Archive for December, 2009
Michael D. Moberly December 30, 2009
Building knowledge and intellectual capital into SME’s (small, medium enterprises) represents a prudent and much needed exercise for management teams which serves as a foundation to elevate the probability their company will not merely experience mediocre success, but stand out in their market space and among competitors by (a.) being innovative, (b.) sustaining/enhancing competitive advantages, and (c.) achieving profitability.
Respecting the economic fact – business reality that 65+% of most company’s value, sources of revenue, and future wealth creation and sustainability today lie in – are directly linked to intangible assets, there is, in my view, ample room-opportunity for managerial discretion and maneuverability to make such an initiative not merely worthy of the time, but lucrative and strategically beneficial to a company.
It’s still fair to say though, respectfully, and there is virtually no evidence to the contrary, that significant percentages of SME founders, owners, and management teams remain unfamiliar with and/or distinterested in (a.) the intangible assets their company has developed (produces), and (b.) strategies to effectively exploit those assets to add value to the company.
In this context, its nothing short of an operational imperative today, again, especially in this knowledge-based economy, that SME management teams seek opportunities to develop a strong and varied repertoire of best practices that include, among other tings, (a.) identifying and unraveling their intangibles, their origins, and their contributory value, and (b.) promote their utilization, i.e., leverage them internally to influence more innovation, and exploit them externally to enhance – secure competitive advantages, reputation, image, and goodwill, etc.
However, there remain persistent hindrances that effectively discourage, even deter some management teams from engaging their intangible assets and opportunities to exploit those that are internally produced. This is largely because intangibles are still not recognized on a company’s balance sheet. Consequently, those parties and institutions that would presumably have direct interest in using an SME’s financial reports (that include intangibles) such as banks for assessing lending decisions, or even SME management teams relative to fiduciary incentives to (better) manage and/or leverage intangibles, are discouraged from doing so, largely due to the perceived absence of commensurate financial incentives.
The prospect of receiving financial rewards (incentives) for engaging in an intangible asset focused course of action is a worthy foundation for most any business decision and/or transaction. Therefore, SME management teams should not overlook, especially in this knowledge-based economy, the reality that intangibles represent the dominant underliers – foundations to value, profitability, and sustainability.
Unfortunately, there are various rationales, and what some would describe as, real disincentives, which many SME management teams default, as their rationale for not engaging the intangible assets they have fiduciary responsibilities for managing, overseeing, and stewarding.
Michael D. Moberly December 29, 2009
In most instances today, when owners/founders of SME’s (small, medium enterprises) sell and/or transfer their business, the intangible assets they have developed and/or acquired are literally embedded in – integral to their company’s base of value, sources of revenue, foundations for future wealth, and sustainability. But, anecdotally speaking, those assets routinely go unrecognized or poorly addressed - factored in exit and/or transfer transactions.
For parties to buy, sell, transfer and/or M&A transactions, one of the initial, and ultimately perhaps, one of the most important issues to be addressed relative to laying foundations for ensuring projected-anticipated profitability (success) of a transaction, is executing an effective transition-merger of the intangibles to the new owner relative to their integration, useability, transferability, and contributory (added) value, etc. The objective of course, is that the intangibles’ post transaction performance and contributions will exceed, or at minimum, be equal to the performance-value their previous owner seemingly gained. If not, why buy – invest in them?
For those who may be inclined to characterize this consideration as being insignificant to a transaction’s strategic success, are respectfully advised to reflect upon the (global) economic fact – business reality that 65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth creation lie in – are directly related to intangible assets. So, in a vast majority of transactions, intangible assets are in play – part of the deal. Therefore, they’re integral to transaction equations!
So, what should (can) buyers do? First, and foremost, ensure their due diligence process includes an intangible asset specialist who possesses the skills sets and experience to actually…
1. identify clusters-pockets-chains of of intangible assets, unravel their origins, and determine (track) their respective (current) contributory value to the sellers’ company.
2. assess the assets’ status and transferrability (useability), i.e., determine if the assets’ control, use, ownership, contributory value, and materiality can be sustained and/or enhanced, post transfer.
While the (largely subjective) dollar value assigned to intangibles in transactions is obviously relevant and should be factored, I find it consistently less (strategically) meaningful-relevant if the above points are overlooked, dismissed, or neglected.
Michael D. Moberly December 28, 2009
‘Creative industries’ are (typically) broadly comprised of small, medium enterprises (SME’s) that share a commonality of consistently engaging in imaginative, forward looking – forward thinking activities and, therefore are frequently embedded with intangible assets.
Creative industies and their founders-management teams tend to be individualistic and entrepreneurially oriented (spirited). The creative industries include such activities (professions) as architecture, crafts, entertainment, music, advertising/marketing, as well as numerous niche consulting firms who sense little need, in today’s nanosecond global business transaction environment, to be bound (limited) by, for example, conventional business plans and/or models, etc., that reward accumulation of tangible (physical) assets to the exclusion of intangible assets with little or no recognition – appreciation for the economic fact that intangible assets now comprise 65+% of the value, sources of revenue, future wealth creation, and sustainability for most companies.
The key drivers of creative industries are, in most instances, the intangible assets they create and learn how to effectively utilize and exploit. Equally likely, creative industries will be ’learning organizations’, that is, their founders-management teams will consistently seek, assess, and find ways, when-where appropriate, to exploit ’creative change’ within their organization. In other words, they embrace researching and learning about change as an essential tool and/or ingredient for executing their vision of normative competitiveness, i.e., how competition – competitiveness must (should) materialize in the go fast, go hard, go global business environment as foundations for companies to be sustainable.
Collectively, the ’creative industries’ represent an increasingly important and profitable segement of the economy, one in which the Association of Certified Accountants (ACCA) reports may account for as much as 10% of the global economy and this sectors’ growth rate is reported to be up to three times the rate of the rest of the economy.
However, this ACCA report also strongly encourages the creative industrys’ to foster even more business-like strategies with respect to the production, utilization, and exploitation of their intangible assets. Translated, this means taking more care to sustain (protect, preserve) control, use, ownership, and monitor value and materiality of their intangibles. This will contribute to the creative industry sector becoming even more profitable, and perhaps more importantly, more sustainable (less ephemeral).
Michael D. Moberly December 24, 2009
The ‘resource based view’ (RBV) is an economic tool (perspective) to be used by management teams to determine their company’s strategic resources. The principles of RBV, or, as it’s sometimes also referred to as the ‘resource dependance view’, state that a company’s resources include its (a.) assets, (b.) skills, (c.) intellectual/human capital, know how, (d.) capabilities, and (e.) processes, which collectively serve as foundations to enable companies to conceive, design, and implement specific strategies to improve (elevate) their efficiency and effectiveness.
An underlying principle of the RBV, is that a company’s resources evolve from - lie in the manner in which intangible assets held by – available to the company are identified, unraveled, assessed, bundled, positioned, and ultimately applied as constituting the key criteria for determining their strategic and contributory value, i.e., the assets-resources…
1. add financial value to a company by serving as real building blocks to pursue – achieve future wealth and company sustainability…
2. are integral to a company’s ability to purse (design, execute) efficient ‘value-creating strategies’ to (a.) outperform competitors, and (b.) identify and reduce (mitigate) its own (competitive, strategic) weaknesses.
3. serve as sources/means to differentiate a company, i.e., create distinctiveness and competitiveness…
4. are rare and possess a relatively immobile status, that is, they’re not easily transferrable, disseminated, or (illegally) acquired by others…
5. are such that few, if any competitor’s possess, or have the capability to duplicate (imitate, replicate) them with sufficient precision and/or quality to achieve (product/service) comparability and competitive advantages in the eyes of consumers, etc., without considerable effort, time, and expense…
(Synthesized by Mr. Moberly from the work of Sylvia J. Flatt and Stanley J. Kowalzyk)
Michael D. Moberly December 21, 2009
Yes, we’re in the midst (really just the front end) of a global, knowledge-based economy and, knowledge-based assets are, with few exceptions. intangible assets! And, yes, most intangible assets are not usually included – reported in a company’s balance sheets, nor are they easily measured, but, that does not lessen, in any way, their importance and contribution to a company’s value and/or revenue by serving as internal building blocks (foundations) for wealth creation and sustainability.
Intangible assets are especially relevant to SME’s (small medium enterprises) and SMM’s (small, medium multinationals) in a variety of ways and for a variety of reasons, the most dominant of which is the reality that a significant percentage (perhaps 80+%) of SME’s and SMM’s are in the service sector. Service sector firms are more likely to be grounded in – dependant upon their intangible assets to (a.) represent/emphasize their uniqueness, (b.) distinguish themselves in their market space, and (c.) build competitive advantages, etc., which can ultimately serve as the basis for generating income/revenue, when utilized effectively.
Relevant research conducted by the Association of Chartered Certified Accountants (headquartered in the U.K.) found, not surprisingly, that many SME’s are unable to effectively value their intangible assets which, in turn, undermines their ability to (a.) articulate/communicate those assets’ importance, relevance, and contributory value, (b.) sell-transfer their business for its true (real) value, and (c.) access much needed financing.
Underlying (embedded in) those not-so-surprising findings (and challenges) is another reality; many SME and SMM management teams retain a fairly narrow view (definition) of what actually constitute intangible assets beyond the conventional (proverbial) brand, reputation, image, goodwill, etc.
To advance intangible asset identification and valuation to benefit SME’s, a study conducted by ACCA’s Small Business Committee made a number of very plausible recommendations, several of which are described below:
1. Broadening SME management team (a.) awareness and recognition of the intangible assets they produce and (b.) strategies how they can be utilized, leveraged, and value maximized, etc.
2. Helping management teams develop specific language to more effectively communicate/articulate intangible assets in practical terms/contexts befitting specific (internal, external) audiences.
3. Because protection of intangible assets cannot always be achieved through conventional intellectual property rights, stress the necessity for management teams to develop alternative methods (best practices) to sustain control, use, ownership, and monitor value and materiality of their intangibles.
4. Development of a practical managerial (diagnostic) tool that would enable management teams to routinely identify, assess, utilize, and capture-maximize the value of their intangible assets.
(Adapted by Michael D. Moberly from the work of ACCA’s Small Business Committee and its policy briefing papers on matters specifically related to intangible assets.)
Michael D. Moberly December 18, 2009
The ‘insider threat’ to information-based intangible assets, proprietary competitive advantages, and intellectual property represent persistent, global, nuanced, and frequently costly challenges to company’s.
In light of the economic fact that 65+% of most company’s value, sources of revenue, and foundations for future wealth creation and sustainability lie in – are directly related to intangible assets, those company’s dependant upon (their) intangibles and routinely find them in play as important elements to business growth and/or business transactions, would be well advised to keep abreast of current (insider threat) research with an ‘eye’ for fine tuning and/or updating (their) best practice defenses.
No ‘war stories’ here because I believe most management teams, boards, and investors are generally familiar with the fiduciary importance/relevance of intangibles. But let it suffice to say, insider (threat) challenges, left unchecked, or poorly addressed, go to the very heart of a company’s value and sources of revenue. Such risks are unlikely to miraculously recede or fade away through attrition, terminations, or resignations, etc., absent the execution of best practices that thoroughly reflects and can adjust to current and forward looking research, e.g., (a.) how the insider threat evolves, (b.) who the ‘insider’ is, and (c.) the various motives.
Research findings of this caliber that provide both a ‘big picture’ as well as practical and relevant insights ‘into insiders’ are regularly produced by two institutions that represent assemblages of genuine subject matter experts, i.e., Carnegie Mellon’s CyLab and DoD’s Personnel Security Research center (PERSEREC).
Both PERSEREC and Carnegie Mellon’s definition of ‘insider theft of IP’ share commonalities which I have converged as ’crimes in which current or former employees, contractors, or business partners intentionally exceeded or misused an authorized level of access to networks, systems, or data to steal confidential or proprietary information from an organization and variously use it in three primary ways, (a.) get another job, (b.) help a new employer, (c.) or promote their own ‘side’ business.
A central theme underlying (perhaps embedded in) each motive however is the insiders’ desire to leverage their illegal deed to achieve some form of ’personal financial gain’.
Designing effective practices-techniques to mitigate, counter, and ultimately defend against the insider threat should, above all, not be based solely on or unduly prejudiced by (a.) past practice, (b.) anecdotle (internal, external) snap shots, or (c.) generalized assumptions about ethnic allegiance. Rather ‘defenses’ to the broad and complex phenomena of insider threats should be well grounded in the relevant, current, and applied research and findings of specialist research teams ala the CyLab, PERSEREC or other institutions.
Michael D. Moberly December 17, 2009
In this knowledge-based economy, two significant phenomena have emerged which individually and collectively exacerbate the challenges, and add complexity, to our respective campaigns to more effectively protect proprietary information, competitive advantages, intellectual property, and other increasingly relevant and valuable intangible assets, i.e.,
1. the global interaction between economics, intangible assets, technologies, and the persistent demand for growth in company ‘bottom lines’ and country GDP and trade.
2. the reality that the business (transaction, innovation) landscape is no longer shaped solely by the flow of physical goods and services, rather by the development and flow (buying, selling, trading, merging, exchanging, etc.) of intangible assets.
These realities, or ‘the new rules of engagement’ foster many new and asymmeric challenges to safeguarding those assets, e.g., (a.) ensuring they remain intact and/or bundled for the most effective, efficient, and profitable use, (b.) their value is sustained to produce/deliver sources of revenue, sustainability, and future wealth creation, and (c.) the control, use, and ownership of those assets remain indeterminately with the rightful holders/owners!
For starters, initiatives – action plans designed to safeguard intangible assets should be flexible and maneuverable, not one dimensional, nor static. That is, intangible asset safeguards should focus on sustaining control, use, and ownership of those assets relative to (a.) their respective life-value-function cycles, and (b.) their continued materialiy, i.e., relevance, linkage, contribution to current/future projects, competitive advantages, and company value.
Michael D. Moberly December 15, 2009
Quality, relevant, and transferrable intangible assets favorably affect a company’s value and can be legitmately exploited to elevate its attractivity to prospective buyers. Owners contemplating selling their business would be well served by, at minimum, having a conversation with an ’intangible asset business specialist’ at the earliest stages of their often times, private deliberations.
The business owner contemplating selling their company would find it useful to literally shop around to find a professional ’intangible asset business specialist’, not solely an accountant, tax specialist, attorney, or general business consultant, as those specialties are necessary and can be converged at subsequent stages of the process.
A key discriminator in selecting an intangible asset business specialist is one with not merely experience, but one who possesses a deep knowledge-understanding of a cross section of intangible assets in current contexts and will offer respectful insights and strategies to business owners to aid them in two key areas:
1. Bring clarity to their specific company’s intangible assets, i.e., what they are, how they’re produced, how and where they deliver-contribute to a company’s value, revenue, brand, reputation, image, goodwill, etc., and how they can be effectively leveraged in the selling action.
2. Explain the principles for identifying, unraveling, assessing, bundling, and focusing prospective buyers’ attention on their company’s most attractive, valuable, and transferrable intangible assets.
It’s an economic fact – business reality that intangible assets now comprise as much as 65+% of most company’s overall value, sources of revenue, and foundations for future wealth creation, as well as the increasingly critical sustainability and durability dimensions (of a company). This means, for most businesses today, intangible assets (irrespective of the type of business, sector, company maturity, or the products and/or services offered) are key ingredients – contributors to a company’s standing. That is to say, they’re embedded, sometimes unbeknownst or overlooked by a business owners in various various processes, practices, or procedures that can and should be showcased – leveraged in ‘sell circumstances’.
Michael D. Moberly December 14, 2009
Most entrepreneur management teams are intimately familiar with their ’tangible assets’ and the various types/categories of tangible (physical) assets that are presumed necessary to their business’ success. Tangible assets are, after all, assets that are physical in nature, that is, they can be seen, touched, and sometimes heard and smelled (e.g., equipment, property, inventory, etc.).
Perhaps most importantly though, tangible assets, in an accountantancy and legal context, are reported on company balance sheets and therefore, more readily subject to measurement, monetization, and/or securitization.
Let it be known however, especially in entrepreneur (early stage, start-up) arenas, tangible-physical assets, actually account for less and less of what a company owns or has access to in terms of value. In other words, its an economic fact today, that 65+% of most company’s value, sources of revenue, foundations for future wealth creation and sustainability now lie in – are directly related to intagible, not tangible-physical assets.
As a participant, observer, and ‘listener’ in the entrepreneurial community, I’m un-convinced though, that entrepreurs have a sufficient or comparable familiarity-understanding-appreciation for their intangible assets compared to their tangible assets. For example, without prompting or preparation, I find most entrepreneurs can report (a.) minutia of their company’s photocopying – printing costs, (b.) how much leasing wet lab research space will cost, and (c.) details about their company’s budget.
Conversely, conversations with the same entrepreneurs seldom reveal a (a.) comparable level of understanding, appreciation, or enthusiasm about the intangible assets their company has likely produced, nor (b.) strategies to identify, utilize, or maximize/extract value from those assets.
Also, my experience with entrepreneur (start-up, early stage) company’s and interactions with their founders and management teams is that, in many instances, whether the company is producing services or products, a significant and growing percentage of their value, probably far higher than they expect, directly evolves from the intangible assets their company produces. Again though, frequently this information (economic fact) is often dismissed, unrecognized, and/or un-leveraged even though those intangibles are frequently valuable, useable, and competitive advantage by-products that are firmly embedded in the entrepreneurial spirit and passion (hard work) to try to make their initiatives, ideas, and innovations successful and profitable.
Michael D. Moberly December 11, 2009
A reality of many security-asset protection initiatives executed in companies is that a significant percentage are more reactive than proactive. While there are many understandable reasons for this, its imperative for know how (intangible asset) intensive-dependant companies operating in go fast, go hard, go global nanosecond business (transaction) environments become exclusively proactive and forward looking in their practices to safeguard their assets by recognizing…
1. the necessity to anticipate, assess, and secure the resources necessary to counter the increasingly diverse and persistent risks and threats to company’s intangible, rather than, tangible (phyiscal) assets.
2. the (general, specific) deterrents presumed to be naturally evolving by-products of asset protection systems and/or technologies are frequently marginalized today by (a.) the shear volume of risks-threats, (b.) their technological – predatorial sophisticatation, and (c.) the asymmetric finesse in which those risks and threats are executed.
Why is this model necessary for IP-intangible asset intensive companies?. It’s because, in most situations, the consequences – adverse affects of intangible asset (IP) losses, compromises, value/competitive advantage undermining are immediate and frequently irreversible, i.e., once lost, compromised, or undermined, the value, revenue, competitive advantages, and/or strategic positioning those assets brought to a company are seldom, if ever fully recoverable in a timely manner to recoup (lost) competitive advantages and/or market position.
Therefore, on-going practices, procedures, and/or systems to sustain (protect, preserve) control, use, ownership and monitor the value and materiality of a company’s intangible assets, should routinely be on c-suite and board agendas and high (fiduciary) priorities for security directors (CSO’s), legal (IP) counsel, and CFO’s.