces, acquires, and possesses.
As the nine week class progressed a significant percentage of the students appeared to concede the role, function, and contributory value of intangible assets. However, it’s worth noting, one student with a solid career in financial services, consistently challenged and resisted the positive view I was espousing regarding the relevance and contributory value of intangible assets across sectors.
This particular student articulated his (resistive) position well by (privately) describing numerous multi-million dollar loan and acquisition deals which he personally oversaw, in which, as he stated, there was absolutely no mention, recognition, or accounting of intangible assets in either valuation, collateral (securitization) or due diligence contexts.
At the conclusion of the last class, this student said to me in a respectful, yet defiant tone, ‘I understand what you’re saying Mr. Moberly about intangible assets, but I just don’t see intangible assets ever becoming an issue in my bank as you are suggesting they should and will, at least while the current (bank) officers remain in place. In my bank, its solely about identifying and assessing the value of physical assets as collateral.
Of course, the point to all of this is, does the same attitude and perspective hold true for business management teams, c-suites, and boards, in general? The answer, in my view, is yes, with of course, some very positive and very dynamic exceptions. But again, it is indeed an economic fact and a business reality that a steadily increasing majority of companies’ value, sources of revenue, and ‘building blocks’ for growth and future wealth creation do, in fact, evolve directly from or are generated by intangible (non-physical) assets, not tangible (physical) assets!
Introducing intelligent, seasoned, and already successful business decision-makers to intangible assets, and that the time they devote to learning about intangibles, their valuation, and strategies to effectively use and extract value from those assets, along with the necessity to protect, preserve, and monitor the assets’ value, are indeed worthy teaching – learning objectives, whether one is a promising MBA student or an already astute, experienced, and successful business decision maker. Unfortunately however, intangible assets remain somewhat of a hard sell!
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