Most companies, through their management teams, boards, and employees create/produce a lot of assets, less so of the ‘brick and mortar’ type and more so of the intangible type.  The latter being largely knowledge-based assets held between our ears, stored on our CD’s, issued to our company as patents (intellectual  property) or merely a conglomeration of experiences and specialized know how that’s coupled with knowing how to use it effectively and efficiently. 

In operating a successful business, as in conducting a successful scientific project, we seek the comfort zone of facts, numbers, and ratios, in other words the qualitative and quantitative.  In these circumstances, our comfort zone is often easily attainable because the factors - variables we use-rely upon for our decisions and/or findings are often concrete, wherein a high number means one thing and a low number means something different.

But sometimes, that comfort zone of hard numbers, may be obscure and more ‘fuzzy’ than we like or are used to.  In those instances today, management teams, boards, and employees alike, are challenged to push our conventional understanding beyond ‘tangible assets’ to ‘intangible assets’ and the relationship and contributory value the latter delivers to our companies and organizations.

So, welcome to the specialized 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 future wealth creation.

But, despite the rising importance of intangible assets and the contributions they consistently deliver to company’s, in all industry sectors, they unfortunately remain, for some management teams and boards, difficult to define, challenging to recognize and differentiate, and seemingly impossible to measure. 

Perhaps most frustrating. to those of us who consider ourselves intangible asset advocates, is the rather unhelpful languate used to define intangibles, e.g., they

- are the non-physical things of value that a company owns.

- have no set monetary value and no physical measurement.

- lack physical existance/presence, they can’t be seen or touched.

Nonetheless, advocates say, the development and effective use of intangible assets are essential to most company’s near term and long term success, i.e, viability, sustainability.  To those unfamiliar with intangibles however, or those already suspect or dismissive of the assets’ contributory role, definitions like those above, standing alone, contribute little to bringing clarity and contributing to the much needed ’ah ah’ moments of, I get it!

I have encountered countless situations in which management teams, boards, investors, and employees alike, literally struggle, to make sense of these seemingly ‘invisible’ assets that are seldom, if ever, reported on company balance sheets, even though a rapidly rising number of businesses today literally have very few tangible (physical) assets remaining.  Instead, intangible assets have become their overwhelmingly dominant source - driver of value, revenue, and future wealth creation.

There’s little question that intangibles can be a source of frustration and for some companies, and, not just the so-called ‘knowledge intensive’ ones, intangible assets present real challenges to management teams and boards with respect to, for example, allocating resources to further the development of assets, which, according to the definitions, lack physicality and are difficult to measure both their performance and value?

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

The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies - http://kpstrat.com.  The intent of Mr. Moberly’s blog is to provide insights and perspective to aid a cross-section of practitioners in identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets.  Your comments regarding my blog posts are welcome at m.moberly@kpstrat.com. 

While visiting my blog, you are encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics relevant to your company or circumstance,  I would welcome your inquiry about consulting, conducting an assessment, training program, or speaking engagement to your company or professional association at 314-440-3593.

If you’re like me, you want to know ‘back stories’ or, what prompts and/or influences certain phenomena to take shape (occur).  In the case of intangible assets, one of the first, and perhaps most influential early studies on intangibles that I read was Brookings ‘Understanding Intangible Sources of Value’.  But, for all the forward looking insights gleaned from the Brookings study itself and the product of its various working groups, it wasn’t intended necessarily to provide readers with the ‘underliers’ of why intangibles evolved so rapidly at the outset of the twenty-first century.

Or, as Baruch Lev stated it so well, ‘if intangibles are so risky, their benefits so difficult to measure and secure, and their liquidity (tradability) so low, how did they become the most valuable assets most companies possess?

The answer, Lev suggests, lies in two international economic developments, i.e., (1.) the increasing intensity of business competition, and (2.) the commodization of physical assets.

The first international economic development that influenced the ascendance of intangible assets was, according to Lev, the de-regulation of particular economic sectors, i.e., transportation, financial services, and telecommunications, etc.  In other words, as these, and other sectors de-regulated (went global), it served to intensify the overall competitive (global business transaction) environment.  As competitiveness intensified, a demand for continual/perpetual innovation evolved, i.e., the development and introduction of new products, services, and cost efficiencies.  Thus, continual/perpetual innovation quickly came to be a requisite to not merely competitiveness, but, successful business operations and sustainability.  As the global competitive pressures intensified further, companies already in the mix, or those that aspired to do so, responded by engaging in more innovation, fueled, in large part by greater awareness, appreciation, and investment in intangible assets.

The second international economic development that influenced the ascendance of intangible assets was, again, according to Lev, the commmodization of physical assets.  Translated, this means that competitors globally, had access, essentially on an equal footing, to those physical assets that were now so necessary for becoming global in scope.  For example, the ‘physical assets’ of FedEx, DHL, and UPS became globally operational, almost simultaneously.  Companies worldwide would now have access to, what I often call ‘instaneous supply - distribution chains for their goods and products’.  Therefore, a truly global and more responsive (timely) marketplace could evolve, and did so quite rapidly.

But, as competitors globally gained (equal) access to those physical (transportation, financial services, and telecommunication) assets, it meant that those assets, now engaged in intense competition, would not, standing alone, generate extraordinarily high profits and create sustained values.  Rather, profits and elevated shareholder value would come to be created through the prudent use (development, acquisition of) intangible assets unique to, for example, each air cargo carrier.  Each carrier then developed their own distinctive bundles, combinations, and/or synergies of intangible assets that better enabled them to withstand and respond more aggressively to the competition.

Obviously today, all three air cargo carriers remain intact and compete against one another.  But, the intangibles each company developed, out of necessity (competitive pressures) influenced the contributory value of intangibles and their ascendancy to representing 65+% of most company’s value, sources of revenue, and ‘building blocks’ for future wealth creation.

(Adapted by Michael D. Moberly from the work of Dr. Baruch Lev, ‘Encyclopedia of Social Measurement’ Volume 2, Elsevier, 2005.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

As the respected consultant and researcher Karl-Erik Sveiby once noted, ‘my argument about the value of information is not that it is wrong to regard information as being valuable, rather, it’s that we should reconsider our mindsets about its value’.

Of course, from my perspective, having been engaged in safeguarding information-based intangible assets for a significant portion of my professional career, I still sense the prevailing, all be it, naive ’talk is cheap’ mindset is perhaps the single greatest challenge that companies and/or holders of proprietary information face. 

There’s little question, people (employees) enjoy - variously receive some pleasure talking to others about their work.  And today, there is such an array of platforms, in addition to verbal, that provide people with opportunities to convey, often times in very specific detail, their work related projects, activities, travels, etc.  Of course, most companies with a modicum of understanding (appreciation) for their vulnerability to the leakage of proprietary and/or sensitive information, now endeavor to restrict information through social media platforms available.

A significant percentage of companies elect to address the proprietary nature of information via non-disclosure and/or confidentiality (employee) agreements.  Typically, NDA’s are filled with a lot of do’s and don’ts but little contractual language is devoted to explaining to inquisitive twenty-something employees ‘why’ certain information should remain proprietary.  I’m not talking, of course, about information and/or data that is mandated to be kept free from breaches via HIPPA or other regulatory mandates.

In most instances, the answer to the ’why’ question lies in the fact - business reality that the (protected) information contributes to delivering value, revenue streams, and competitive advantages to a company so long as it does not enter the public domain.

While I’m confident they exist, I have yet to see NDA’s and/or confidentiality agreements that address the ‘why’ in this manner, in other words, acknowledge that the information to be kept proprietary and/or secret produces value to the company, and if it were to become something other than proprietary or secret, there is a reasonable probability the associated competitive advantages, value, and/or revenue streams would be lost, undermined, or erode fairly rapidly.

The ‘information security-protection’ literature is replete with the views and experiences of countless practitioners, along with various ‘insider’ theft of proprietary information studies. etc.  Thus, I suspect I am hardly the first to raise - frame the issue in this manner.   

I suspect, in this social media era, assuming a twenty-something employee fully appreciates the connection between signing an NDA during their employee orientation process and the (real and contributory) value of that information, which in most instances, they have yet to see, let alone access, is a fairly weak assumption.  

I remain skeptical therefore, that employees who seemingly find it both acceptable and desirous to post sometimes intimate and daily details about their life, and the life of ‘friends’ on their social media platforms will become information asset protection (security) zealots overnight.

Let’s be clear, this post is not about trying to pigeonhole all twenty-something employees as being naive and potential information leakers.  Rather, I’m merely saying that it would be prudent, and ultimately more effective, to devote an appropriate amount of time discussing ‘the value of information’ as an component of employee on-boarding processes.  

Ester Dyson, a reknown information technology consultant, once said on a related matter, that ‘the trick (to information asset protection) may not lie in trying to control the number of copies, or even the ability to copy for that matter, rather it may have more to do with influencing a relationship with originators and users of information’.  For the 90+% of new and existing employees, whom studies assure us will never become an ‘information leaker’, I agree!

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

For management teams, boards, entreprenuers, and others operating in knowledge intensive (IP, intangible asset, intellectual capital) sectors, it’s not particularly noteworthy to point out there are significant differences between the accounting and intellectual property - intangible asset communities. 

Those differences are largely conceptual.  They evolve around accounting language and systems that tend to focus on production factors and very tangible assets.  The rigidity of accounting systems and language, and the growing universality of accounting standards does not allow - leave much room for reflection on (creative, alternative) business strategies that are lead - influenced by intangible assets and/or intellectual property.

Accounting is largely a mathematical language that allows companies to communicate about their respective business performance in a manner that is essentially free from cultural connotations, i.e., global universality of accounting standards.  Accounting language follows a code of officially sanctioned standards that are recognized by both the state as well as the international (accounting) community.  Without such language, admittedly, business perceptions and understandings could not be maintained.

Accounting language and systems are governed by U.S. (GAAP) and international (IFRS) standards wherein factors of production and performance are dominant and subsequently under-play, if not utterly ignore, the construction (evolution) and value of internally developed proprietary knowledge, i.e., IP and other intangibles that routinely contribute to the formulation and execution of business strategies.

Respectfully, today’s accounting language and systems do not do much either for communicating-advancing the economic fact that we’re literally in the midst of a knowledge, some say, intangible asset- based economy in which increasing percentages of company value, sources of revenue, sustainability, and foundations for future wealth creation lie in - directly evolve from intangible assets and IP. 

Rather, current accounting language and systems, quite literally, frame the context in which most  businesses function and also set the parameters for how and under what circumstances IP and intangibles can actually be applied.

How IP and intangibles are treated (by accountants) depends primarily on whether the assets were developed internally or acquired externally.  For example, internally generated/developed IP is immediately expensed and appears as a loss, rather than as revenue.  Thus internal R&D initiatives and investments in intellectual property-intangible assets constitute (are characterized as) costs to a company rather than drivers of value, revenue, and future wealth creation, etc.  This practice (accounting standard) makes it all-the-more challenging to trace (unravel) how such assets as IP-based R&D, design, and brand innovation, etc., are generated.

Thus, current accounting language and systems, essentially force businesses to speak about (address their) business performance in a standardized and ritualized manner with virtually no opportunity for inserting creative (alternative) language or expressions.

And, therein lies the basis for many of the current challenges between accountants and advocates of full and creative utilization of intangibles and IP; the inability to respectfully find common ground to converge both language and systems to improve opportunities for consistently putting those assets in play, along with monetization and commercialization.

(This post was adapted by Mr. Moberly from the work of Professor Roya Ghafele and her article titled ‘Accounting for IP?’ recently published in the Journal of Intellectual Property Law and Practice.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

This is the second of a two-part post to provide readers with insights into ’the 2008 Berkeley Patent Survey’ with respect to how software start-up firms (a.) perceive, (b.) use and (c.) are affected by patents. 

And, again, please trust me on this, if you are an entrepreneur, part of a tech company management team, board member, or part of the technology investment community, this post should be on your ’must read’ list.

The surveys principle investigators obviously wanted to know more about why some tech entrepreneurs choose to forgo patenting?  To obtain the necessary insight, they posed two sets of questions framed as follows; (1.) for the last innovation for which the (your) firm chose not to seek a patent, what factors influenced this decision?, and (2.) what was the most important factor in that decision?

The costs (expense) associated with actually obtaining and enforcing patents (their intellectual property rights) were cited as being both the first and second most frequent explanation (response).  While the ease of inventing around the innovation and satisfaction with trade secrecy were also cited as influencing factors for software start-up firms not to seek patents, seldom were they considered the most important factor.

Interestingly, 40+% of the software executive respondents cited the unpatentability of the invention as a factor in their decision to forgo patenting, with 25% (+/-) rating unpatentability as being the most important factor. 

However, the investigator’s remarked that it is difficult to know precisely how to interpret the ‘unpatentability finding’.  One possible explanation they said, may be that the software entrepreneur respondents believed that patent standards of novelty and non-obviousness, etc., are so rigorous which lead them to feel their innovation would not likely satisfy patent requirements.  Another possible, perhaps more esoteric, explanation offered by the investigators to this question is that a significant number of the entrepreneurs hold philosophical and/or practical objections to patents in their field, i.e., software.

Another important and very relevant question presented in the survey was how important are patents to achieving competitive advantages.  Interestingly, respondents ranked patents (literally) dead last among seven strategies for achieving competitive advantage.

It’s important for readers to recognize that the relative unimportance of patents for competitive advantage given by survey respondents in the software field contrasts sharply with the perceived importance of patents in the biotech industry, where patents are ranked as the most important means of achieving competitive advantage.

Instead, software start-ups regard ‘first-mover’ advantage as the single most important strategy for achieving competitive advantage, followed by ’complementary assets’ , e.g., providing services for licensed software or offering a proprietary complement to an open source program, etc, in other words, intangible assets.  Interestingly, these two strategies for achieving competitive advantage (i.e., first mover and complimentary assets) outweigh actual intellectual property rights. 

Among intellectual property rights though, the survey findings revealed copyrights and trademarks, followed closely by (trade) secrecy and difficulty in reverse engineering as outranking patents as an important strategy for achieving competitive advantage.

So, what incentive effects do patents have for tech entrepreneurs?  With respect to the four types of innovation, (1.) inventing new products, processes, or services, (2.) conducting initial R&D, (3.) creating internal tools or processes, and (4.) undertaking the risks and costs of commercializing innovation, the survey investigators applied a scale, where 0 = no incentive, 1 = weak incentive, 2 = moderate incentive, and 3 = strong incentive.

Somewhat surprisingly, the respondents reported that patents provide weak incentives for engaging in core activities, such as invention of new products and commercialization.  On the other hand, biotech and medical device firms reported that patents provided moderate incentives.

So, here’s the paradox.  If patents provide only a weak incentive for investing in innovation among software start-ups, why are two-thirds of the VX firms (largely VC-backed) and at least one-quarter of the D&B firms seeking patents?

The answer to this paradox, according to the survey investigator’s, may actually lie in the perception held among software entrepreneurs.  That perception is that patents may be perceived as important to potential - prospective funders, such as venture capitalists, angel investors, commercial banks, and friends and family. 

The investigator’s base this answer on the (survey) finding that sixty percent of software start-up respondents, who had actually negotiated with venture capitalist’s, reported that that they perceived patents to be an important factor in the VC’s invest - don’t invest decision.  Between 40% and 50% of the software respondents also reported that patents were perceived to be important to other types of investors, such as angels, investment banks, and other companies.

So, what’s the larger message from this surveys findings?  In my view, it’s that tech entrepreneurs ought not assume patents are the only, or necessarily the best strategy (option) for achieving success and competitive advantage.  Each form of intellectual property, i.e., patent, trademark, copyright, and trade secrecy carry upsides and downsides.  And, perhaps equally important, tech entrepreneurs ought not overlook or dismiss the complimentary (intangible) assets that routinely accompany and/or evolve from innovation to become valuable and competitive advantage driving assets!

(This post was adapted by Mr. Moberly from the work of Professor Pamela Samuelson’s article in ‘O’Reilly Radar’ and the recently published article, “High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey.” )

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

This post is about ’the 2008 Berkeley Patent Survey’ and how software start-up firms perceive, use and are affected by patents.  Trust me, if you are an entrepreneur, part of a management team, board member, or investor, this post is worth your time to review and reflect upon.

Respondents to the 2008 Berkeley Patent Survey consisted of 1,300 high technology entrepreneurs in the software, biotechnology, medical devices, and computer hardware fields. Each of the respondent firms had been started prior to 1998 with the respondent sample coming from software firms registered with Dun & Bradstreet (500+) and from the VentureXpert (less than 200).  Eighty percent of the respondents reported their position to be either CEO or CTO of their respective firm with most reporting experience in previous start-ups.

The survey reports that two-thirds of the software entrepreneur respondents have not, nor are they seeking patents for properties embedded in their innovation, i.e., products and/or services.

Interestingly, the respondents collectively rated patents as being the least important mechanism, among seven options, for achieving a competitive advantage in their particular market space.  Even software start-ups that already hold patents, the survey reported, regard them as providing only a slight incentive to prospective investor’s invest - don’t invest decision.

To be sure, there is nothing in the survey findings to suggest ‘a software patent abolitionist’ movement is afoot, e.g., a third of the software entrepreneurs (respondents) reported they already have or are seeking patents and perceive patents to be important to prospective investors, i.e., firms from whom they hope to obtain financing.

So why was this survey conducted?  According to the principal investigators, they were curious to know the extent to which high tech start-ups were utilizing the patent system and to learn their reasons for seeking a patent, or not.

Of course, as the investigators stated, the basic economic principle underlying the patent system is that technology innovations are often expensive, time-consuming, and risky to develop.  But, once developed, the innovations themselves often become relatively inexpensive to produce but easy to copy. 

But, absent intellectual property rights (IPRs), technology firms may have insufficient incentives to invest in innovation relative to recouping their R&D costs that would justify additional investments in innovation due in part to the illegal and inexpensive copies that can be readily produced - available to undermine a company’s investment recoupment strategy and most competitive advantages.

One conjecture of the investigators was that early-stage technology firms may be more sensitive to intellectual property rights than their more mature brethren.  This conjecture was based on the view that early-stage tech firms tend to lack complementary assets, i.e., marketing channels, access to credit, etc., in other words, intangible assets, that mature firms are more likely to have developed and are available to exploit.

With respect to the question ‘why start-ups decide to patent’, the survey respondents revealed the following as being ’moderately important’, i.e., to

1. prevent competitors from copying the innovation
2. enhance the firms’ reputation
3. secure investment and improve the likelihood of an IPO

The survey revealed differenences in the rate of patenting among the VX and the D&B software companies. Three-quarters of the D&B firms had no patents and were not seeking them.  In contrast, over two-thirds of the VX software start-up firm respondents, all of which were venture-backed, had or were seeking patents.  The investigators were not able to assess precisely why VC-backed firms were more likely to seek patents than the D&B firms.  Speculation was that VC’s urge the firms they fund to seek patents; or perhaps VC’s choose to fund the development of software technologies that they believe are more amenable to patenting.

(This post was adapted by Mr. Moberly from the work of Professor Pamela Samuelson’s article in ‘O’Reilly Radar’ and the recently published article, “High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey.” )

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

There’s still room to debate just what really constitutes the world’s oldest profession.  From where I sit, albeit a biased position of advocacy ’bloggerism’, it’s certainly not prostitution as many like to euphemistically suggest.  And, of course, when I use the word ‘poaching’ as I have in the title of this post, I’m not referring to poaching in the medieval European context, wherein a ‘poacher’ was one who intentionally, and with stealth, trespassed on anothers property to hunt and kill game.

In 2010, the word poaching comes to mind, but of a slightly different nature.  It’s about poaching of (for) intangible assets during the course of a business transaction, or sometimes more accurately, a faux business (transaction) interest in which one party is trying to get something (information) for nothing, that is, insights, perspective, experienced know how, etc., for perhaps only a Venti of Pike at Starbucks.  

The primary target of ’business information poaching’ today takes the form of acquiring someone elses intellectual (structural or relationship) capital, ala intangible assets and applying them for their own benefit.

So, what should prompt business management teams and boards to be leery of information poachers?  The answer lies in the economic fact that 65+% of most company’s value and sources of revenue today stem from knowledge-based intangible assets.  In most business transactions today, intangible assets and the intellectual (structural, relationship) capital embodied/embedded in those assets will not only be in play, i.e., an integral part of the transaction and will likely be shared and/or transferred under the parameters of the transaction’s contract.  But some, will surely morph into one or the other parties business operational coffers outside the boundaries of that contract.

As every business person knows, some all too well, there is risk in any transactional relationship, in part, precisely because proprietary and/or competitive advantage information (intangible assets) will be transferred and shared between parties for purposes specified in the contract.  The risk materializes though, in many instances, when that information is used by one party for purposes outside or beyond the terms of the contractual relationship.  In other words, the information will be used by the receiving party (poacher) to benefit them economically to the detriment of the other party. 

Some will surely dismiss or relegate this perspective of ‘information poaching’ as constituting just another inevitable cost of doing business, i.e., a new (additional) transaction cost of conducting business in an increasingly knowledge-based…information-driven economy wherein increasing percentages of transaction value and projected sources of revenue evolve directly from information/competitive advantage laden intangible assets.  

I’m reminded though of the computer manufacturer whose vice-president of operations announced, upon building multiple manufacturing sites in another country, that an estimated 25+% of the company’s intellectual property would be irrevocably lost (infringed, misappropriated) during the relatively brief life cycle of these newly established manufacturing sites.

Under these types of circumstances, referring to this phenomena (business information poaching) as merely constituting a transaction cost endemic to the knowledge-based economy is, at best, an understatement!

The consequences (criticality) attendant to business information poaching risks can obviously be significant and long lasting, if not terminal, for company’s today, particularly relative to supplier relations and contractual governance.   Insofar as remedies are concerned, the option of a business becoming isolationistic, i.e., not share or transfer business information under most any circumstance, is obviously neither feasible nor practical, that is, if a business wants to remain a going concern and be successful and profitable.  

However, if management teams and boards exercise prudence upfront, during the contract negotiation period, relative to what information will - will not be shared, transferred, etc., with transaction partners is as important as is the management and oversight of contractual business (transaction) relationships.  The goal of course, is, a the end of the day, control, use, ownership, value, and materiality of information-based (intangible) assets before, during, and after a transaction has concluded, remains intact.  

(This post was inspired by the work of Clemons and Hitt in their paper titled ‘Poaching and the Misappropriation of Information: Transaction Risks of Information Exchange.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Broadly speaking, organizational resilience encompasses a management systems approach that simultaneously focuses on prevention, protection, preparedness, response, mitigation, continuity, and recovery from disruptive incidents.  And, for the skeptics, organizational resilience is not merely a warmed over version of (conventional-traditional) business continuity and contingency planning.

An organizations’ ability to quickly, efficiently, and effectively adapt to change and uncertainty (risk) that are so pervasive in today’s globally competitive business (transaction) environment, is certainly being ratcheted up on management team and board agendas as a necessary and priority action item.  In organizational resilience parlance, changes in policy, market forces, environmental factors, and the vulnerability, probability, and criticality associated with materialized risks, i.e., natural, intentional, or unintentional, etc., all fall under the (business case) rationale why today’s companies require a level of resilience that fits their respective market, industry sector, and business transaction environment.  Recovery oriented (adaptive, proactive) company resilience strategies can no longer be dismissed or relegated to merely being ’after thoughts’.

The first step toward achieving organizational resilience puts the onus on management teams and boards to literally identify (recognize) the unique elements and features that are embedded and sometimes very much under their company’s radar.  In other words, what makes their company successful.  I offer this in the context that I have yet to engage a management team or board that does not hold the view that every business/company, including theirs, possesses nuanced and otherwise unique features that contribute to its success and sustainability.

Why is this necessary?, it’s because the components (elements, features, processes, practices, etc.) that define a company’s uniqueness are essentially the foundation for identifying a ‘resiliency strategy’.  A resilience strategy commences with identifying/determining ways which a management team and board can measurably improve the degree to which a company, in the context of its respective business environment, is adaptive and able to quickly recover from significant disruptions, materialized risks, and/or significant changes in the business (value-supply chain) environment.

Executable strategies that improve a company’s level of adaptability and timely recovery from disruptive events include ensuring certain (executable) processes are in place that impose (carry) specific demands and functions, as a well informed management team and board dictate so the company can remain viable for the duration of the adverse - disruptive event.

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

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Figuratively speaking, but quite realistically, the ‘birth certificate’ of every patent should state that its origin exist in the form of a (trade) secret.  If that (patent) ‘birth certificate’ does not convey a clear and unequivocal portrait of asset (idea, innovation) secrecy, the inventor and/or entrepreneur can likely anticipate incurring significant, if not irreversible and costly bumps and challenges along the long and tedious road aiming toward the issuance of a patent.

It’s essential then, perhaps more so today that anytime before, that inventors and entrepreneurs fully recognize that the basis/foundation of what they’re seeking to patent, is frequently comprised of numerous ’pieces’ of human, structural, and relationship capital, ala intellectual capital, ala intangible assets! 

Credibility to the above message lies in the increasingly knowledge-based global economies, wherein 65+% of most companies value sources of revenue, and future wealth creation today are directly related to intangible assets, (that percentage is significantly higher for early stage, start-ups, and entreprenerial based companies).  

Thus, the view, which I advocate, is that all patents must literally start life as a (trade) secret and should be taken quite seriously, particularly in today’s increasingly aggressive, globally predatorial, and ‘winner-take-all’ business transaction environments in which the only real way ideas and innovation can be effectively protected, is by keeping the information secret and that secrecy begins at its point of conception. 

Management teams, boards, and certainly inventors and entrepreneurs must recognize that any type - form of disclosure, inadvertent or otherwise, in which key information is treated in other than a secret context, preferably in accordance with the six requisites of trade secrecy, can reduce and/or significantly impair the assets’ projected value, if not negate its trade secret status altogether and possibly adversely affect its patentability. 

Some additional key points to consider relative to trade secrecy are:

1. Trade secret protection extends only to confidential relationships and does not prevent independant development by a competitor, i.e., the ease and/or difficulty a competitor will likely encounter to ’reverse engineer’ (the secret) is a consideration in both achieving and sustaining trade secrecy status.

   a. If the protected information is not readily ascertainable and cannot be easily reverse engineered, then an ‘invention’ can generally be protected by trade secrecy, so long as, again, economic-competitive advantage is derived from (sustaining) the secrecy of the information.

2. Trade secrets, unlike patents, can be licensed forever and the trade secret licensee can be obligated to pay royalties for the (trade secret) license even if the information enters the public domain.

3. There are no subject matter constraints imposed on trade secret protection so long as the information provides an economic - competitive advantage derive (rooted) in its continued secrecy, in other words, both technical and non-technical information can constitute a trade secret.

   a. Trade secret protection in the U.S. can extend to most any information that can be (1.) used in the operation of a business, (2.) has sufficient value, (3.) can afford a company actual or potential economic (competitive) advantage over others, and (4.) providing it remains secret.

   b. Also, (1.) negative know how, i.e., what doesn’t work is protectable as a trade secret, and (2.) novelty, usefulness, and non-obviousness are not applicable to trade secret protection as they are in seeking patent protection.

Lastly, it important for inventors, management teams, and boards to recognize that if patent issuance - protection is uncertain, but a decision is made to pursue it anyway, once a patent application is published, trade secrecy rights (options) are lost. 

(This post was inspired by the work of R. Mark Halligan in an article published in the July/August 2010 issue of ABA’s Landslide, titled ‘Trade Secrets v. Patents: The New Calculus’.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Organizational resilience should not be conceived or characterized as simply an ‘insurance’ measure that provides a company with ’coverage’ if or when adverse events occur or risks actually materialize.  Rather, management teams and boards would be prudent, in today’s risk laden global business environment, to frame - adjust their organizational resilience plan so that it serves as a strategic path for moving a company, operationally speaking, from a defensive and reactive posture to having a succession - series of highly proactive responses/actions to address risks and adverse events, one aspect of which is focused on improving (exploiting) or at least sustaining, a company’s competitive position during the duress event.

Organizational resilience today, and certainly for the foreseeable future, is much more than mere defensive steps to protect a company, rather OR must also include proactive measures for actually improving a company’s competitive position throughout the duress event.  This, of course, requires company management teams and boards to recognize that materialized risks or adverse events may, for resilient companies, present valuable and exploitable competitive advantage opportunities, presuming other industry sector companies and/or competitors are experiencing similar risk events simultaneously.

So, what are the ‘building blocks’ to organizational resilience?  Goble, Fields, and Cocchiara of IBM’s ‘improving business resilience through a resilient infrastructure’ unit point to:

1. Recovery -elevates awareness to the onset of particular risks and/or adverse events which in turn enables a company to return to an acceptable state of operational normalcy and performance in an acceptable time period.

2. Hardening -is the use of strategies to make a company’s key infrastructure harder, i.e., more challenging, more difficult, and ultimately, less susceptible to certain risks and adverse events.  Hardening increases the efforts (resources, time, etc.) that adversaries must expend to actually execute a particular (man made) risk, threat, or adverse event by literally denying or, at minimum, limiting access to the infrastructure itself.  Companies should be mindful that excessive (extreme) use of infrastructure hardening tactics, can create a ‘fortress mentality’ (imagery) whereby partners, stakeholders, and valuable contributors to the company’s value-supply chain may find offensive and withdraw.

3. Redundancy - ensuring the company infrastructure has a sufficient number of ’redundancies’ (i.e., back-ups, duplications) designed/built into it relative to meeting its mission critical priorities.

4. Accessibility - the ability of a company as a whole, i.e., its employees and value-supply chain partners and stakeholders to retain the ability to access (from anywhere) the relevant and necessary (company) infrastructure, including communication systems.

5. Diversification - the goal is straightforward; create an infrastructure that can be fully operational while being physically distributed and is still capable of being effectively managed during periods of duress.  The premise of operational diversity is straightforward, don’t allow all of a company’s eggs to remain in a single basket.

6. Information Technology Autonomics - self-managing and self-regulating IT systems and infrastructure that is not vulnerable to succumbing to anticipated-projected risks and adverse events. 

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.