Michael D. Moberly   April 7, 2010

Intangible assets are (a.) largely knowledge (know how) based assets, (b.) form increasingly larger percentages of a company’s reservoir of intellectual capital, and (c.) key tools for differentiating a company from its competitors in a market space.

The findings of a 2006 ACCA Research Report (#93) titled ‘SME Intangible Assets’ identified eight individual categories of intangible assets in companies:

1. Customer Capital Intangible Assets:  According the ACCA research there are three defining features of customer capital, i.e., (a.) the ways in which it evolves in the minds of existing and prospective buyers, (b.) the company is trusted, and (c.) the company’s products and services are appreciated.

2. Customer Relationship Intangible Assets: Represent the basis for (such things as) (a.) repeat customer sales that manifest as regular-assured sources of income, (b.) websites that provide easily navigated paths/routes for existing and prospective customers to generate enquiries, as well as (c.) a means to favorably influence existing and prospective customers thinking.

3. External Approval and Licensing Intangible Assets:  Represents the means for companies to sustain exclusivity of the intangible assets they produce, particularly the value evolving from (a.) brand name, (b.) reputation and image, and (c.) high quality endorsements.

4. Proprietary Product and Service Intangible Assets:  As management/leadership teams and boards assume stronger fiduciary positions relative to the management and oversight of intangible assets, there is a tendency for intangibles to be considered proprietary along with the underlying skills, know how, and relationships. 

5. Technical and Process Knowledge Intangible Assets:  Constitute special (proprietary) business processes, technologies, know how, and competencies that collectively contribute to companies (a.) extending the range of their competency, and (b.) consistently assess and make improvements.

6. Supplier and Input Relationship Intangible Assets: Serve as basis for differentiating companies and creating competitive advantages by providing special value-added services and privileges, i.e., access to relevant resources, and greater levels of supply chain security, etc.

7. People-Based Intangible Assets: Are employees’ collaborative demeanor, wherein their proprietary knowledge (know how and skill mixes) can be effectively incorporated to elevate value, revenue, sustainability, and growth potential while remaining difficult for competitors to replicate.

8. Learning and Growth As Intangible Assets:  Represent learning and growth capabilities within a company in terms of making substantive contributions to a companies ability to strengthen existing (intangible) assets and consistentl create new ones.

(This post was inspired by and adapted from the work of Chris Martin and Julie Hartley from a 2006 ACCA Research Report titled ‘SME Intangible Assets’)

Michael D. Moberly   March 15, 2010

Generally, my consultancy focuses on identifying ways small and medium size businesses can profit from the intangible asset and intellectual property side of their business.  During initial meetings with management/leadership teams I address, among other things, the key objectives of an engagement, i.e., elevate asset performance, unlock and enhance their contributory value including revenue and sustainability, and the value proposition that will accrue through more effective and efficient oversight and use of intangibles.  

While the initial engagement meetings are with business management/leadership teams and/or board members, its routine, as well as very prudent, for them to pose skeptically oriented questions, especially if they perceive, and they often do, (a.) any subjectivity in the characterizations of deliverables, or (b.) intangibles being portrayed as a silver bullet and/or quick fix to create heretofore un-utilized sources of value, revenue, competitive advantage, and sustainability.

By far, the most common demands expressed by management/leadership teams during initial (pre) engagement meetings are, (1.) prove it to me with examples, and (2.) where’s the value proposition?  

These types of questions are warranted, should be expected, and the answers should not be overlooked because a consultant presumes the answers are self-evident.  Remember, all management/leadership teams and boards do not yet recognize or have yet to act on the economic fact that 65+% of most company’s value, sources of revenue, competitive advantages, sustainability, and building blocks for future growth evolve directly from intangible assets. 

Therefore, the consultant must have the experience to articulate a strong and compelling repertoire of relevant, but most importantly, real world, trustworthy, and value proposition-based responses to those important questions.  Absent that, an intangible asset management and protection consultant should not become optimistic about receiving a (second chance) follow-up meeting.

But, I often believe, respectfully so, the way management/leadership team members frame those questions:

1. are not so much oriented to intangible assets specifically as they evolve from one-size-fits-all templates for questioning vendors regardless of the product or service being pitched, and also, they

2. underly various levels of misunderstanding and operational un-familiarity with either the existance or utilization of the intangible asset side of a business.

I engage, on a daily basis, the real world of small-medium businesses, which include founders, owners, management teams, and boards who, in the midst of this recession, are personally skeptical about ‘quick fixes’ or ’silver bullets’ particularly when their credit lines have been marginalized, if not cut off, and lending sources are moot to their requests and even more likely to dismiss out-of-hand even the best articulated and structured proposals for (intangible) asset monetization or asset backed lending.

Small and medium-size businesses in the U.S. however, are 20+ million in number, deliver approximately 39% of the GDP, and reportedly produce two and one half times as much innovation per employee compared to larger firms according to various sources and studies including the Small Business Administration.  The bottom line is, small and medium sized business produce (possess) intangible assets that deliver value, revenue, sustainability, and serve as a foundations (viable building blocks) for growth and future wealth creation.  It’s time to believe it and act on it!

Michael D. Moberly   March 2, 2010

All value proposition statements (pitches) should be framed, sequenced, and articulated so that a management/leadership team audience will likely interpret-assess the subject matter and objectives similarly in terms of relevance, importance, usefulness, and application, etc., to them and their companies!  Obviously, this represents a significant and relatively complex challenge to achieve in a time restricted ‘pitch’! 

In addition, a value proposition statement should include:

1. a clear, believable, and understandable statement of the tangible - quantifiable results that will be delivered, i.e., the added value a client will - can expect to experience and when. 

2. logical and evidence-based linkages - paths between the product and/or service being pitched and how it will favorably impact the audience’ business, i.e., benefits, returns, address unmet needs. etc.

Value proposition pitches that focus exclusively on intangible asset services must, in addition to the above, include statements to:

1. to influence management/leadership teams to acknowledge that a company’s intangible assets reach well beyond the conventional brand, reputation, image, goodwill, and IP.

2. to identify the mandated fiduciary responsibilities relative to managing, utilizing, protecting, and effectively exploiting a company’s intangible assets, i.e., Stone v Ritter, Delaware, 2006.

3. that give credence to the economic fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability lie in intangible assets, and are not merely ’sound byte’ cliches, rather they’re business (economic) realities.

4. bring clarity and understanability to the reality that intangibles ’lack physicality’ by providing examples that minimize managerial skepticim and dismissiveness about the contributory and exploitative value of a company’s intangible assets. 

A good ‘value proposition’ pitch for intangible asset services can also include insights reported in Accenture’s recent national study, i.e., ‘50% of companies today rely on intangible assets and intellectual capital as their primary drivers of value, but only 5% (of the reporting companies) have internal controls, procedures, and processes in place for the stewardship, oversight, and management of those assets at the board and c-suite levels respectively!

Michael D. Moberly   February 11, 2010

Today, for many intangible asset specialists, its puzzling, even occasionally frustrating, but more importantly, unfortunate anytime we hear company management teams, leadership, c-suites, and/or boards express-convey a sense of dismissiveness about intangible assets, or a reluctance to utilize intangible assets in general, and their company’s intangible assets in particular. 

Its become a universally accepted economic/accounting fact and business reality, in the knowledge-based (global) economy, not merely theoretical ‘academic speak’ or self-serving marketing jargon, that 65+% of most company’s value, sources of revenue, building blocks for future wealth creation and sustainability today, lie in - are directly related to intangible assets and intellectual property.  

Given this, It seems appropriate then to respectfully ask, are management teams listening?, when far too few of them are benefitting from those realities.

Intangible asset specialists are professionally obligated to respectfully and aggressively engage business leadership globally, to bring relevance and clarity for the full and efficient utilization of a company’s intangible assets.  One requisite to helping companies and management teams achieve this state of awareness, is by incorporating more relevant, timely, and respectfully simplified narratives designed to more effectively, but quickly, articulate three key-essential things, (1.) the practical existance of intangible assets, (2.) their contributory value to a company, and (3.) how to identify, utilize and exploit them to benefit a company. 

An obvious, and perhaps one of the biggest challenge for intangible asset specialists however, aside from issues related to intangible asset monetization, is articulating that intangible assets are just that, they’re intangible.  That is, they lack physicality.  But, their lack of physicality does not mean their performance and value cannot be objectively measured and benchmarked. 

So even though most management teams readily understand and recognize intangible assets’ existence, and appreciate their singular/individual contributions and importance to their company, e.g., brand, reputation, image, goodwill, customer/client (external) relationships, and internal know/intellectual capital, etc., there still remains a sense of reluctance and/or desire among some management teams to advance to the next level of intangible asset utilization and exploitation.

That next level would entail-encompass, in my judgment, four key elements, i.e., taking a more active role in…

1. engaging best practice fiduciary responsibilities for the management, stewardship, and oversight of the intangibles, 

2. identifying, unraveling, positioning, leveraging, and efficiently utilizing a company’s intangibles,  

3.  recognizing how to effectively exploit intangibles to generate revenue, enhance company value, create building blocks for future wealth creation and company sustainability, and 

4.  put in place measures to ensure control, use, and ownership of the assets is indeterminately sustainable, and their value and materiality (to the company) is consistently monitored.

Michael D. Moberly   October 26, 2009

Question; are there systemic risks to the intellectual property and intangible assets held by companies?

The phrase-term ’systemic risk’ has a relatively long history.  But, its revival, beginning in early Fall, 2008 has now become part of our ’recession lexicon’.  Its subsequent wide spread use in legislative (House, Senate) committee hearings on Capital Hill wherein testifying cabinet secretaries, legislators, regulatory agency heads, and c-suites routinely evoked the term (systemic risk) as part of a seemingly self-explanatory narrative, i.e. visualized sound byte, to convey (a.) how - why financial institutions and the financial services sector was literally unraveling, and (b.) the intertwined - embedded nature/elements of the globalized financial system.  Then interestingly, systemic risk was also ultimately applied as the underlying rationale for the notion of ’too big to fail’, hence the TARP bailout provisions.

One, perhaps best understood, definition of systemic risk is provided by Steven Schwarcz of Duke University School of Law wherein he described it (systemic risk) as ’the probability that cumulative losses will occur from an event that ignites a series of successive losses along a chain of (financial) institutions or markets comprising a system’.

Another, admittedly ‘cherry picked’ definition of systemic risk is provided by BusinessDictionary.com in which it (systemic risk) is defined as ’the probability of loss common to all businesses…and inherent in all dealings…risk that cannot be circumvented or eliminated’.  This definition surely places the notion of systemic risk in an enterprise (IP-intangible asset) risk management (ERM) context.

A commonality embedded throughout the various definitions of systemic risk is the notion of a ‘triggering event’.  A trigger is an event that causes (internal, external domino types of) consequences that adversely affects (a company’s) competitive advantages, asset value, market position, reputation, brand, image, goodwill, etc.  In the case of a company’s IP and/or intangible assets, ‘triggering events’ could be the (a.) theft, misappropriation, infringement, and/or leakage, and/or (b.) significant counterfeiting or product piracy anyone of which could collectively undermine asset value, competitive position, etc.

Collectively then, this constitutes a fairly strong rationale why company’s should engage in routine monitoring, valuation, and ’stress tests’ on their IP and intangible assets.  The purpose is to objectively and proactively determine if any (asset) materiality changes, value erosion, and/or undermining, etc., are occurring and prevent and/or mitigate same.  Such exercises are now being recognized by management teams, boards, and c-suites alike, as useful and necessary ingredients to (a.) the effective stewardship, oversight, and management of their company’s intangible assets, and (b.) avoid costly and often times irreversible surprises!

Michael D. Moberly   October 5, 2009

Intangible asset management is defined here as consistent stewardship, oversight, and monitoring (of the assets) to ensure control, use, ownership, and value are sustained and preserved indeterminately to reflect the owners’ - holders’ will. 

But, when management teams and boards are dismissive of (a.) the economic fact that 65+% of their company’s value, sources of revenue, and sustainability lie in intangible assets, and (b.) the execution of essential asset management requisites (as noted above), it’s likely they will find few, if any, economic benefits, competitive advantages, or efficiencies flowing to their company from their intangibles. 

Board and management team responsibilities underlying effective intangible asset management include:

1.  identifying and unraveling the origins and development of the assets that are developed internally or acquired externally, etc.

2. assessing the assets relative to, among other things, their contribution to company value, revenue, competitive advantages, and reputation, etc.

3. ensuring the assets are aligned-integrated with the company’s core mission and strategic objectives, etc.

4. consistently monitoring the assets to determine if erosion or undermining of value or competitive advantage has occurred or reputational risk has elevated, etc.

5. consistently putting intangibles on management-board agendas to, among other things, consider ways to ‘bundle’  the assets to (a.) make them more revenue/value useful, (b.) increase their ‘attractivity’ to investment, (b.) position-leverage them to enhance market position, (d.) deliver more competitive advantages, and (d.) create operational efficiencies, etc.

Michael D. Moberly   September 4, 2009

Today, for even the most conventional company, the majority of its value and competitive advantages evolve not from tangible (physical) assets, i.e., property, factories, inventory, machinery, etc.  Instead company value and competitive successes evolve largely through combinations of integrated-aligned intellectual capital and intangible assets, e.g.,

1. Human capital = management teams, employees, etc.

2. Structural capital = intellectual property along with processes, methods, and best practices, etc., that deliver efficiencies, effectiveness, and contribute to value and revenue.

3. Relationship capital = all types/kinds of (internal, external) networks related to advancing brands and relationships with customers, clients, vendors, and partners, etc.

But, unlike the issuance of a patent or trademark by the government, there are no comparable confirmations for company management teams that say ‘here lies your company’s core value’ , i.e., its intangible assets and intellectual capital. The responsibility to recognize a company’s core value drivers and understand how to most effectively utilize (exploit) them is primarily a management function.  That function (responsibility) however, should not be executed as periodic, snap-shots-in-time reviews, proclimations, or assessments.  Rather it should be a routine (managerial) fixture that’s integrated with company stewardship, oversight, and strategic management practices.

So, what’s the benefit - ROI to management teams for doing this?

First, knowing specifically what and where a company’s value drivers are, i.e., intangible assets and intellectual capital will lay important foundations for management teams to utilize those assets more effectively, efficiently, and profitably, i.e., position, leverage, and exploit. 

Second, and perhaps most importantly, as management teams communicate the above, they can more effectively articulate (internally, externally) company value, something which can seldom be gleaned/achieved solely by reviewing conventional financial reports.

Third, this level of insight allows management teams to genuinely focus on ‘future potential, not merely past performance of their company’ as characterized in conventional financial reports.

Remember, intellectual capital is integrated-aligned combinations of know how that’s convertable into useable/effective practices, methods, procedures, processes, and favorable relationships.

(For additional illuminating work in this arena see Mary Adams at I-Capital Advisors.)

Michael D. Moberly   August 24, 2009          (Part One of Two Part Post)

Knowing how to identify and effectively explain ’security intangibles’ should become integral to every vendors’ sales vocabulary and repertoire.  Vendors of security products, i.e., alarms, intrusion detection systems, CCTV, computer/IT security programs, etc., should ensure their ’pitch’ and promotional materials effectively address the value added intangible assets that routinely accompany and/or become a positive by-product of their product or service.  Security intangibles however, are (a.) frequently overlooked, (b.) not translated effectively, or (c.) left to prospective clients’ imagination to recognize for themselves.  

Why should ’security intangibles’ become integral to every vendors’ sales vocabulary and repertoire?  First, its an economic fact that 65+% most company’s (a.) value, (b.) sources of revenue, (c.) sustainability, and (d.) foundations for future growth and expansion lie in - are directly linked to intangible assets.  Second, security vendors encounter more enlightened management (procurement, risk, specification, etc.) teams that understand both the added value that intangibles bring to their company’s bottom line as well as the risks to those intangibles.  Third, dismissing ’security intangibles’ as being irrelevant to either sales or client management practices will increasingly become a factor in the sale - no sale equation.  

Most security products/services are capable of delivering a much broader spectrum of measurable client benefits (i.e., intangible assets) aside from the conventional and subjective appeal to risk-threat mitigation.  Effectively integrating ’security intangibles’ in sales repertoire and promotional materials can add a competitive advantage that truly distinguishes one security product/service company from another.

Why aren’t ’security intangibles’ more routinely articulated components of sales presentations?  In part its due to the mistaken perception that intangibles are (a.) too challenging to explain to prospective clients or too esoteric to integrate into product/service promotion because they lack physicality, or (b.) synonymous with intellectual property or company goodwill and therefore presumed to fall outside the realm of (tangible only) benefits derived from security products and services.

Michael D. Moberly    August 3, 2009

When early stage company’s intangible assets (IP, proprietary know how, etc.) become entangled or ensnared in time consuming, momentum stifling, and costly (legal) disputes, experience suggests it’s frequently a consequence or combination of…

  -  misplaced trust in and/or the unethical/illegal conduct of business partners, research collaborators, employees, investors, etc.

  - not attaching sufficient managerial priority to protecting and sustaining control, use, ownership, and value of the assets.

  - the actions of competitor/business intelligence or data mining operations, or even industrial (economic) espionage, either of which can rapidly undermine competitive advantage or result in the irreversible loss and erosion of asset value. 

  - naivete’ regarding the predatorial, winner-take-all aspects of engaging a global business environment. 

Each of the above are very real and persistent risks and when left unchecked or dismissing any as merely constituting an additional risk of doing business today borders on a breach of fiduciary - managerial responsibility. 

Understandably, early stage company management teams focus much of their time and attention to matters that appear more immediate, i.e., raising capital, furtherance of R&D, operations, etc.  Regardless, ground level stewardship, oversight, and management of intangibles and IP should not be relegated to optional ’I'll do it when time permits’ because its an economic fact, particularly for early stage firms, that 75+% of their value, prospective revenue streams, sustainability, and foundations for future growth are directly linked to their intangible assets.  

There are three factors that frequently influence early stage company management teams in this regard, i.e., they… 

1. do not have fully developed/articulated intangible asset or IP positions beyond what’s verbalized for prospective investors

2. mistakenly conceive the stewardship, oversight, and management of intangibles as non-returnable costs rather than investments that add assurances that their launch will be successful and profitable, and

3. mistakenly assume that patent applications, provisionals, and/or issuances are sufficient (stand alone) asset protections that either offset or deter the risks/threats cited above from materializing.  

The assumption that any company, especially early stage firms, can ’patent and walk away’ is not a sustainable business practice, that is, following patenting, risks/threats to intangible assets should not be assumed to solely be legal (IP) counsel problems, rather they continue to be management team and board decisions!  The probability than an early stage firm with particularly innovative and commercializable intangibles and IP will experience at least one of these threats, risks, entanglements and/or ensnarements has elevated considerably.

Michael D. Moberly      July 20, 2009

Company reputation, along with image and goodwill, are intangible assets!  An effective initial step toward reducing the probability that a company will be unduly exposed to or become a victim of ’reputation risks’ that occur with increasing frequency and adversely affect, not only image and goodwill, but value and revenue as well, is to conduct an intangible asset assessment.  A well designed and executed assessment will produce three relevant and beneficial outcomes for a company, (1.) identify its key intangible assets, (2.) assess reputational risks to those assets, and (3.) determine strategies to prevent and/or mitigate those risks. 

The following are the much abbreviated findings of an actual intangible asset assessment for a U.S. headquartered company.  This company is the market leader (developer, manufacturer, and supplier) of a particular automotive services product and has multiple U.S. and international manufacturing, sales, training, and distribution sites with annual sales exceeding $300 million.

The assessment revealed four key areas which, in the assessor’s view, warranted attention by the company’s management team and board:

1. A presumptive (over) reliance on patents as constituting the sole means for safeguarding the company’s rights to it’s reputational - proprietary know how…

2. An under-appreciation for the intertwined relationship between the company’s reputation (image, goodwill, brand/product integrity, etc.), relative to the (reputational) know how embedded in employees at various levels and global locations…

3.  Company practices (polices, procedures, etc.) were largely absent (a.) acknowledgement of intangible assets, and (b.) understanding of the assets relationship to sustaining/building company reputation…

4.  The absence of a protective company culture that contributes to ensuring key reputational drivers are sustained, in this instance, (a.) a web-based customer/client training and trouble-shooting programs, and (b.) rapid turn-around (response) times for customer inquires, services, trouble-shooting, product delivery, and repair…

The reason the assessor identified these four areas as warranting management team and board attention are the convergence of (a.) the assets’ vulnerability, stability, and fragility, and (2.) the rapid cascading affects that adversely affect reputation, image, goodwill, value, and revenue should certain risks (to  those assets) materialize.