Archive for May, 2009
May 26th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly May 26, 2009
We’re well into the 21st century and the role intangible assets’ are playing as value and growth facilitators in companies is widely acknowledged, but, primarily, only at the 5,000 foot level.
At that 5,000 foot level, the economic fact – business reality that as much as 65+% of most company’s value, sources of revenue, sustainability, and platforms for future wealth creation are not in dispute, nor is the fact that overall company value has literally shifted from tangible (physical) assets to intangible assets.
The questions are however, why aren’t:
- these realities resonating – manifesting themselves with a broader sense of urgency at the owner-manager level amongst U.S. businesses, particularly SME’s (small, medium size enterprises) and SMM’s (small, medium multinationals)?
- businesses seeking training to better familiarize themselves with intangibles so they may engage in strategies to maximize and extract as much value as possible from those very likely already produced (possessed) but seldom acted on intangible assets?
Cutting to the chase, I and other voices advocating greater recognition and utilization of intangible assets, routinely meet with astute, intelligent, and extraordinarily talented and successful business leaders who routinely articulate – apply the most sophisticated, state-of-the-art managerial techniques to meet their business operational needs and secure competitive advantages, but, mention the words intangibles or intangible assets and eyes often glaze over!
What’s puzzling is, why aren’t these decision makers acting on these ‘in your face’ assets and why are they being overlooked, neglected, or, in some instances, literally dismissed as sources of value, revenue, and competitive advantage?
In part, the lack of enthusiasm for intangible assets, among some decision makers, can be attributed to:
1. accountants who may not fully grasp the contributory (balance sheet) significance of intangibles, therefore are reticent to introduce or explain the relevance and applications of intangibles to their clients…
2. faux strategic planning in companies that inhibit or exclude discussion (planning) about utilizing intangibles as potential revenue and competitive advantage facilitators…
3. mis-characterizing intangible assets and intellectual properties, i.e., patents, trademarks, copyrights, etc., as one-in-the-same which allows some decision makers to question the relevance (ROI) of acting on their intangibles separately…
4. self-deprecating assumptions that their company does not possess intangible assets with sustainable value…
5. the absence of physicality of intangible assets…
Taking affirmative steps to maximize and extract as much value as possible from a company’s intangible assets is not rocket science, it’s just a good and prudent business practice for 2009!
May 21st, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Due Diligence and Risk Assessments, Fiduciary Responsibility. No Comments.
Michael D. Moberly May 21, 2009
The asymmetric risks associated with investments in early stage company’s, particularly those with intensive portfolios of intangible assets and intellectual property, have literally moved from being ‘just one more risk of doing business’ to inevitabilities when left unrecognized and unchecked which can execute to (a.) stifle a transaction’s momentum, (b.) undermine investors’ exit strategies, (c.) erode projected returns, and (d.) significantly devalue the invested assets.
When making ‘invest – don’t invest’ decisions, its essential today for VC’s and other investors to arm themselves with all of the risk mitigation weaponry available which begins by recognizing that 65+% of most investments’ value, potential revenue sources, sustainability, and platforms for future wealth creation lie, almost exclusively, with valuable intangible assets and intellectual property that may already may be in production/commercialization.
Due diligence must be comprehensive then, insofar as laying the necessary (additional) foundation to (a.) practice effective stewardship, oversight, and management of those invested assets, and (b.) have in place, best practices to sustain control, use, ownership, and value of those assets throughout their respective function – value cycles relative to the investors’ exit strategy plan.
A comprehensive due diligence engagement today must also provide investment principals with much more than mere ‘snap shots in time’ assessments or cursory audits of filings. While those elements are important and necessary to an investment, due diligence in early stage companies must also provide the principals with an objective and forward looking portrayal of the risks to key, revenue bearing assets at the center of the deal, again, the intangibles and IP.
This level of due diligence encompasses applying a business impact analysis approach to the invested assets and environment as a whole, with the objective to:
1. Identify, unravel, and assess the status, fragility, stability, and sustainability of the key assets…
2. Identify under-the-radar vulnerabilities known to be preludes to costly and time consuming (legal) disputes and challenges that can, and may already have entangled – ensnared key assets with absolutely no guarantee of an outcome.
3. Examine the intellectual – human capital underlying the investment by unraveling and ensuring the integrity of the origins of the idea and/or concept on which the investment is premised.
4. Examine the internal/external research and work environments in which the invested assets are being developed relative to identifying any loss, shrinkage, and sustainability issues that may be evolving.
5. Determine whether appropriate (adequate) measures-practices were in place prior to the invest decision, designed specifically to protect, preserve, and monitor the assets’ value beyond mere reliance on conventional intellectual property enforcements.
6. Leverage (newly) identified risks and vulnerabilities to the invested assets in (subsequent) deal - transaction negotiations.
May 19th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Fiduciary Responsibility, intangible assets, Mergers and Acquisitions. No Comments.
Michael D. Moberly May 19, 2009
Audits – assessments of company intangible assets, i.e., intellectual property, proprietary know how, competitive advantages, etc., should be considered on-going necessities and fiduciary responsibilities rather than ‘quadrenial’ expenses or exercises engaged only after problems are suspected or lawsuits filed. Why, because today, 65+% of most company’s value, sources of revenue, sustainability, and future wealth creation are embedded in intangible assets.
Today’s intangible asset audit and assessment must be much more than a mere confirmatory review of IP status using generic checklists or templates developed decades ago. Instead, today’s audit and assessment must provide business decision makers with:
1. an objective sense of the assets’ status, i.e., its fragility, stability, defensibiliity, sustainability, and value.
2. actionable and practical recommendations for (a.) maximizing, positioning, leveraging, and extracting value from the assets, and (b.) sustaining control, use, ownership, and value of those assets through effective stewardship, oversight, and management.
The primary responsibility of the entity conducting assessments/audits is to fully understand ‘how the company works’, i.e., how its knowledge-based assets (intangibles, IP, etc.) are produced, inter-connected, and utilized insofar as their contribution to revenue, value, competitive advantages, market position, etc.
This insight will enable and facilitate management teams to engage – conduct more secure and profitable transactions by (a.) sifting through and unraveling a company’s operational complexities and nuances that have a bearing on utilizing and sustaining control, use, ownership and value of relevant assets, and (b.) bring operational and economic clarity to a company’s intangible assets, intellectual properties, and other knowledge-based assets.
May 18th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly May 18, 2009
An essential outcome to any R&D project, business transation, and/or marketing program is to maximize as much value as possible from the assets in play, i.e., intangibles and IP. This requires specialized and forward looking practices, i.e., stewardship, overight, and management of those assets that focus on (1.) identifying, unraveling, positioning, and leveraging the assets, and (2.) sustaining control, use, ownership, and value of the assets.
All too frequently though, the contributions that intangibles and IP make to a company’s revenue, competitiveness, reputation, goodwill, market positioning, etc., are overlooked, undervalued and/or obscured by businesses’ traditional focus on tangible (physical) assets. In other words, intangible assets’ lack of physicality, i.e., they are embedded in routine operations, processes, or functions but fall under most conventional business radar that remains fixated on tangible-physical assets.
One key to achieving more profitable, sustainable, and challenge free transactions when intangibles are in play is that decision makers would be well advised (served) to treat their fiduciary responsibilities toward intangibles (IP and other knowledge-based assets) as ‘business decisions’ that are supported and facilitated, not lead by, legal processes.
Other keys for decision makers to consistently achieve more profitable, sustainable, and challenge free transactions include recognizing that:
- the time frames when the most value can be realized (leveraged, extracted) from intangibles and IP continues to be compressed relative to those assets’ life, function, and/or value cycles…
- for the forseeable future, infringement and misappropriation will continue to underlie the expanding, extraordinarily lucrative and global counterfeiting and product piracy industry…
- intellectual property (patents, copyrights, and trademarks) are no longer consistent indicators of an assets’ or company’s value because they’re readily disregarded and circumvented by a growing global cadre of ‘legacy free players’…
– intangibles and IP can advance a company (i.e., its revenue, value, sustainability, or be used as a platform for future wealth creation, etc.) only so long as their control, use, ownership, and value can be safeguarded.
May 15th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Due Diligence and Risk Assessments, intangible assets, Mergers and Acquisitions. No Comments.
Michael D. Moberly May 15, 2009
Intangible assets (intellectual property, proprietary know how, reputation, image, goodwill, etc.) can advance a company economically and competitively, in deals and transactions, only so long as their control, use, ownership, and value are consistently monitored and sustained!
It’s important to recognize, once again, that growing percentages (65+%) of most company’s value, sources of revenue, sustainability, and future wealth creation are attributed to – directly linked to intangible assets. The relevance and value assigned to those assets can fluctuate which requires methodologies for monitoring and assessing that value fully reflect the life and functionality cycles of the assets in play – part of a deal.
Similarly, a company’s portfolio of proprietary (sensitive) information and trade secrets evolve over time, in part due to various practices company’s employ for internal classification (re-classification) of information. While some information is considered sensitive and fall into trade secrecy status, those classifications will vary with some information becoming outdated, and may ultimately bear little or no relationship to the types of information a company ultimately must, and should be safeguarded. The effectiveness of information security and classification policies and procedures diminish rapidly if such fluctuations go un-recognized, un-monitored, or un-reported.
Some information can literally become obsolete because, among other things, it no longer possesses commerical or competitive value, while new information is constantly being produced (generated) and can rapidly escalate in value, but, again, if un-recognized as such, its vulnerability to compromise or inadvertently entering the public domain rise, and, once there, value will quickly go to zero! Therefore, recognizing that the production of information assets is a dymanic, not a static process, and is an important and necessary first step in ensuring business transactions, in which intangibles and IP are in play, are as successful as the parties’ intended and demand!
Today, most business transactions are extraordinarily competitive, predatorial, globally intertwined, and ‘winner-take-all’ oriented, for which there is no single, stand alone information protection platform that is adequate. Absent a thorough appreciation that the end game for most any transaction is to sustain control, use, ownership, and value of those (information-based) assets in both pre and post transaction contexts, then favorable transaction outcomes will surely be in jeopardy before the ink dries!
More succinctly, when engaging in any type of transaction in which (information-based assets) IP and intangibles are being bought, sold, transferred, or licensed, its essential to ensure that (a.) due diligence is as good on the front end (pre-transaction) as it is on the back end (post transaction), (b.) due diligence does not succumb to faux sense of urgency, i.e., an entire deal must be fully vetted in 48 hours, and (c.) conventional templates for conducting due diligence are challenged, that is, when 65+% of a transactions’ value lie in intangible assets and IP, presumably, the ability of the parties to sustain control, use, ownership, and value of those assets and conduct thorough on-site interviews and assessments become necessities with little or no room for negotiation!
May 14th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly May 14, 2009
This post is not advocating a ‘protectionist’ view nor is the author advocating government protectionist policies be enacted. The author is however, a strong proponent of Article I, Section 8 of the U.S. Constitution that states, quite clearly, ‘if one invents/innovates, they should reap the economic benefits’. That is, presuming of course, they (a.) have abided by the relevant laws and best practices insofar as protecting their intellectual property, and (b.) are monitoring and have the resources to aggressively pursue most any and all attempts to misappropriate, infringe, and otherwise steal the intellectual property.
Perhaps the most important reality to consider with respect to intellectual property is that not all cultures, countries, or individuals embrace or interpret the largely western view of intellectual property, notwithstanding that it is a requisite for WTO membership.
For example, in McAfee’s recently released study ‘Unsecured Economies: Protecting Vital Information’, the study’s respondents and experts agreed (not surprisingly) that if an enterprise (country, company, organization) can appropriate R&D at minimal cost compared to its competitor and then go on to produce a comparable product (albeit it a counterfeit) at a far lower cost, basic economics dictate that the (counterfeit manufacturing) company will win space in the marketplace.
Thus, the incentives to engage in industrial – economic espionage, i.e, appropriate others’ intellectual property, are high, particularly in developing markets (countries) where there are few, if any, well established brands and corresponding consumer (brand) loyalty.
While the realities conveyed above are long understood among the information asset protection community, there remain a significant number of companies who have yet, or are dismissive about developing an effective, on-going response to this global and extraordinarily costly reality. What’s more, many, if not a majority of companies, still do not have an integrated (enterprise-wide) approach to address the problem of IP and/or trade secret theft which minimally requires…
- the convergence the expertise of information asset protection, HR, IP counsel, IT security, risk management, marketing, and R&D…
- to ensure control, use, ownership, and value of the information assets, i.e., intellectual property, intangibles, trade secrets, competitive advantages, etc., are sustained for the duration of their value to a specific transaction…
Its essential today that there must be (a.) a continued dialogue among a company’s various professional disciplines, (b.) recognition and respect for each disciplines’ perception of the risks to company intellectual assets, and (c.) resources available to execute, and (d. the disciplined attitudes to reach consensus on what actions are necessary.
May 13th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Intangible Asset Value. No Comments.
Michael D. Moberly May 13, 2009
In any book written by Tom Friedman, readers are treated to insightful and thought provoking observations and perspectives. Friedman’s ‘The World Is Flat’ is certainly no exception and represents another confirmation that not only is the world flat, it’s literally getting ‘flatter’ every day through the convergence of:
1. restless, forward-looking/thinking investors and companies with strong entrepreneurial spirit who convey an unwillingness to stand by and wait for the past practices and traditions (of the ’round world’) to catch up to the nanosecond business realities and demands of today and next week…
2. technologies and capital that permit businesses to collaborate in real time and/or form virtual alliances to accommodate the growing universality of consumer needs and demands…
Friedman’s first hand ‘been there, done that’ approach to research, interspersed with interviews with current players and thought leaders make for responsible and useful prognostications about the flat world, e.g., globalization is going to be increasingly driven by two things:
a. individuals and companies that understand the ‘flat world’ and are willing and able to adapt quickly to its (new) technologies, processes, and ‘ways of conducting business’, and
b. new players (who) are stepping onto business playing fields ‘legacy free’.
Friedman’s notion of ‘legacy free players’ evolves from the reality that a significant percentage of the world’s inhabitants still remain unfamiliar (dismissive, direspectful, etc.) with the legal tenants of intellectual property rights. Nevertheless, the ‘flatter world’ moves forward rapidly, infused with massive amounts of FDI (foreign direct investment) which have collectively contributed to:
– creating knowledge-based economies in which intangible and IP have far outpaced tangible (physical) assets as the dominant source of most company’s value, sources of revenue, sustainability, and future wealth creation.
– elevating the receptivity of global business alliances, joint ventures, R&D outsourcing, transactions, and collaborations of all types that are largely being shaped and driven by a constant (nanosecond) stream of intellectual capital, know how, and data.
– relegating conventional IP enforcements to being reactive, largely symbolic, and perhaps bordering on obsolescence.
But, in the ‘flat world’ risks and challenges of sustaining control, use, ownership, and value of a company’s intangible assets and IP are constant and assymetric, that is, they vary, can change rapidly, and can ‘attack’ from all sides simultaneously.
In the ever ‘flattening world’, its essential for companies to develop (a.) relevant and instantaneous metrics for identifying assessing, measuring, and monitoring risks to their intangibles and IP, and (b.) business cultures’ that have elevated levels of awareness, alertness, and accountability for practicing effective stewardship, oversight, and management of intangibles and IP!
May 12th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly May 12, 2009
In any business transaction in which intangible assets, IP, and (proprietary) competitive advantages are in play it’s essential that the owners – holders of those assets, and those having fiduciary responsibilities for their stewardship, oversight, and management recognize the challenges posed by the ever growing global culture of infringing and counterfeiting goods and services.
Aside from the largely subjective, but nevertheless extraordinary estimates of losses attributed to infringement, counterfeiting, and product piracy, its important to recognize that those illicit activities represent substantial (and growing) percentages of many country’s (a.) GDP, (b.) sources of employment and personal income, and (c.) manufacturing base. Business (transaction) teams must conclude that infrigement, counterfeiting, and piracy have moved well beyond merely being annoying probabilities to very costly inevitatiblities if left unchecked or un-considered in either pre and/or post transaction contexts.
When assessing – negotiating the expectations of a transaction, especially those in which intangible assets, IP, know how, and competitive advantages are in play prudent decision makers should recognize there are few deterrents and/or impediments that infringers, counterfeiters, and product pirates will encounter in many countries. In part this is because (a.) start-up costs are frequently minimal, if not subsidized, (b.) they can operate in relative anonymity locally as well as globally, (c.) the legal deterrents are lax, inconsistent, or non-existant, (d.) there’s enormous potential for quick and very substantial margins (profits), and lastly, (e.) the extraordinary speed in which counterfeiting and product piracy operations can materialize and adversely affect a company’s margins, reputation, image, and goodwill.
The following represent key questions in which decision maker prudence is urged relative to taking time to fully assess each transaction in which intangibles, IP, know how, and competitive advantages will be transferred:
– what is the company’s threshold for loss tolerance (i.e., tipping point) insofar as economic, competitive advantage, market share, image, goodwill, consumer confidence, etc.?
– what is the probabilility such losses, when they occur, will be irreversible and permanent, what, if any, recovery options are available, and much will they cost?
– what is the degree of universality of the company’s products and/or services (globally) and are there any potential dual-use components or applications within those products?
– what is the cultural (business, legal, government) receptivity to (climate for) infringement, counterfeiting, and product piracy in the host country (region) where the transaction will be executed, i.e., products manufactured.
These represent only a few of the considerations that transaction teams are urged not to dismiss solely for expediency of consumating a deal. It’s equally important to recognize that economic – competitive advantage hemorrhaging (attributed to counterfeiting, piracy, etc.) can occur well before the ink dries on transaction contracts. A reality is though, some management teams (still) assume they can consummate deals and commence revenue streams before any of their assets are infringed (counterfeited, pirated). In the ultra-competitive, predatorial, winner-take-all global business arena, such a position could be accurately characterized as ‘permissive neglect’.
May 11th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap, Business Applications, Fiduciary Responsibility, intangible assets. No Comments.
Michael D. Moberly May 11, 2009
It’s an economic fact – business reality that growing percentages of company value, sources of revenue, sustainability, and future wealth creation are directly linked to their intellectual property and intangible assets. Ensuring control, use, ownership and value of those assets for the duration of their functional (value) life cycle is the key, in large part due to the assets’ increasing (in play) relevance in transactions, joint ventures, collaborations, and various other forms of business alliances a company may engage.
Unlike patents, trademarks, or copyrights though, there is no certificate issued by the government that says, ‘the real value of most company’s lie in its intangible assets, competitive advantages, proprietary know how, brand, reputation, image, and goodwill, etc. Instead, identifying, protecting, preserving, and monitoring the value, status, stability, fragility, and sustainability of those assets falls exclusively to (top down) management teams, c-suites, and D&O’s.
Intangible asset and IP value are not static! Valuation of those assets absolutely cannot be ‘measured’ using one-size fits all, or snap-shots-in-time formats. Doing so, provides little, if any, strategic (post deal) context to asset value. For the most part, those assets are unique and specific to each company and their particular market space. Once any of those assets’ is compromised or infringed however, its economic value, market position, and competitive advantages can begin hemorrhaging immediately, globally, and irretrievably!
And also, intangible assets and intellectual property are no longer the exclusive beneficiary of conventional IP enforcements or deterrents, largely because the global infringement, misappropriation, theft, counterfeiting, competitor intelligence, data mining, and economic espionage industries have literally become economically, socially, and culturally embedded in many country’s GDP! Effectively thawrting (reducing the global market influence of counterfeits and pirated products) is a long term and collective initiative in which U.S. companies should not expect to see noticeable change for 5 to 10 years.
And, once IP, trade secrets, proprietary know how are gone, they are probably gone forever. A company’s core assets and competitive advantages can be quickly gleaned, analyzed, and applied by sophisticated and predatorial data mining technologies and rapidly growing ‘over night’ economic – competitive adversaries, i.e., infringers, counterfeiters, information brokers, etc. Compromised know how, IP, sensitive business and/or R&D information and proprietary competitive advantages can be instantaneously produced and dispursed globally at which point a company’s (holders, owners’) hard earned ’value’ and ‘competitive advantages’ become largely irreplaceable, irretrievable, and extraodinarily costly and time consuming to pursue!