Michael D. Moberly   February 23, 2010

Intangible assets are embedded in - integral to most every company, regardless of its size or industry sector!  And, presumably, readers of this blog believe the economic fact, like I do, that increasing percentages (65+%) of most company’s value, sources of revenue, ‘building blocks’ for future wealth creation, and sustainability evolve from - are embedded in internally produced and/or (externally) acquired intangible assets.  

But, why is it that significant numbers of SME, SMM, and early stage company management teams’ familiarity with, or even perhaps, interest in intangibles, i.e., (a.) what they are, how they’re produced, where they exist, and the different forms they take in their company, and (b.) how they can be effectively and profitably utilized, leveraged, and exploited, appears to be relatively low?  

What’s this attributable to?  Numerous studies, many referenced in this blog, consistently report senior executives in ‘fortune 1000′ types of companies, consider the management, utilization, and risks to intangibles a priority (top three) issue facing their company.  For various reasons though, again many discussed in this blog, there is little objective evidence and even fewer examples that these consistent, and seemingly convincing findings are (a.) reaching, (b.) resonating, or (c.) prompting SME, SMM, and early stage management - leadership teams and boards to action.

Perhaps, there lies the crux of the problem or challenge that intangible asset (management, monetization, risk, and protection) specialists should focus.   That is formulating a stronger and better articulated repertoire of business (plan) oriented messages directed to SMM, SME, and early stage management-leadership teams and boards, that (a.) bring clarity, (b.) stress universality, and (c.) describe efficient strategies to identify, manage, utilize, and exploit intangible assests, i.e., to actually enhance a company’s value, deliver new sources of revenue, and provide foundations (building blocks) for future wealth creation.  

Also, perhaps, part of the challenge lies in SME, SMM, and early stage management team attitudes toward intangibles.  That is, for many management teams in publicly traded companies, their initial exposure to intangibles was literally thrust upon them, sometimes in near ’crisis-mode’, to rapidly comply with Sarbanes-Oxley mandates, FASB statements, and/or ISO standards in relatively narrow time frames, which routinely required extraordinary staff time, new procedures, additional resources, and costs.

In most instances, compliance was burdensome and, most respectfully, left little time, inclination, or curiosity to look (explore) beyond the compliance mandates to strategize about the potential benefits and options to utilize and exploit those already identified intangibles to enhance a company’s value, revenue, competitive advantage, and sustainability, etc.

Other reasons that contributed to management team reticence to pursue intangibles beyond meeting SOX, FASB, and ISO compliance minimums, include:

1.  there was no (regulatory) obligation to disclose (share, be particularly transparent with) information about intangibles to shareholders or other external groups. 

2. many managers have limited experience with intangibles and thus retain a tendency to rely on (their) intuition versus seeking and applying objective tools to quantify their contributions, value, and otherwise devise projective (return-on-investment) business plans to justify devoting resources to their utilization and exploitation. 

Michael D. Moberly    January 12, 2010      (Part Two of Two Part Post)

There should not be any particular mystery, managerial, or otherwise, about best practices for utilizing-exploiting a company’s intangible assets!  Yes, there is some specialization that is helpful insofar as identifying, unraveling, positioning, leveraging, and maximizing the value of intangibles.  In most instances, that expertise can be readily achieved without the encumbrances of conventional ’mba’ speak that tends to (a.) favor tangible (physical) assets, and, (b.) be out-of-step with business realities of the knowledge-based (global) economy in which 65+% of most company’s sources of value, drivers of revenue, and building blocks for future wealth creation and sustainability lie in - are directly related to intangible assets and intellectual property (IP).

Some key ’managerial mysteries’ about intangible assets that must be overcome are:

1. inhibitions (reluctance) to advocate and/or develop strategies to measure - count them in relatively absolute terms.

2. the assets’ lack of physicality, i.e., one knows they exist and recognizes their contributory value and the economic-competitive advantages they deliver, e.g., brand, reputation, image, goodwill, intellectual capital, etc., but one can’t necessarily touch or see those assets in the same manner as physical (tangible) assets, e.g., plants, equipment, inventory, capital, etc.

To further help demystify intangible assets, its important to recognize they exist in three broad categories:

1. Intangible goods and products whose value can be established in the marketplace, e.g., licenses, franchises, patents, trade secrets, and brand value, etc. 

2. Intangible competencies which include distinctive and perhaps proprietary processes and routines, e.g., know how and intellectual capital held and practiced by employees and capable of being created and deployed to the right people at the right time in ways that deliver competitive advantages, value, and bottom-line profits.

3. Latent capabilities which include such things as reputation, image, leadership, innovativeness, and the caliber (capability, capacity) of the workforce to create, identify, and respond to market opportunities to accommodate todays hypercompetitive, aggressive, predatorial, and winner-take-all (global) business transaction environment.

Becoming a more forward looking - forward thinking company through more effective stewardship, oversight, management, and reporting of intangible assets carries some degree of risk, most of which can be mitigated while accruing significant business benefits.

(Perspective on this post was gleaned by Mr. Moberly from long term research conducted by faculty of the Cass Business School, City of London, UK)

Michael D. Moberly   January 11, 2009     (Part One of Two Part Post)

Unfortunately, discussions about a company’s intangible assets rarely prompt management teams’ pulse to race as this blog consistently tries to make the case it should.  There are a variety of reasons why management teams representing SME’s (small, medium enterprises) and SMM’s (small, medium multinationals) tend not to attach higher priority to strategies for engaging, utilizing, and building (more) value in their company’s intangibles, many of which have been discussed here in previous posts. 

For some, the subject of intangible assets is shrouded in - veiled by conventional ‘mba’ speak, that sometimes is out-of-step with the realities of global, knowledge-based economies in which 65+% of most company’s sources of value, drivers of revenue, and building blocks for future wealth creation and sustainability lie in - have shifted to intangible assets and intellectual property and away from tangible (physical) assets. 

Intangibles’ lack of (conventional) physicality  has no doubt contributed to some management teams being fretful - uneasy about devoting time to identifying and utilizing intangible assets, notwithstanding the fact that in most instances, they already exist - have been developed/produced by their company.  Again, no doubt, some of that reluctance is attributable to the still much admired Deming (conventional mba) perspective that ‘one can’t manage what one can’t measure’.  In some circles, this long standing tenent of business management has been ‘misinterpreted’ to mean that intangibles, since they lack physicality, can neither be managed or measured effectively.

In other words, because a company’s key assets lack physicality, management teams, at first blush and absent training/orientation, may be less inclined - receptive to recognizing/engaging them as actual or potential sources of value.  In many instances, intangibles merely await management team action, but, because they’re not seeable or touchable in a conventional (Deming) context, their further contributions to (company) value, revenue, and sustainability are left off board room agendas.

For most SME’s and SMM’s, their intangible assets actually exist in a fairly broad spectrum ranging from, (1.) intangible goods and products, (2.) intangible competencies and/or knowledge, and (3.) latent capabilities, each of which will be discussed in the next post.

(Perspective on this post was gleaned by Mr. Moberly from long term research conducted by faculty of the Cass Business School, City of London, UK)

Michael D. Moberly    January 6, 2010

Generally, I tend to frame business issues and transactions through a broad, but nevertheless, single lens; the lense of risk.  This includes mulling over strategies to mitigate and/or manage those risks, particularly, in my case, risks related to sustaining control, use, ownership, and monitoring value and materiality of a company’s intangible assets and intellectual property (IP). 

Though, in many enterprise risk management equations today, there remain boards that do not share or embrace those perspectives, in part because they bring their own views and experiences about risk to the boardroom which, in my judgment, may be out-of-step with the expanding spectrum of asymetric risks that routinely confront businesses today.  When this occurs in boardrooms, it makes it difficult, absent effective-high level training, for boards to…

1. find a common context to frame and build a strategic concensus for understanding, approaching, and prioritizing risk on behalf of the company

2. design an objective and quantitative framework to benchmark against, i.e., one that does not rely on situation specific and/or subjective anecdotes.

Also, another possible consequence is that ‘risk’ will not become a necessary and routine (action-discussion) item on board agendas.  In fact, a 2008 Deloitte report titled ‘The Risk Intelligent Board’ suggested that a significant percentage of board members conceive-address company risk…

1. solely at an intuitive level

2. by relying (sometimes exclusively) on perspectives expressed by internal risk specialists in combination with a boards’ own risk management committee, and/or

3.  in a narrow manner by focusing on protecting - mitigating risks that can adversely affect company value through existing and presumably, tangible (physical) assets.

While the Deloitte report courteously suggests there is nothing especially wrong with the above perspectives, they do represent the proverbial ‘half a loaf’ approach.  Done correctly, the stewardship, oversight, and management of a company’s risks, at the board level, should include addressing risks in a manner that is aligned with achieving long term strategies. 

Too, by regularly inquiring about - addressing risk in the boardroom, a persistent problem will be confronted and likely diminish, e.g., the tendency for risk management activities to take place in subjective, anecdotal, and isolated silos.

Respectfully, it’s difficult to appreciate why some boards are not attuned to seeking the necessary training to become Deloitte’s version of ’risk intelligent boards’, especially in light of the economic fact that 65+% of most company’s value, sources of revenue, and foundations for future wealth creation and sustainability lie in - directly evolve from intangible (not physical-tangible) assets!

Michael D. Moberly   November 10, 2009

It’s most unfortunate today when a management team is overheard expressing a sense of dismissiveness about their company’s intangible assets or when they characterize - relegate those assets’ management and valuation into one of the proverbial it’s too difficult to do, I don’t have time for this, or what difference does it make, boxes!  Not surprisingly, the opposite should occur, particularly for companies seeking investment (investors) to expand and grow.

For companies seeking investors, a particularly useful and straight forward strategy is to (a.) anticipate (know) what information prospective investors will demand, and (b.) how that information can best be articulated (communicated).  It’s certainly no secret though, that while most prospective investors, analysts, and other potential stakeholders are well attuned to intangible assets and their potential contributory role to a company, they’re also generally conservative in their practice.  

At minimum, prospective investors will seek information about three things, e.g., how the company

1. creates their intangible assets.

2. manages their intangible assets, and

3. values their intangible assets.

While the answers to these important questions can vary, the attention given to the language/narrative in which each response is formulated should not be underestimated.  That is, answers must be conveyed in clear and understandable contexts, but, most importantly, each must be immediately recognized as being viable and realistic.

For example, managing a company’s intangible assets should be articulated on, at least, two levels:

-  The first is a company’s ability to identify, unravel, position, leverage, and extract value from its intangible assets.  

-  The second is a company’s ability to sustain control, use, ownership, and monitor the value and materiality of its intangible assets. 

In any communication with investors about how a company manages its intangible assets, the collective importance the company attaches to both ‘levels’ is essential as is how both levels are managed (executed) simultaneously. There is certainly no shortage of information available to management teams about all facets of intangible assets. 

Michael D. Moberly   July 2, 2009

The challenges associated with getting management teams to be more receptive to intangible assets through training often begins with two phrases, (1.) ’knowledge-based economy’ which some interpret as being more cliche’ than reality, and (2.) ’65+% of company value and sources of revenue lie in intangible assets’, while factually true, is often assumed to be relevant only to the Fortune 500’s, not SME’s and SMM’s.

Management teams are pragmatists for the most part, who remain appropriately focused on costs and return-on-investment and will likely continue to be dismissive of and/or reluctant to seek training to improve their company’s utilization of intangible assets until the following are aligned:

1. incentives, i.e., sufficient, low risk financial inducements reflective of their particular company, its sector, market, and size…

2. regulatory agency mandates that are consistently enforced, i.e., every company and/or sector competitor is doing it…

3. availability of quality training that will produce economic clarity and sufficient familiarity on the utilization of intangibles to inspire (permit) management teams to independantly conduct their own assessments, i.e., identify, unravel, and develop viable and effective strategies to leverage and exploit (maximize and extract value from) their intangible assets…

It’s well recognized that fulfilling #1 and #2 above requires consensus among the relevant regulatory bodies, as well as adminstrative/legislative action, much of which is already ’on the books’.  But, intangible asset awareness training for management teams, i.e., #3 is quite independant from #1 and #2 and should not be interpreted as requisites, nor rationales for holding back and not seeking such training. 

An adverse outcome of the status quo however, i.e., low interest in engaging intangible assets, is that significant and unrealized (asset) value will likely be ’left on every negotiating table’ when intangibles are in play as key components to a transaction.  Another adverse outcome is that those assets ‘left on the negotiating table’ will be readily available for competitors and adversaries to capture, frame to their interests, and exploit for their profit and gain.

In defense of those management teams that are reluctant to engage intangible assets, some may not have the means, internal support-inclination to secure training to turn idle assets into value, revenue, and further enhancing a company’s image, goodwill, reputation, and brand.

 Insofar as fiduciary responsibilities are concerned, forward looking management teams are now obliged to secure intangible asset awareness training on behalf of their boards, stakeholders, and investors.  This training is not merely designed to achieve familiarity, but also the necessary practical confidence to enable effective stewardship, oversight, management, and monitoring of the assets to maximize and extract as much value as possible.  Awareness training is indeed a worthy endeavor for management teams that will produce/deliver many returns and multipliers!