Archive for September, 2009
Michael D. Moberly September 29, 2009
Company reputation is defined as the perception of the company by the public and it’s various stakeholders, i.e., suppliers, customers, employees, local communities, etc. Company reputational risk then, is a function of a range of triggering events or precipitators (inadvertent or intentional) but, usually adverse, that occur in which particular corporate identity features are targeted or becomes exposed, vulnerable or is revealed that were previously not known i.e., a business practice, behavioral incident, or a characteristic (content) of a product or service manufactured and/or sold to the public.
Company reputation and its attendant risks however, are not the sole province/domain of Fortune 500 types of firms. Rather company reputation and reputational risk is relevant to most all company’s including small, medium enterprises (SME’s) as well as small, medium multinationals (SMM’s) regardless of industry sector or location.
For many companies their reputation literally constitutes the primary source (origin) of their intangible assets which can account for as much as 65+% of a company’s value, sources of revenue, sustainability, and foundations for future growth, expansion, and wealth creation.
Management teams routinely admit however, as respondents did to a Conference Board study, that ownership and responsibility for addressing reputational risks are often fragmented and seldom coordinated within a company and sometimes they’re assumed across a wide range of management teams and/or business unit managers.
And, as is typical in such circustances, a debate has emerged over the most effective way for companies to characterize and ultimately address their reputational risks, i.e., as (a.) a separate and distinct category of risk, or (b.) additional (individual) effects of operational incidents in which certain risks or threats can materialize.
With respect to company reputation risk however, there remain two areas in which relatively little practical (applied) research has evolved, i.e., (1.) who is responsible, and (2.) who should take ownership for a company’s reputational risk which includes its monitoring, stewardship, oversight and executing best practices to address it and mitigate its criticality if/when a risk materializes.
It seems clear that company reputational risk is a genuinely integral element to overall ‘company governance’. For starters this means the board and c-suite must reach consensus about (a.) its definition, (b.) its application and relevance to the company, and (c.) recognizing it as a dynamic, relative, and very valuable intangible asset for a company.
This can be fully achieved though only if a company’s reputational risks are consistently monitored and best practices are in place that, among other things, identify (1.) who owns it, and (2.) who’s responsible for doing something about it. (Adapted by Michael D. Moberly from a report produced by The Conference Boards titled ’Reputation Risk: A Corporate Governance Perspective’)
Michael D. Moberly September 18, 2009
Due diligence management teams must be fully cognizant of the reality that the control, use, ownership, value, and materiality of the targeted (intangible) assets do not remain static assets during the (due diligence) process. They are subject (vulnerable) to being compromised, misappropriated, competitive advantages undermined, and/or value eroded if not properly monitored in both pre and post transaction contexts. In fact, there’s good evidence to suggest asset vulnerability actually elevates during this time.
What’s more, any of those adverse events (outcomes) can occur in rapid-fire order and cascade throughout the transaction and change its entire structure, e.g., adversely impact the projected (sought after) economic and competitive advantage benefits initially envisioned for the transaction.
Another reason why its important to continually monitor intangible assets throughout a due diligence process is because the time frame when buyers and/or sellers of the intangibles can leverage – extract – realize the most value is continually being compressed. This is due, in no small part, to the globally predatorial business intelligence and data mining operations, among other things, that can rapidly ’get out front’ of deals and/or transactions to adversely affect (undermine, erode) an assets’ (strategic) value and thereby render the transaction less attractive or severely hamper its (envisioned) viability.
The considerations described below represent additional factors that should be taken into account when management teams ’frame and structure’ a due diligence strategy, any one of which can constitute either a ‘red flag’ or signal a probability that the transaction will be effective, i.e., is there evidence of:
1. a broad company culture that genuinely recognizes the value of the core (revenue – value producing intangible) assets?
2. consistent stewardship, oversight, and management of those assets?
3. consistency in the representation of those assets, ala Sarbanes-Oxley, FASB, etc., in which risks, value, materiality, and financial performance are accounted for and measured?
4. business continuity-contingency planning that includes the core intangible assets?
5. strategic planning intended to achieve fuller utilization (monetize, extract value) from the intangible assets?
Michael D. Moberly September 17, 2009
When conducting ’due diligence’, there are multiple objectives. Three key ones are to (1.) recognize that 65+% of most deal - transaction value lies in the targets’ intangible assets, (2.) provide superior knowledge and insight to principals about the status of about-to-be-purchased assets relative to a deals’ terms, objectives, projected returns, and exit strategies, and (3.) examine any circumstances that may adversely affect the target and/or transaction to ensure control, use, ownership, and value of those assets under consideration (about-to-be-purchased) are sustainable in both pre and post transaction contexts.
In other words, due diligence must account for the reality that the control, use, ownership, value, and materiality of those assets can be rapidly compromised, undermined, misappropriated, eroded, and/or fluctuate to adversely impact the projected (sought after) economic and competitive advantage benefits of a transaction.
It’s essential therefore, that due diligence represent/serve a clients’ interests better by being much more than a cursory or confirmatory review of the presence, absence, and/or position of a target’s intangible assets or merely provide decision makers with subjective, snap-shot-in-time estimates. Instead, in today’s increasingly predatorial and ‘wired’ business transaction environment in which data mining and business/competitor intelligence are routinely applied, due diligence must bring strategic clarity (certainty) to management teams decision making process, particularly regarding the status, fragility, stability, sustainability, defensibility, and strategic value of the targeted assets.
Understanding the strategic value of intangible assets starts by recognizing that the dominant value drivers of most targeted company’s assets no longer lie in tangible-physical assets, i.e., plants, equipment, inventory, etc. Rather, today, and for the (irreversible) foreeable future, intangible assets will continue to be the overwhelmingly dominant source of most company’s value, revenue, sustainability, and foundations for future growth, expansion, and wealth.
There are many forms – types of intangible assets, e.g., intellectual property, intellectual capital, brand, reputation, image, goodwill, etc., which is why those critical insights that due diligence should provide to decision makers cannot be correctly/properly articulated solely by using conventional templates and snap-shots-in-time techniques. It’s also because, in today’s hyper-aggressive and globally competitive transaction environment, asset value and materiality can fluctuate rapidly especially if adverse circumstances exist which includes, among other things, the assets being subject to compromise, misappropriation, infringement, erosion, or undermining prior to or immediately following deal closure.
Michael D. Moberly September 15, 2009
Strategic planning is about articulating (communicating) a clear, practical, and collaborative vision about where a company ‘wants to be’ at some point in the future. The actual strategic plan describes specific ’action steps’ necessary to achieve that vision, e.g., an assessment of the resources (human, capital, material, etc.) necessary to execute the plan.
It’s an economic fact – business reality today however, that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future growth, expansion, and wealth creation lie in – are directly related to intangible assets. Thus, strategic planners would be remiss if they overlooked the contributions intangible assets make to realizing the success and effectiveness of a company’s – organizations’ future. Not factoring the contributions of intangibles into a strategic plan would leave significant gaps in the strategic planning and would likely hinder, if not totally derail the plan’s projected success and effectiveness.
The importance of factoring intangible assets in strategic planning has been elevated in part because of the emphasis placed on intangibles in Sarbanes-Oxley and FASB (nationally) and their international equivilents relative to accounting and reporting (the assets’) value and materiality changes.
An increasingly relevant prelude to strategic planning is conducting an intangible asset assessment, the purpose of which is to (1.) identify, unravel, value, and assess the stability, sustainability, and defensibility of a company’s intangibles, (2.) bring strategic (business) clarity to those intangibles insofar as their creation, utilization, positioning, leveraging, and ways to extract value, (3.) ensure control, use, ownership and value of the intangibles can be sustained relative to the the strategic plans’ term, and (4.) examine the assets’ relevance/contribution to other (company) transactions, i.e., joint ventures, strategic alliances, mergers and acquisitions, etc.
Intangible asset assessments are necessary elements to strategic planning because, (1.) unlike patents, trademarks, or copyrights, there is no certificate issued by the government that says, these are your intangible assets, competitive advantages, intellectual capital, brand, reputation, image, and goodwill, etc., and (2.) intangibles are often embedded in a company’s routine operations, processes, and functions. Identifying and assessing intangibles thus falls exclusively to management teams and specialists in intangible asset management.
So, what are intangible assets?, they’re blends or combinations of procedures, relationships, or culture, etc., embedded in a company’s distinctive and often times proprietary processes or practices that (a.)create efficiencies, (b.) facilitate/enhance internal – external relationships, (c.) provide special edges/advantages in the market place, and/or (d.) can be leveraged to differentiate a company from its competitors, and thus create value.
Michael D. Moberly September 14, 2009
The question whether franchise operations are driven (more) by conventional intellectual property (IP) or by other intangible assets probably represents, for some anyway, a classic case of ‘a difference without a distinction’. The franchising business model is characterized as a service industry driven by licensing of patents, trademarks, service marks, copyrights, and trade secrets.
Its fair then to generalize franchisors’ as probably devoting more time addressing near term issues such as (a.) IP licensing, (b.) recruiting franchisees, (c.) collecting royalties and fees, and less time to (d.) identifying and exploiting intangible assets developed/produced by franchisees.
The broad question presented here is, could additional revenue, value, sustainability, and foundations for growth and expansion be realized if franchisors had objective processes in place to consistently identify, (collect) measure, monitor, manage, and exploit the additional intangible assets produced as a franchisee (and/or franchise operation) matures?
Intellectual property largely consists of precedent driven concepts, processes, and certifications which most franchisor management teams possess familiarity, or which they can readily turn to legal counsel to address. Intangible assets, on the other hand, lack comparable precedents or processes. In fact, intangible assets lack physicality which makes measuring their performance still somewhat elusive. Too, there’s seldom an ‘intangible asset specialist’ readily available for franchisors to turn for counsel.
The view put forth here is that franchisors and their franchise operations are less driven today by the intellectual property licensed to franchisees, and more driven by the intangible assets that franchisees develop. Franchise intangible assets are defined as unique blends (collections, combinations) of activities, and/or relationships that franchisees’ develop and execute to acquire sales, gain market share, and competitive advantages to differentiate themselves in the market place.
Michael D. Moberly September 10, 2009
A critical, but routinely dismissed, overlooked, and undervalued aspect of ‘doing business’ today is the economic fact – business reality that intangible assets literally underlie - are embedded in most business operations and transactions. But, intangibles (and their equally prominent cousins, i.e., intellectual capital, intellectual property, competitive advantages, brand, reputation, image, goodwill, etc.) are seldom consistent fixtures (guages) on the dashboards of management teams and business strategists.
Evidence-based research unequivically finds that executed familiarity and insight regarding the identification and utilization of a company’s intangible assets will add numerous multipliers, i.e., value, credibility, and efficiencies, etc., by, among other things, complimenting functions and responsibilities throughout c-suites and boardrooms, especially CKO’s, CIO’s, CFO’s risk managers, IP counsel, and regulatory compliance processes (ala the growing universal application of Sarbanes-Oxley and FASB).
This added value, efficiencies, creditiblity and other multipliers produced will manifest themselves in other ways as well, one of which is greater management team emphasis on recognizing the absolute necessity of aligning (a company’s) intangible assets with the core business and its strategic planning. But, there remain skeptics, so why is it that…
1. One can probably pinpoint the precise time of day a desk stapler went missing or an email was sent, but remain absolutely clueless about the status, stability, defensibility, and location of 65+% of a company’s value, sources of revenue, sustainability, and platforms for growth and expansion, i.e., intangible assets…
2. One is likely to entrust their company’s most valuable intangible assets, proprietary business practices, and even trade secrets to employees or individuals in which the primary communication is saying hi, goodbye, and thanks to at the office or photocopy store…
3. As a member of a company’s management team, initially learning the real-market value of misappropriated, compromised (infringed) intangible assets and intellectual property occurs when legal counsel is asked what their fees will be to try to get them back and recover their value and the competitive advantages they produced…
4. One assumes their company’s innovation is adequately protected merely because a patent has been issued or computer/IT security, non-disclosure and non-compete (employment) agreements are in place. Isn’t it time management teams became familiar with global data mining, business intelligence, and information brokering operations? Or, just go to www.globalfleecemarket.com and see the company’s products, ideas, and competitive advantages in counterfeit-pirated form…
Michael D. Moberly September 9, 2009
In today’s globally competitive and nanosecond business (transaction) environment, its important for decision makers to frame intellectual capital management within their company (and intangible assets and intellectual property) as collaborative exercises. Above all, intellectual capital management should involve perspectives from functional and business unit leaders and senior (c-suite) officers that’s not packaged solely through a legal context or technology management lens.
Intellectual capital management strategies carry long term implications and consequences, some of which are irreversible. The probability that outcomes (to IC management) will be more effective and profitable occurs when it is conceived and framed, from the outset, as strategic business decisions in which legal and technology management are integral, but the ultimate (business) decision, may not defer to either.
Without being dismissive of company management teams’ other responsibilities, achieving a level of familiarity with intellectual capital (along with other intangible assets) sufficient to make sound, confident, and strategic (business) decisions, entails preparatory steps such as holding discussions, training, and/or seminars, etc., to respectfully elevate their awareness and familiarity.
Experience suggests that management teams find the following to be particularly relevant and beneficial insofar as acquiring fundamental insights to aid them in making decisions about managing (their company’s) intellectual capital:
1. Distinguishing the various forms/contexts in which intellectual capital exists.
2. Assessing intellectual capital performance (as an asset), i.e., its status, stability, fragility, defensibility, sustainability, and contributions to value, revenue, competitive advantage, market share, reputation, etc.
3. Identifying where and how intellectual capital assets originate and evolve within the company.
4. Designing and executing (company specific) strategies to effectively:
a. utilize, bundle, leverage, and/or convert intellectual capital (assets) to value, revenue, and foundations for future wealth, growth, and expansion.
b. sustain control, use, ownership, and monitor the value of intellectual capital (assets) throughout their respective life, value, and functional cycles, as needed.
Michael D. Moberly September 8, 2009
The precursor to contemporary ’business continuity-contingency planning’ (BCCP) was ‘disaster recovery planning’ that typically focused on (1.) protecting tangible-physical assets, i.e., plants, equipment, inventory, etc., (2.) containing the extent/criticality of the damage/loss, and (3.) building in redundancies (back-up systems) intended to continue all/part of a company’s operation during a disaster. Today, BCCP needs to broaden its scope to include a company’s intangible assets, e.g., intellectual capital, image, goodwill, brand, reputation, and intellectual property. Why?, because 65+% of most company’s value, revenue, sustainability, and foundations for future growth now lie in – are directly related to intangible assets. In other words, a major and permanent shift has occurred from tangible/physical asset-based companies to intangible asset-based companies!
Now, well conceived/designed BCCP must include processes/procedures to (1.) ensure the control, use, ownership, and value of those assets are sustained during and following a disaster, and (2.) mitigate a company’s risk to the irreversible loss and/or de-valuation of those assets that would impair operating capability, revenue streams, competitive advantages, market share, reputation, and intellectual capital, etc.
Quite correctly then, BCCP has become a responsibility/task carrying a much higher profile, largely because it falls directly within the purview of – impacts all c-suite functions. BCCP’s that do not effectively address a company’s intangible assets will, with increasing frequency, render company officers, management teams, and their companies vulnerable to legal action and reputational risk in which image, credibility, relationships with suppliers, vendors, and investors, etc., can be irreversibly strained and/or impaired which further inhibits recovery.
Absent an effective BCCP in place, trying to prove assets’ existance, their contributory value, and recover them after the fact, is costly, time consuming, and will inevitably delay recovery. Why?, because once a significant threat/risk (disaster) materializes, and key assets are out of a company’s control and protection, regardless of IP and/or IT protections/redundancies that may be in place, the probability that a company will fail, or that its recover will become protracted and at a fraction of its original status is elevated. Consequently, skills and experiences business continuity-contingency planners should now bring to the table are those relevant to identifying, unraveling, assessing, and monitoring a company’s inventory of ’mission critical’ intangible assets.
As the above objectives (recommendations) are integrated in business continuity and contingency planning they will enable/facilitate a more complete and speedier (economic, competitive advantage, market share, revenue) recovery, which, in today’s globally competitive, predatorial, and winner-take-all business environment is not an optional luxury, rather a fiduciary necessity!
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 September 1, 2009
Company reputation is an intangible asset that, so long as it remains unblemished and unchallenged, delivers value, sustainability, and competitive advantages to a company. The stewardship, oversight, and management (guardianship) of a company’s reputation, as more company’s are recognizing, is an integral function/responsibility of the management team.
What is (company) reputation? Fundamentally, it’s the opinion of the public and a company’s stakeholders toward a company. A tenent of company reputation, as noted by Jeffrey Resnick of Opinion Research Corporation, is that reputation cannot be (a.) manufactured by an advertising agency, or (b.) created by a public relations firm. Company reputation, Resnick says, is built (enhanced) as a result of ongoing interactions between a company and its key stakeholder groups, where the experience of the latter is consistent with the (a.) values the company claims to uphold, and (b.) promises it makes (through advertising and other forms of marketing communication). Ultimately, company reputation is as much about perception of the behaviors (of the company as a whole and/or its management team) as it is about about fact(s).
What are the fundamental responsibilities of those charged with the stewardship, oversight, and management of company reputational risks?
- The first responsibility is recognizing that a company’s reputation (a.) is a valuable intangible asset, that (b.) warrants multiple strategies (plans) to mitigate and/or prevent reputational risks from materializing, which (c.) can deliver returns-on-investment commensurate to the value of the reputation.
- The second responsibility is (a.) knowing and anticipating, (b.) prioritizing, (c.) consistently monitoring, and (d.) timely recognition and response to a full array of risks (sources, origins, motives, misteps, miscues, etc.) that can adversely affect a company’s reputation.
When these fundamentals are left unchecked, real enterprise-wide distress can, and unfortunately, with increasing frequency and speed, materialize to adversely impact reputation. Unlike many other business risks though, reputational risk can be prompted, influenced and instantaneously transmitted by an ever expanding array of stakeholders, interest groups, mediums, and channels, most all of which operate globally and on a 24/7 basis.
Unfortunately, some companies and management teams approach (perceive) reputational risk mitigation as merely as a public relations exercise. A more prudent (business sustainability) strategy would be to recognize reputational risk mitigation is both an opportunity and a fiduciary reponsibility to (a.) sustain control and value of a company’s reputation, and (b.) align a company’s internal processes and culture with its public behavior and customer/stakeholder experience. Otherwise, it’s increasingly unlikely a company’s reputation can be effectively leveraged to enhance company value, develop stronger competitive advantages, or achieve greater sustainability!