Archive for January, 2012

Intangible Assets In Acquisitions: Pre-Post Deal Due Diligence and Asset Monitoring Is Essential

January 31st, 2012. Published under Analysis and commentary, Business Transactions, Enterprise risk management., Intangible Asset Value. No Comments.

Michael D. Moberly   January 31, 2012

As conveyed many times before,  I  still say with confidence;  in most business transactions today, intangible assets not only will, but should be integral to consummating a deal.  That’s particularly true for acquisition targets rich in knowhow and intellectual capital as sources of value, revenue, and competitive advantage.

For acquisition management and due diligence teams, the prospect of acquiring (intangible) assets whose contributory value:

  • is complimentary, readily transferable and exploitable, and
  • can quickly be converted/applied to advance a near/long term business strategy

              …should be recognized at the outset as essential elements to achieving the projected (anticipated) benefits of an acquisition.

The role of intangibles to a successful acquisition is especially relevant in light of the globally universal (economic) fact that 65+% of most company’s value, sources of revenue, building blocks for growth and sustainability today evolve directly from intangible assets!   Acquisition management and due diligence teams must recognize that a successful acquisition does end at the point in which a target’s assets have been ‘legally’ acquired.

It’s also about ensuring the (intangible) assets are effectively integrated and utilized by an acquiring firm.  This requires an in-depth understanding of intangible assets coupled with and processes which are quite different from the acquisition of conventional tangible (physical) assets in which usage is a more readily understood.   Intangibles, it must be understood, lack physicality.  They are embedded in a target’s intellectual, relationship, and structural capital.  Too, intangibles can be fragile, somewhat volatile, and certainly vulnerable to a host of risks in which their contributory value erodes and competitive advantages are undermined.

Acquisition due diligence and management should therefore, be structured to include pre and post transaction components, e.g.

First – unravel and assess each of the key assets’ status, i.e., stability, fragility, defensibility, and transferability

Second – continuously monitor those key assets value and materiality throughout the acquisition process

Third – put in place measures to ensure the acquiring firm can sustain un-challenged control, use, and ownership of the assets.

For any acquisition or business transaction in which the pre and post perspectives are omitted or poorly executed, the likelihood that costly and momentum stifling (post deal) surprises will arise have, in my view, become not mere probabilities, rather inevitabilities!

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Safeguarding A Company’s IP and Intangible Assets: Awareness, Attitudes, and Enforcement

January 30th, 2012. Published under Analysis & Commentary: Studies, Research, White Pap, Board oversight, Enterprise risk management., Insider Threats, Intangible Asset Value. No Comments.

Michael D. Moberly   January 30, 2012

In a British Telecom study of intellectual property infringement in the workplace, i.e., awareness, employee attitudes and overall enforcement titled ‘The Hidden Marketplace’ (2008) it was reported, to no particular surprise, that there is growing agreement and appreciation among company management teams (in the UK) that intellectual property and other forms of intangible assets are indeed valuable and warrant not just protection, but regular monitoring as well. 

This still very relevant UK-based research focused primarily on the demand side, i.e., employee-consumer interest and demand for acquiring counterfeit goods while at workplace brought much needed clarity to the ’hidden marketplaces’.

A particular finding stood out in my view, but still, no surprise to professionals serving this arena, is that the parallel perspectives of IP value and protection are frequently more aspirational than reality.  That is, management teams are increasingly likely to find themselves:

  • distracted by other, seemingly more pressing issues
  • lacking experience to design and execute procedures and practices to safeguard valuable (intangible) assets that are not physical or tangible.

My many years of experience in this arena find the above to be a fairly broad managerial and oversight conundrum that in part, is reflective of the rapidity which companies in all sectors have become enmeshed in the global knowledge – intangible asset dominated business (transaction) economy.     

While increasing percentages of businesses possess significant portfolios of valuable knowledge-based assets, it’s still common to find many, if not most, to have only the minimum, if any, safeguards or monitoring capabilities in place for their intangible assets.  

A company or management team’s rationale for this oversight is often rooted in the unsustainable notion that instituting such (offensive – defensive) practices constitute operational luxuries vs. business necessities.  

Such positions are particularly revealing given the economic fact that today, 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability evolve directly from intangible assets.  That’s a reality that must be factored into a company’s enterprise risk management equation.

Here are some key starting points for developing intangible asset safeguard and monitoring initiatives:

  • ensure conventional intangible assets, i.e., intellectual properties, are consistently and properly registered
  • broaden the focus of (intangible) asset protection practices to encompass sustaining control, use, ownership, and monitoring their value and materiality
  • initiate intangible asset awareness-recognition programs for management teams, c-suites, and boards that reflect their fiduciary responsibilities evolving from Stone v Ritter
  • develop capabilities to rapidly identify and assess (monitor) any changes in an assets’ contributory value and promptly take action to mitigate adverse economic – competitive advantage consequences.

An important outgrowth of the study was that it identified relevant tools and assistance for employers and enforcement agencies to address IP theft, infringement and the counterfeit goods problem from an inside (internal) perspective.

This study also examined three additional issues pertinent to the global universality of  ‘hidden marketplaces’, i.e.,

1. employee attitudes regarding the value of intangible assets, particularly intellectual property

2.  company management team approaches to safeguarding its valuable intangible assets including IP

3. the levels of awareness that exist among management teams about near and long term problems and adverse consequences (what I often refer to as cascading affects) associated with theft – misappropriation of IP (intangible assets) from the workplace. 

My experience suggests, management teams would likely find these issues more relevant and become more receptive to ‘tackling them’ if they were framed in normative contexts as conveyed below, to spark discussion and deliberation, i.e., as consistent action items on c-suite and board agendas.  For example:

  • what should management team attitudes be about safeguarding their company’s most valuable assets?
  • what is the necessary level of awareness management teams and employees should possess to sustain control, use, ownership and monitor the value and materiality of their intangible assets in order to bring the most benefit and return to their company?

The answer to these normatively phrased questions lie:

  • at the heart of: the knowledge – intangible asset based economy
  • with c-suites, boards, and management teams taking action that truly reflects their fiduciary responsibilities
    • in recognizing 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability
    • with the ability to sustain control, use, ownership, and consistently monitor the value and materiality of those assets.  

Absent such recognition and the implementation of effective procedures and practices to achieve this state, it’s becoming increasingly unlikely a company will experience the levels of growth, competitive advantage, and profitability which most are capable!

(This post was inspired by a study titled ‘The Hidden Marketplace: Protecting Intellectual Property In The Workplace – Research Into IP Infringement in the Workplace – Awareness, Attitudes, and Enforcement’ produced by Patricia Lennon of BT Internet in December, 2008)

Company Reputation Risk…Internet Asymmetric!

January 27th, 2012. Published under Reputation risk.. No Comments.

 Michael D. Moberly   January 27, 2012

A company’s fiduciary responsibilities associated with managing its reputation and preventing – mitigating any attendant risks, should not, in my view, emulate the conventional Hollywood publicist or public relations model.  That’s because, reputational risks have become, in every sense, ‘internet asymmetric’!

Managing a company’s reputation risks include:

  • designing and executing enterprise-wide practices that are s proactive as possible
  • a strong sense of pragmatic foreseeability
  • consistently monitoring the company’s and stakeholder’s environment
  • correctly assessing – interpreting reputational risks within those environments
  • recognizing reputation risks have become ‘internet asymmetric’

With due respect to any company management team that actually tries to address today’s persistent and asymmetric reputational risks through a ‘reactive Hollywood public relations model’ will likely find themselves and their company mired in playing catch-up with the nanosecond realities of the unfiltered, revengeful, sometimes manufactured and conspiratorial communications that can rapidly take a toll. 

Somewhat analogous to air cargo carriers which serve as rapid supply chains to businesses globally,  most management teams have come to know, or, at least they should, reputational risks can materialize just as rapidly through what I refer to as ‘built in’ global (Internet-based) message dissemination mediums, i.e., social media platforms, blogging, etc.

Interestingly, as we’ve already seen numerous times, adverse communications (reputation risk events) routinely expose and exacerbate other (company) vulnerabilities, some of which may only be tangentially related to the initial event, but never-the-less  adversely affect a company’s overall reputation on a 24/7 cycle.

There are numerous aspects relevant to reputation risk management that warrant consideration by management teams, c-suites, and boards globally, two of which are:

  1. appreciating the virtual and potentially viral nature of reputation risk and the speed which unfiltered, malicious and manufactured (social media-blog) communications can materialize to produce the initial adverse effects on companies.
  2. assembling a cross-functional team of decision makers in advance, who possess the inclination, intellect, and capability to not merely monitor ‘the environment’, but develop the means (processes, practices) to rapidly and accurately assess:
  • what I refer to as the ‘realness’ of an adverse communication (potential reputation risk event)
  • if, or the time frame the above can/may morph into genuine reputation risks
  • estimated duration of the adverse (economic, competitive advantage) effects to company reputation.

In other words, how will, not if, such communications impact a company, its customers, its suppliers, and its stakeholders and shareholders?

An important key in my view to unraveling and correctly assessing an adverse (reputation risk) event is that such assessments should not be framed in conventional risk – threat models applicable to tangible (physical) assets.  A company’s reputation is an intangible (non-physical) and, in most instances, its most valuable asset.  There’s virtually no argument on this point.

Assessments of adverse social media content that manifest as reputation risks should be conducted in contexts of:

  • whether and how such communications can expose – exacerbate otherl (company) vulnerabilities and thereby create adverse cascading affects?
  • the speed which those vulnerabilities can materialize and how various global markets will interpret them (react, respond)
  • are such reputation risks subject to being controlled, mitigated, or favorably reversed in a sufficiently timely manner to permit a company to effectively recover from any economic – competitive advantage hemorrhaging that has occurred?

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Intangible Asset Rich Companies: Building A Culture That Fits!

January 26th, 2012. Published under Company culture and reputation., Intangible asset strategy, Looking Forward. No Comments.

Michael D. Moberly    January 26, 2012

What is a company culture?  A company culture is a system of shared values and practices that define what is important to that company.  Frequently, these values and practices become blended – embedded with other (already existing) norms and beliefs that convey (to employees, as well as management teams)  acceptable attitudes, behaviors, and practices.

Schein, among others, points out that a company culture will frequently emerge as management teams, boards, and employees collectively recognize the beneficial outcomes that accrue to each group respectively, as they successfully solve problems by applying those shared norms, values, beliefs, and practices. 

What is a knowledge-based economy?    The phrase ‘knowledge-based economy’ was popularized, if not initially coined by Peter Drucker.  In fact it’s the title of Chapter 12 in his book titled ‘The Age of Discontinuity’.  

 A knowledge-based economy, according to Drucker, refers to the use of an array of technologies and practices such as knowledge engineering and knowledge management, etc., to produce economic benefits, competitive advantages, and efficiencies for a company.  In a knowledge-based economy, knowledge, Drucker says, becomes the tool to achieve and execute, not necessarily a product or a simple outcome.

 The center piece of today’s knowledge-based economy are the intangible assets companies develop-produce and/or acquire.  Simply stated, developing a company culture to effectively fit (reflect) an intangible asset rich business means acquiring a fairly high level of operational familiarity with intangibles.  This starts of course with the simple phrase ‘know’em when you see’um’.  

Such familiarity also permits management teams, boards, and employees alike, to develop, position, bundle, safeguard, and profitably exploit intangibles to bolster a company’s value, competitive advantages, and revenue streams, and do it ‘faster, better, cheaper’ than competitors.  It also lays a compelling foundation (building blocks) for growth and sustainability.

Why is a company culture focused on its intangible assets necessary in a knowledge-based economy?   First and foremost because it’s an irreversible economic fact that 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability lie in – directly evolve from intangible assets.  

Far too frequently however, the existence and contributory value of intangible assets do not consistently appear on conventional mba oriented dashboards, in part because the dashboards remain tuned to tangible-physical assets vs. intangible (non-physical) assets.  

Still, for some management teams and boards, intangibles:

  • remain as somewhat of a managerial, financial, and exploitation mystery in terms of how to best utilize them to extract value and build competitive advantages
  • present a reporting-accounting conundrum because they’re seldom, if ever, reported on company balance sheets or financial statements, yet they literally form the competitive, value, and revenue backbone for most companies. 

The much desired objective is to build a resilient and self-perpetuating (company) culture that collectively understands intangibles’ value, revenue, and competitive advantage creation potential and processes, i.e., how ideas and innovation (intangible assets) evolve and can be fostered to the point they consistently deliver favorable returns for a company.  Again, such an objective can materialize in many forms, e.g., newly created efficiencies, stronger competitive advantages and customer relationships, new knowledge, and/or greater reputational value.

 (Some definitions contained in this post relating to knowledge-based economy were adapted by Mr. Moberly from Wikipedia.)

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Recognizing and Utilizing Intangible Assets: A Three Step Process

January 25th, 2012. Published under Intangible asset strategy, Intangibles as strategic assets. No Comments.

Michael D. Moberly   January 25, 2012

Intangible assets generally evolve over a period of time within a company and frequently come to serve as market and competitive advantage differentiators, that is, if management teams and boards recognize and utilize them as such.

Intangibles are seldom, what I call, standalone assets, however.  Instead, in many instances, they evolve (are developed or acquired) to serve in a synergistic and/or supportive context-capacity to facilitate and enable other assets, i.e., intellectual, relationship, and organization capital to maximize their contributory value.  This is particularly true for those intangibles embedded in a company’s products, services, and/or capabilities. 

For example, intangibles may exist (again) as collections of intellectual, relationship, and organizational capital that create efficiencies and/or synergies that favorably influence a firms’ overall value by creating new/additional sources of revenue,  serve as ‘building blocks’ (foundations) for company growth and sustainability.

The production, acquisition, bundling, and effective utilization of intangible assets is often reflective of the entrepreneurial and forward looking-thinking orientation of a management team and board.  To say then, that it’s essential, if not critical today for management teams, c-suites, and boards to identify, assess, and effectively utilize their intangible assets is certainly not an overstatement, rather a prudent business reality.

I advocate a three step process or set of practices for recognizing and utilizing intangible assets:

  1. They should be thoughtfully, perhaps strategically produced and/or acquired rather than merely succumbing to a dismissive attitude about their development, potential use and contributory value.
  2. Intangible assets must be assessed and effectively integrated in the appropriate – relevant (company) processes, products, and services and monitored (measured) relative to how they enhance (company) value and contribute to creating new sources of revenue and serve as foundations (building blocks) for competitive advantages, growth, and sustainability.
  3. Insofar as their development and utilization is concerned, management teams may find it prudent to consider ways in which their intangibles can, when/if feasible, serve as hindrances or inconveniences to market entry by competitors.  This can be achieved by developing intangibles to include certain degrees of (proprietary) complexity and obscurity that will elevate competitors’ time, expense, and resources for their replication or imitation.

In addition, its increasingly essential for management teams and boards to recognize, as their company matures, it’s likely there will be a commensurate growth in (employee) experience, expertise, and knowledge  that enables – facilitates development and integration of new – additional intangible assets in the form of intellectual, relationship, and organization capital, etc., that essentially mirrors a business’s stage of maturation.

(This post was inspired by a 2006 research report titled ‘SME Intangible Assets’ produced by the (Association of Chartered Certified Accountants with Chris Martin and Julie Hartley serving as principle investigators.)

Intellectual Capital: Managing A Company’s Know How

January 24th, 2012. Published under Intellectual capital management., Looking Forward. No Comments.

Michael D. Moberly   January 24, 2012

Effectively managing a company’s intellectual capital (IC) encompasses three key responsibilities for management teams, c-suites, and business units:

  • Acquire current knowledge and skill sets necessary to identify, assess, and distinguish where IC is developed-exist within a company
  • Conduct an inventory of a company’s IC and develop practices to monitor its status to, among other things, determine what aspects are:

                – In Usei.e., determine what and where IC exists and if it can be used more effectively and profitably to create value, efficiencies, and other opportunities for company growth, etc.

                –  Not In Use - i.e., determine if existing IC remains relevant and useful to a company’s core mission and/or its business units vs. being a stagnant asset with substantial maintenance costs.

Interestingly, Davis and Harrison (authors of ‘Edison in the Boardroom’) estimate that only 30% of many company’s entire intellectual capital portfolio may actually be in use, with the remaining 70% likely found in various (other) forms, e.g., intellectual property that has become obsolete, and/or products or services that are no longer in the company’s inventory or relevant to a company’s core mission. 

Personally, I urge advocates of Davis and Harrison’s estimates exercise caution to avoid pre-judging the outcome of an IC inventory or audit.  That’s because growing numbers of company management teams and c-suites realizing their company has collectively developed and possess a variety of sometimes, very nuanced and company specific intellectual capital.  All of which warrants identifying, unraveling, applying, and monitoring.

It is not my intent to be dismissive of or otherwise discount the Davis and Harrison estimates.  They are important on many levels, one of which is that they hopefully draw much needed attention to the importance of intellectual capital as an intangible asset and to management teams, boards, and equally important, a company’s stakeholders.

Let’s suggest, perhaps hypothetically, that a company’s management team and board determine it would be useful (profitable) to resource an individual or team to literally (help) manage a company’s intellectual capital.   Should a company be sufficiently forward looking to execute this, the IC management team must, first and foremost, be absolutely dedicated to recognizing, managing, and utilizing a company’s full array of intellectual capital as genuine business assets!

Unfortunately, there remain far too many company management teams and boards who hold a mistaken perception that intellectual property (applications, registrations, and issuances) are synonymous with intellectual capital management.  In reality, intellectual capital is a subset of intangible assets and it is only through the effective management and exploitation of a company’s  intellectual property in which intellectual capital is embedded, that potential value, revenue, wealth, and building blocks for growth can be generated.

 This post was equally inspired by ‘Intangible Capital: Putting Knowledge to Work in the 21st Century’ by Mary Adams and Michael Oleksak, a book which I encourage readers of this blog to study.

Utilizing Intangible Assets

January 23rd, 2012. Published under Intangible asset strategy, Intangibles as strategic assets. No Comments.

Michael D. Moberly   January 23, 2012

If you build a better mouse trap (a tangible asset), as the saying goes, the world will beat a path to your doorstep.  In the knowledge (intangible asset) based economy however, that time honored cliché has given way to the economic fact that as a company builds better paths for utilizing its knowledge and distinctive knowhow, i.e., intellectual, relationship, and organizational capital, they will also build value and sustainable competitive advantages.

Below are key strategic knowledge paths for company management teams and boards to consider insofar as identifying, unraveling, assessing and ultimately utilizing intangible (knowledge-based) assets to build and sustain value, create sources of revenue and competitive advantages:

  • Learn how to identify, unravel, and assess each of the intangibles a company produces, possesses, and/or acquires.  Avoid being dismissive or under-estimating the contributory value of intangible assets. 
  • Be alert to subtle, under-the-‘mba’-radar contributions intangibles make to particular processes and procedures that enhance company brand, reputation, customer/client relationships, and create efficiencies, etc
  • Ensure management team and board agendas consistently address the necessity to identify and assess any unrecognized or under-utilized (knowledge-based) intangibles by:

                   – ensuring the assets are effectively shared-disseminated company-wide with the mandate to explore ways to utilize combine them with existing intangibles to enhance, exploit other products, services and/or create efficiencies, etc.

               – recognizing how intangible assets are consistent and important underliers to business transactions, strategic alliances, and mergers and acquisitions, etc.

             – exploring opportunities to license, buy, sell, trade, or engage in other profitable practices in which intangibles are in play.

  • Take affirmative steps to safeguard and monitor each asset’s status for sustainability, defensibility, materiality, value, and risk. This is especially necessary for intangible assets because:

             –  they are routinely embedded in existing business practices, products, and services, sometimes as proprietary elements.

             – replication – imitation of a company’s intangible assets can, absent effective safeguards and monitoring, be quick and irreversible and present adverse economic and competitive advantage consequences.

While visiting  my blog, you are respectfully encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Recognizing Value Of Intangible Assets

January 20th, 2012. Published under Analysis and commentary, CFO's, Intangible Asset Value. No Comments.

Michael D. Moberly   January 20, 2012

I, like other intangible asset advocates routinely meet with astute and successful business leaders who are apt to apply sophisticated techniques and/or technologies to, for instance, schedule employee work schedules to reduce overtime, but, mention the words intangible assets and it’s quite likely they will exhibit a dismissive attitude.

We’re well into the 21st century and the important role intangible assets’ play in companies, according to numerous respected studies and personal experience, is slowly, but surely, being recognized at the c-suite and board level globally, i.e.,

…that steadily increasing percentages (65+%) of most companies value, sources of revenue and  future wealth creation have literally shifted from tangible (physical) assets to intangible assets.

However, there doesn’t appear to be sufficient incentive for management teams and boards to go beyond mere recognition of intangibles to actually devoting time and resources to acquire the operational familiarity necessary to develop, safeguard, position, and convert them to sources of value and revenue.  So why…

  • isn’t this economic fact – business reality resonating more and assuming a broader sense of urgency at all levels of a business enterprise? 
  • aren’t more management teams and boards eager to engage their company’s intangible assets and devise strategies to exploit – extract as much value as possible?

After all, intangible assets, are, in most instances are the proverbial ‘low hanging fruit’, but unfortunately they’re still routinely overlooked, neglected, or sometimes, literally dismissed. 

Respectfully, the lack of management team and board enthusiasm for intangible assets may, in part, be attributed to…

  • accountants who may not fully appreciate the business significance of intangibles because they’re not reported on balance sheets or financial statements unless bundled together as goodwill
  • measuring the performance of intangibles’ is often perceived to be difficult, subjective, and readily defensible
  • over emphasis on short term planning that diminishes positive outcomes of strategic planning that excludes the development, utilization, and exploitation of non-physical (intangible) assets.
  • the misconception that intangible assets are synonymous with intellectual property, when, in reality, IP is actually a subset of intangible assets
  • a self-deprecating assumption by some management teams and boards that their company does not produce or possess any significant or valuable intangible assets worthy of their time to identify and assess.
  • the mere lack of physicality of intangible assets, i.e., their non-physical nature.
  • the often times poorly understood and articulated ’value proposition’ related to utilizing intangible assets.
  • and, consultants’ who, for their own reasons, may be inclined to characterize any one, or all of the above as being far more complicated, time consuming, and costly to execute than necessary.

In response, I say to reticent management teams and board’s that positioning and aligning a company’s intangible assets to extract value and create/enhance competitive advantages involves several processes or steps, that are worthy of their time and attention, starting with…

1. Acquiring a genuine curiosity about identifying the intangible assets a company produces and/or has acquired.

2. Recognizing that intangible assets exist in many different formats and contexts other than merely goodwill.

3. Learning how to identify centers, clusters, and origins of intangibles within a company. 

Unfortunately, in far too many instances, management teams and boards initially learn about the existence and/or value of their firm’s intangible assets under distressed circumstances, i.e., the assets have been lost, stolen, undermined, or the commencement of a merger-acquisition in which case it may be too late to fully (economically) benefit from those assets.  That’s because, intangible assets are often perishable and readily transferable, and once compromised, recovery can be costly, time consuming, and seldom whole.

Interestingly, in 2004, Deloitte teamed with the Economist Intelligence Unit to conduct a survey titled; ‘In the dark: What boards and executives don’t know about the health of their businesses’.  The survey produced three key findings related to the importance that boards and senior managers should attach to tracking non-financial aspects of their company’s performance, i.e., its intangible assets.

The Deloitte study revealed…

1. Factors driving boards and senior managers to monitor key non-financial performance indicators as:

    a. increasing global competition

    b. growing customer/stakeholder influences

    c. greater awareness of risks to company reputation (which is an intangible asset), and

    d. accelerated product innovation

2.  Despite the growing need to monitor a company’s non-financial vital signs, i.e., intangible assets, most boards and senior managers still struggle to do so.

3.  The biggest obstacles to enabling boards and senior management to track non-financial vital signs of their business are:

    a. lack of sophisticated measures, and

    b. doubts that they truly matter.

4.  An overwhelming majority of respondents (90+% to 78%) described ‘critical and important drivers to (their company’s) success’ as:

  • customer satisfaction
  • service quality
  • efficiency and effectiveness of business processes
  • brand strength
  • innovation, and
  • quality of relationships with external stakeholders

Please note that each of the above constitute intangible assets!

Understanding and taking affirmative steps to identify, unravel, exploit, and extract as much value as possible from a company’s intangible assets is not rocket science, it’s just a very prudent business practice today!

Valuing Corporate Trade Secret Losses

January 19th, 2012. Published under Trade secrecy.. 1 Comment.

Michael D. Moberly   January 19, 2012

Throughout my 25+ years of experience in the intellectual property – intangible asset side of business I recall only a handful of instances in which a company had assigned (presumably calculated) a specific dollar value, beyond a subjective estimate, to stolen, infringed, or misappropriated trade secrets (proprietary information). 

On the other hand, I have been part of conversations, too numerous to mention, when a company representative would offer guesstimates about the value of ‘missing’ information assets.

There are various reasons why companies do not provide more detail about a loss or compromises of a trade secret or information deemed proprietary.  One reason is, there is no standard methodology to objectively calculate (assign) a more precise, defensible, and preferably unchallengeable dollar value to a loss or compromise. 

Not in-frequently, I have found that when a company experiences a particularly significant information asset loss or compromise, their initial reaction is to hurriedly resurrect a laundry list of resources used to produce that asset (from its inception to its execution) along with estimates of the associated cost of those resources.   In such instances, simple arithmetic would be applied to tally the costs as representing the value of the missing asset. 

Such approaches provide little if any insight to the underlying and contributory (enterprise-wide) value of a compromised information asset.  In other words, if the secret/proprietary information was embedded in, for example, multiple processes or procedures that permitted a company to achieve (current, future) competitive advantages or an enhanced market position, it’s unlikely such simple calculations would reveal that additional, but very real, value. 

A second reason companies may be reluctant to provide more precise (dollar value) information about stolen and/or compromised trade secrets and proprietary information is that by doing so, it may become problematic from a public relations, stakeholder, and legal perspective.  And, if litigation (civil, criminal action) is being considered a more thorough analysis may…

  • undermine consumer – shareholder confidence.
  • encourage (leaving the door open to) unflattering challenges about the validity of the  methodology the company used to reach a dollar value.
  • prompt (legitimate) questions about the company’s overall information asset protection capabilities and practices, on a fiduciary (responsibility) level.

Relevant to all of this is a Forester Research study (March, 2010) commissioned by Microsoft and RSA, titled ‘The Value of Corporate Secrets: How Compliance and Collaboration Affect Enterprise Perceptions of Risk’. 

Having read and studied numerous similar studies, this particular study stands out in my view because the principle investigators incorporated the following into their analysis of the findings, i.e., the,

  • value of sensitive information contained in corporate portfolios, as a whole.
  • variety of security controls used to protect/safeguard that information.
  • drivers of information security programs, i.e., what influences companies (internally, externally) to impose security controls on its information assets.
  • cost and impact of enterprise data security incidents, apart from corporate (trade) secrets and sensitive, proprietary information.

The key findings of this Forrester Research study are…

1. Secrets comprise two-thirds of the value of most company information portfolios

2. Compliance, not security, is the primary driver of (information) security budgets

3. Companies focus a great deal of time/resources on preventing accidents, but theft (of trade secrets) is actually more costly.

4. The more valuable a company’s trade secrets/proprietary information is, the more ‘incidents’ a company will likely experience.

5. Chief Information Security Officers (CISO’s) typically do not know how effective, or perhaps conversely, how ineffective, their company’s information security controls really are.

 Ultimately, it’s important to recognize that

  • trade secrets and proprietary information are intangible assets, and
  • 65+% of most company’s value, sources of revenue, and building blocks for growth and sustainability lie in – directly evolve from intangible assets.

Unwarranted Sense Of Urgency Should Not Dominate Business Transaction Negotiations…

January 18th, 2012. Published under Business Transactions, CFO's, Due Diligence and Risk Assessments, Intangible asset assessments/audits.. 1 Comment.

Michael D. Moberly    January 18, 2012

Intangible assets are increasingly valuable commodities that can be leveraged to allow management teams and boards to pursue a broader range of business transactions and/or alliances. Too, intangibles will almost certainly be integral to negotiating a deal in terms of pricing and the fact they can be bought, sold, transferred, traded, assimilated, or licensed.

Why?  Because 65+% of most company’s value, sources of revenue, and building blocks for growth lie in – evolve directly from intangible assets! 

Experience tells us that if there was a scale for transferability, replication, and/or imitation of intangible assets they would surely score high on all counts.  This is, intangible assets, in most instances are vulnerable to value erosion, undermining and competitive advantage hemorrhaging. In other words, they can become impaired in some manner relative to their ability to produce/- deliver the projected value, competitive advantages, and revenue streams after the deal has been closed.

This makes it all-the-more essential for transaction management teams to be alert to the potential for, if not the probability that, at some level, asset hemorrhaging will (can) occur in either pre or post transaction contexts.  In some instances, asset hemorrhaging can literally commence before the ink dries on a transaction contract.

A key starting point to prevent or at least mitigate any such asset hemorrhaging is to avoid permitting an unwarranted sense of urgency and/or speed to affect the thoroughness of the transaction management teams’ responsibilities.  When management teams view a transaction primarily through a lens of urgency and speed, a frequent consequence is that critical due diligence, particularly intangible asset assessments, become hurried and follow an ill-conceived or old ‘check the box’ approach that does not consider ways in which the assets can be adversely affected in both pre and post transaction contexts, as they should.  

Of course, in today’s hyper-competitive and predatorial global business transaction environment, it is likely there will be multiple and simultaneous suitors or players to a transaction which often drives, unduly in many instances, a sense of urgency and speed to consummating the deal.

Today, transaction management teams are obliged, in my view, to structure their role, particularly how due diligence and intangible asset assessments are conducted in a manner that:

  • recognizes the necessity to retain control, use, ownership, and monitor the value and materiality of the assets as being essential to negotiating a profitable and sustainable transaction outcome
  • secures approval to integrate intangible asset protection and monitoring commencing at the earliest stage and throughout the transaction negotiation process
  • reduces the probability of and be promptly alerted to internal-external acts or materialization of risks that can

             – undermine asset value, competitive advantages and the assets’ ability to continue to produce revenue

             – trigger costly and time consuming legal disputes and challenges that can disrupt the momentum of and/or jeopardize an otherwise viable transaction.  

While the goal of a transaction management team remains the same; to facilitate stronger, more secure, and profitable transactions, it’s now prudent to include an intangible asset specialist on the team, who can, among other things, identify, unravel, and assess the value, risks, defensibility, and sustainability of the intangible assets that are actually in play.