Michael D. Moberly July 12, 2014 ‘A long form blog where attention span really matters’.
Economic Espionage Act of 1996…
I have been consistently engaged in studying, conducting investigative research, publishing, and consulting on a variety of ‘open source’ matters related to economic espionage beginning well in advance of the passage of the Economic Espionage Act in 1996. Admittedly, while my interest in economic espionage issues are broad based, having served fulltime in academia for 20+ years, much of my interest has been directed toward the targeting and victimization of university-based research and corporate-university research alliances by insiders, competitor intelligence, data miners, information brokers, and foreign (independent and state-corporate sponsored) entities, and now ‘legacy free players’.
A distinctive aspect of my work in this arena is that I began to characterize these entities as ‘economic and competitive advantage adversaries’ as a more relevant descriptor of…
- the variants of economic espionage that exist today
- the range of domestic and international parties engaged.
Admittedly, this descriptor reaches beyond the definitions (precise requisites) codified in the federal Economic Espionage Act (18 U.S.C. § 1831-1839) statute. Doing otherwise, in my judgment, is limiting, and does not begin to convey the currency, depth, and breadth of this persistent and extraordinarily predatorial risk.
Capturing diversity and methodology of global players…
Too, I believe the phrase ‘economic and competitive advantage adversaries’ better captures the diversity of global players in terms of what and why particular assets are targeted, adversary’s motivations, as well as a testament to the ‘layered methodologies’ which are challenging to unravel with respect to those actually engaged in the acquisition initiative and the ultimate and/or primary (end) beneficiary of the acquisition.
My intent for re-phrasing the time honored (economic espionage) language are that it…
- brings greater relevance to businesses and companies and elevates their recognition that the theft or acquisition of their proprietary information, ala trade secrets, has many more dimensions and facets today compared to when the EEA became Federal law in October, 1996.
- indicates the targets are not exclusively national security and/or defense related.
Ultra sophisticated data mining…
The product, i.e., intangible asset acquisition, analysis, and insight, etc., capable of being delivered to an end user(s) through the application of sophisticated and frequently ‘off the shelf’ data mining technologies by economic and competitive advantage adversaries today is phenomenal by any standard or metric.
Determining who the ultimate end user or beneficiary is…?
Of the countless global entities, independent operators, and legacy free players engaged in some aspect of business, competitive intelligence, and/or information brokering today whether it be legitimate or illegal, believe me, it’s not necessarily a simple task to identify precisely who the real end user (beneficiary) of the work product will be or actually is.
Absent knowing who the real beneficiary of any misappropriated – stolen information-based intangible assets is, understanding how such assets will (can) be used or applied, once acquired and delivered, particularly if there are dual-use features involved, is useful. Still it remains challenging to objectively quantify, in dollar terms, the adverse economic, including competitive advantage, reputation, market share, etc., consequences attributed to any single event or collective loss.
Economic and competitive advantage adversaries…
I do believe reframing conventional economic espionage activities in a context of ‘economic and competitive advantage adversaries’ has substantially greater relevance in today’s increasingly competitive, aggressive, predatorial, and winner-take-all global business transaction, R&D, and new product launch environments.
Too, as the global economies’ become increasingly intertwined, yet overwhelmingly dominated by highly valuable intangible assets, particularly intellectual, structural, and relationship capital, achieving most any economic and/or competitive advantage is all but sure to outweigh the relatively minimal risk associated with most targeting and intelligence collection-acquisition initiatives. In other words, it has become obvious to me and I’m sure others as well, that the significant potential benefits of securing an economic and/or competitive advantage in a specific market or industry sector exceeds, intellectually at least, most costs and/or risks.
To anyone paying more than passing attention to economic (cyber) espionage today, they should recognize the adverse activities described above, as evolving from primarily targeting defense and national security projects to an unrelenting, costly, and inevitable risk for most any (public-private) commercial entity, regardless of size or industry sector, in which valuable intangible assets are being produced and applied. It is the intellectual, structural, and relationship capital which have become the globally universal forms of currency, often with company and/or country specific application and relevance.
Extrapolating costs of economic espionage…
As for extrapolating the costs – losses of economic espionage (acts of economic and competitive advantage adversaries) to a single company or to an individual country’s economy, either as a whole or to a specific industry sector, such analysis comes with a host of challenges, not the least of which is the often subjective nature of the calculations which, it’s not unrealistic to assume, are embedded with various corporate, government, policy, and political agendas.
Interestingly, in the 25+ years that I, and numerous others, many of whom have become colleagues, have been examining and consulting in the economic espionage arena, there is little that I can readily point to insofar as objective methodologies to measure…
- the specific damages and/or costs to a targeted/victim company.
- how to specifically attribute –differentiate the source of those losses to acts of economic espionage, and then
- extrapolate that data to either the U.S. or other country’s economy as a whole.
….aside from using the ‘contributory value’ approach.
Go fast, go hard, go global…
For example, the full range of economic – competitive advantage repercussions from a single incident/act of ‘economic espionage’ is challenging to fully grasp, in part due, I suggest, to the go fast, go hard, go global business transaction environment which most businesses now routinely function and the multitude of valuable intangible assets being produced.
Exacerbating this phenomena is the reality that a company’s awareness of trade secret – intangible asset theft or compromise seldom, in my experience, emerges immediately. Thus, its adverse economic – competitive advantage consequences to the victim company can only be objectively calculated if the consequences can be specifically attributable to an economic – competitive advantage event and should be done so in both strategic (long term) and near term contexts.
My rationale is that a single (stolen, misappropriated, compromised) trade secret and/or proprietary information (intangible asset) frequently involves multiple iterations and combinations of intellectual and structural capital being embedded which, in a strategic context, may be applicable to variety of products and/or services in different industry sectors.
It’s worth reminding readers of the globally universal economic fact, that today, 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, competitive advantage, and sustainability lie in – evolved directly from intangible assets.
I am not suggesting that the loss, theft, or compromise of a single trade secret or intangible asset is immeasurable. Rather, I am suggesting that measuring the real economic loss to a company must include objective near and long term calculations which can only come, in my view, from recognizing that trade secrets (proprietary know how) can readily become embedded with not just one, but numerous (proprietary) intangible assets.
As always, your comments are appreciated at email@example.com
Michael D. Moberly July 11, 2014 ‘A long form blog where attention span really matters’!
Know what you don’t know about intangible assets…
So, how is Michael Roberto’s book ‘Know What You Don’t Know, How Great Leaders Prevent Problems, Before They Happen’, relevant to intangible assets? While, I dislike having to make such an admission, there is this lingering that still, a probably significant, but actually unknown percentage of business management teams and c-suites, etc., remain operationally and financially unfamiliar with their firms intangible assets.
As an intangible asset strategist and risk specialist, the obvious theme of Dr. Roberto’s book, i.e., its title, translates very well with one of my themes’ expressed consistently throughout this blog, that is, elevating intangible asset awareness among company c-suite’s and management teams and putting a company’s intangible assets to work as tools to elevate and sustain a company’s value, create new streams of revenue, and fortify competitive advantage. In other words, prevent problems before they occur.
The initial path to ‘preventing problems before they occur’ begins by encouraging business policy and decision makers to genuinely engage, and let’s be clear on this, the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability today lie in or directly evolve from intangible assets!
From problem solving to problem finding…
In Chapter 1 of Roberto’s book for example, appropriately titled by the way, ‘from problem solving to problem finding’ the author commences with a very relevant quote from G.K. Chesterton which I take the liberty of paraphrasing somewhat, i.e., ‘it isn’t that management teams can’t see the solution, rather it’s that they often can’t see the problem’. The problem not seen, in my view, resides in overlooking and/or dismissing intangible assets as comprising the real sources of most company value, revenue, and competitive advantage as noted above.
The author (Roberto) makes many other introspective points, which I genuinely believe translate as strikingly relevant paths for not merely elevating management team awareness and operational familiarity with intangible assets, but also, for intangibles to become routine discussion – action items on c-suite and management team meeting agendas.
To pursue this example further, I am confident that numerous company management teams would agree, there are benefits to occasionally reversing conventional thinking, i.e., from problem solving to problem finding! By this I mean, for a substantial percentage of companies globally, the intangible assets their businesses routinely produce, frequently become embedded in various operations and transactions, but remain unrecognized, undistinguished, and otherwise not exploited to the level possible.
So, put another way, in a global business environment in which such substantial and irreversible percentages of business growth, competitive advantages, value, sources of revenue, and transactions, in general are essentially being underwritten with parties’ intangible assets, too me, this signals a significant ‘business problem’ if senior members of a company’s management team remain operationally and financially unfamiliar with the intangibles in play, and leave them unrecognized and undistinguished insofar as their contributory role and/or value are concerned.
Simply stated, this is no longer an arguable point and its resolution merely requires recognition of intangibles. For me, this constitutes a reasonable and certainly valid motivator for management teams and c-suites, whose companies may be experiencing challenges, to shift from problem solving to problem finding. Problem finding may well lie in the absence of or poorly executed practices for…
- sustaining control, use, ownership, and monitoring intangible assets’ value, materiality, and risk
- enhancing a company’s value, sources of revenue, market share, reputation, brand, and competitive advantages, and
- mitigating risks intangible assets.
More specifically, exhibiting disregard of, or dismissiveness toward a company’s intangible assets, particularly those with most companies routinely produce can be and often is ‘the’ problem’ and its resolution is straightforward as described here in numerous posts under the category of ‘training’..
To continue though, as readers know, a time honored starting point for solving most problems is conventionally speaking, recognizing a problem exists and/or risk has materialized with ‘problem finding’ coming through management teams’ introspection that preferably follows. So, ‘taking a page’ from Roberto’s book, one strategy for remedying high value problems companies experience, should commence by finding/identifying the intangible assets in play.
In the context of‘ ’knowing what you don’t know and how great leaders can prevent problems for they happen’ means adding personal characteristics of anthropology and ethnography to one’s managerial repertoire.
For example, in the context of this blog, being an ethnographer would encompass identifying and observing a firms’ producers – developers of intangible assets on the proverbial shop floor, i.e., in their natural settings, wherever that may be. In other words, ‘finding the problem’ means avoiding simply asking employees how things are going, or relying on survey data or focus groups as the dominant or sole methods for acquiring insight, i.e., problem finding. Instead, management teams should actually ‘watch what employees do, in the same manner as an anthropologist. That is, engage and observe how employees, customers, clients, and suppliers, etc., actually behave and interact.
This leads not only to ‘problem finding’ but more importantly recognition and appreciation for the intellectual, structural, and relationship capital (intangible assets) that are woven into each.
By conducting such observations through an anthropological and ethnographic lens, management teams can become more effective and confident ‘problem identifiers’, in large part because they have become more adept at distinguishing – analyzing the contributory role and value of their firms’ intangible assets absent subjective, misleading, or over analyzed data that sometimes leads to biases and misconceptions.
Too, by making observations through these distinctive lens, management team members are better positioned to not just identify what and how intangible assets are being used, but, if they are being used effectively, and which, if any, intangible assets need to be developed or acquired and ultimately integrated to make those processes better.
This post was inspired by Michael A. Roberto’s book ‘Know What You Don’t Know…How Great Leaders Prevent Problems Before They Happen’, Wharton School Publishing, 2009.
I always welcome your inquiry at 314-440-3593 or firstname.lastname@example.org.
Michael D. Moberly July 9, 2014 ‘A long form blog where attention really span matters’.
Being an intangible asset strategist and risk specialist, my experiences in many company conference rooms over the past 25+ years, among other things, is that the proverbial 900 pound economic – competitive advantage ‘intangible asset’ elephant is always present, but, in most instances, goes unnoticed, unattended, under-used, under-protected, under-valued, and not clearly defined.
This makes it both frustrating and challenging to persuade c-suites, management teams, and boards about the importance of acknowledging, engaging, and exploiting their intangible assets in ways to elevate company value and create new-additional sources of revenue, sustainability, and competitiveadvantages.
Several of my colleagues have written very good pieces in which they variously compared the 2011 film Moneyball to bringing change in business operational attitudes, particularly toward intangible assets. Of course, as my colleagues eluded to in their respective pieces, and I as well, attempting to execute change, regardless of the environment, i.e., business, institutional, organizational, etc., is routinely met with various levels of resistance, hesitancy, and reluctance, and of course, ‘second guessing’.
That is, endeavoring to change ‘the way things have always been done’, i.e., established past practice, is all but sure to experience at least some resistance because those charged with carrying out what ever changes are being contemplated or advised frequently believe – argue past practice has worked fine! So, as the adage goes, ‘if it’s not broken, why try to fix it’? And here is where there are numerous commonalities and/or comparisons to the dialogue in the film ‘Moneyball’.
I suspect there are an abundance of management team members and c-suites who believe that occasionally change, away from past practice, is, simply stated, necessary, and should be executed. One need not look far to see very public examples wherein change has produced extraordinary positives and, to be accurate, the occasional ‘sanfu’ as well.
I can think of few exchanges that characterize the intricacies of change so well as dialogue in the film ‘Moneyball’, in which Oakland A’s General Manager Billy Beane, played by Brad Pitt, and Peter Brand, Mr. Beane’s advisor and confidant, played by Jonah Hill, and the entire cadre of A’s player scouts and development staff are engaged in a discussion ostensibly regarding t the team’s player draft picks for the upcoming 2002 season.
The scene I am describing occurs in a conference room at the Oakland A’s stadium following their highly successful 2001 season. However, several star players from the 2002 season, including Jason Giambi and Johnny Damon are no longer with the team having accepted lucrative free agent offers from two rival teams.
In this scene, seated at a long table are GM, Billy Beane, Peter Brand, and seven Oakland A’s scouts whose time honored responsibilities include finding, assessing, and developing new (prospective) professional baseball players. Mr. Beane commences the meeting by expressing frustration, prompted in large part by counsel from his newly hired advisor, Peter Brand which questions the conventionality of the time honored methods baseball scouts apply to assessing and developing new talent.
‘We are going to be doing things differently’…
- Mr. Beane: We’re trying to solve a problem here, but you (referring to the scouts and player development staff seated at the table) are trying to solve the problem as you still see it, which is the same way MLB (Major League Baseball) has approached it for the past 120 years, that is, by finding ballplayers to replace ballplayers! You want to find players to replace star player Jason Giambi and Johnny Damon, but, both are gone, their history!
- Head scout: I think we all know what the problem is Billy. There is a lot of experience in this room and you need to let us do our job of replacing two key players who have been hired by other teams, Jason Giambi and Johnny Damon.
- Mr. Beane: But, you are not looking at the real problem!
- Head scout: No, we are very aware of the problem!
- Mr. Beane: OK, so what’s the problem?
- Head scout: We have to replace two star players.
- Mr. Beane: NO! The problem we are trying to solve here is that you scouts are sitting around talking the same old ‘body’ non-sense, like you’re selling blue jeans and looking for another Fabio! We’ve got to think differently about how we find and assess prospective ballplayers, assemble a team, and put a team on the field for 161 games each season.
- Head scout: This all sounds like fortune cookie wisdom to me.
- Mr. Beane: NO! It’s just logic!
- Mr. Beane: There is epidemic failure in the game of professional baseball. Baseball is medieval. Baseball teams are asking the wrong questions because they don’t understand what must really happen on a baseball field to win. This misunderstanding leads the people who run MLB teams to misjudge their players. People who run ball clubs think in terms of buying players!
- Mr. Beane: Our goal here should not be to buy players, instead, our goal should be to buy wins, and in order to buy wins a team needs to buy runs! So, what I see here is an imperfect understanding of where runs come from or how runs are generated!
- Head Scout: But baseball is not just about numbers, Billy. Google boy here (a disparaging reference to Peter Brand) just doesn’t know what we know. He doesn’t have our experience, or our intuition. These are ‘intangibles’ that only baseball people like us, who truly know the game understand. You are simply discounting what baseball scouts and player development staff have done for the past 120 years. So, we don’t care what you think Billy, because MLB thinks the way we think with our evaluative experience and our intuition. This is not a game about statistics, it’s a game about people!
- Mr. Beane: We will find value in players which no one else sees! Good players are routinely overlooked or dismissed for a variety of biased reasons, mostly because this is the way we’ve always done it! Are there really other players out there like Giambi and Damon? NO! So, what we can do is recreate Giambi and Damon in the aggregate!
- Head scout: Yes, but will they get on base?
- Mr. Beane: Do I really care how a ballplayer gets on base, whether it’s by a hit or a walk? On-base percentage is what we’re looking for now! This is the new direction of the Oakland A’s. We are now card counters!
- Mr. Beane: The truth is, we can find 25 winning players because everyone else in baseball under values them. So, if we approach the game the same way it’s been done for the past 120 years, then, we will lose on the field! MLB teams must adapt or die!
- Mr. Beane: It’s a process…it’s a process…it’s a process!
Changing the status quo…
So, not unlike Billy Beane’s and Peter Brand’s desire to change ‘the way things have always been done’, intangible asset strategists and risk specialists are equally committed. The changes we wish to bring are to the time honored ways company management teams function, develop and launch new product and services and engage in and execute (global) transactions.
Of course, achieving this must be a bit more respectful that Billy Beane’s approach, but just as persuasively articulated through compelling and objective ’upside’ evidence that recognizing, developing, exploiting, and safeguarding intangibles will deliver returns, competitive advantages, growth, depth, and sustainability to a company.
In the case of intangible assets, the changes I advocate are rooted in the irreversible and global economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets! (Brookings Institution, Intangibles Project).
In other words, it’s simply no longer business as usual, regardless of management teams’ wishes or their dedication to past practice. This is what Oakland A’s manager Billy Beane and his advisor Peter Brand recognized well before any other MLB teams’ did, that is, there are different and more effective ways, that is to focus on buying wins by buying players who ‘get on base’, not just buying players with extraordinarily costly contracts.
So, be it a MLB team or a private sector business and regardless of size, sector, or revenue, each must adapt to new economic facts and operational realities, or be prepared to become a casualty that encompasses dwindling returns, reduced market space presence and competitiveness, high turnover, and perhaps most damaging of all, the permanent loss and/or undermining of a company’s most valuable assets, its intangibles!
Of course, this requires the managerial fortitude and vision to seek and acquire new understanding where (company) value and revenue originate and skill sets and metrics to safeguard those assets and monitor their value, materiality and risk. So, today, and for the foreseeable future, profitability, growth, and sustainability are irreversibly linked to developing, assessing, and sustaining control, use, ownership and monitoring intangible assets’ contributory value!
As always, your comments are most welcome at email@example.com
Michael D. Moberly July 8, 2014 Pre-order a new book by Mike Moberly!
Knowledge is power…
“Knowledge is power”, a statement attributed to Sir Francis Bacon in the 17th century which translates well to the present 21st century where we find there is no other arena of economic and social relations, in which Bacon’s statement comes to fruition as intangible assets, i.e., intellectual, structural, and relationship capital dominate business economies globally with most company operations and transactions are dependent upon the creation, utilization, and conversion of intangible assets, which, not so coincidentally, serve as foundations for most company’s value and sources of revenue.
One challenge to the intangible asset dominated business environment however, is company’s ability to sustain control, use, ownership, and monitor the value, materiality, as well as mitigating risks to those intangible assets throughout their contributory value and functionality cycles. Thus, the management, oversight, and stewardship of intangibles is rapidly becoming a skill set requisites.
After all, unlike patents, trademarks, and copyrights, there is no certificate issued by any government that states these are your intangible assets. Instead, responsibility for identifying, unraveling, assessing, safeguarding, managing and exploiting a company’s intangible assets lie solely with company management teams.
Too, recognition and monetization of intangible (non-physical) assets has changed conventional business practices globally, which, for hundreds of years, evolved exclusively around the production and utilization of tangible or physical assets
There are three very clear features of 21st century global business transactions…
- We are only in the early stages of the irreversible economic fact that 80+%, of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability, either lie in or evolve directly from intangible assets.
- Intangible assets are playing critical – essential roles in most company’s value, profitability, growth potential, competitive advantages, and long term sustainability.
- In today’s globally intertwined business transaction environments dominated by intangible assets, it’s inevitable that intangible assets will be simultaneously in play and at risk.
My new book is particularly applicable to the time constrained reader…
For time constrained readers, to maximize my book’s benefits, I have designed each chapter to deliver numerous multipliers to respectfully bring graduated operational clarity to the stewardship, oversight, and management of intangible assets. For starters, this includes…
- treating the management of intangible assets as business decisions and fiduciary responsibilities, not solely as legal or accounting processes.
- structuring business transactions to mitigate the inevitable asset risks which, when materialized can (a.) entangle intangible assets in costly and time consuming legal disputes and challenges, (b.) disrupt the momentum of company projects or new product or service launches, and/or (c.) undermine projected or anticipated synergies and competitive advantages.
- fostering a ‘company culture’ that recognizes and supports the contributory and collaborative value of intangibles…
- making companies more organizationally resilient to the materialization of risks, by including intangible assets in continuity and contingency planning.
- ensuring the production, contributory role, and value of intangible assets is aligned with a company’s core mission, strategic planning, and the various types of transactions it typically engages.
- elevating company reputation, image, and goodwill among stakeholders and gain the attention of prospective consumers beyond its traditional market space.
- reducing asset vulnerability to theft, misappropriation and other types of risks and threats, because when certain risks materialize unabated, they will undermine asset value, competitive advantages, market position, and otherwise adversely affect company reputation.
- using and exploiting intangible assets, commensurate with their respective life, value, and functionality cycles.
Collectively, the above serves as preludes for achieving more consistent business success and profitability, which now, more than ever before, each is inextricably linked to the effective development, management, and safeguarding of intangible assets.
As always, comments are welcome at Mike Moberly, firstname.lastname@example.org.
Pre-order a new book, ‘Safeguarding Intangible Assets’ by Mike Moberly!
Michael D. Moberly July 1, 2014 ‘A long form blog where attention really span matters.
Calculating the cost of economic espionage, micro, macro…
Calculating the cost of economic – cyber espionage, i.e., its micro adverse impact to a specifically targeted company asset and competitive advantage, supply chain partners, etc., or its macro adverse impact to a broader (local, regional, national) economy are, at best, a challenging and often times, up to this point anyway, a largely subjective undertaking. Too, address the costs and/or consequences of economic – cyber espionage has being ratcheted up on company’s decision making ladder by assuming a sense of fiduciary responsibility and/or obligation, due in part to Stone v. Ritter (911 A.2d 362 (Del. 2006). But, still, as noted numerous times in this blog, assigning a precise value to the loss of intangible assets involves in my judgment, subjective calculations which at best constitute guesstimates.
Decisions for the victimized company …
There are numerous decisions which company’s victimized by economic – cyber espionage must endure which will variously have a bearing on the end result, i.e.,
- Whether or when to ‘go public’ with the event. In a growing number of instances prudent reputation risk management best practices and state and federal law, dictate ‘going public’ quickly.
- How to address the inevitable questions, revelations, and possible investigations which will likely convey uncomplimentary perspectives about a company’s overall readiness. Few, c-suites’ are oblivious to these potentialities that now routinely follow breaches that adversely effect reputation, e.g., how did it happen, why did it happen, was the company sufficiently prepared to thwart, contain, and/or defend against such attacks, what activities was the company engaged in to make it an attractive target for economic – cyber espionage, and when did the company first realize it had been victimized? The latter is usually framed as ‘why not sooner’?
- What is the best methodology for quantifying the near and/or long term adverse effects to specific operational units – brands in the company or the company as a whole, as well as economy, particularly the sustainability of key supply chain partners, as well as the ability of a victimized company to return to a state of operational normalcy.
Underlying variables which often weigh heavily on these, and other ‘reputation risk’ matters is not knowing precisely how stockholders, stakeholders, consumers, and media will react to economic – cyber espionage events and whether their reaction will be short-lived, or adversely long term?
There is little argument that economic – cyber espionage represents a serious, persistent, and asymmetric risk/threat to most companies, and now, as globalized business is a routine fixture, multiple country’s economies’ can be adversely effected. Broadly speaking, this perspective was initially conveyed during Judge Sessions’ tenure as FBI Director during a speech to the Cleveland Economics Club in which he very appropriately uttered the now often repeated statement ‘economic security and national security are synonymous’.
Of course, the realities embedded in Director Session’s statement are much more relevant today, particularly given the economic fact that consistently rising percentages of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability’ lie in – evolve directly from intangible assets which now routinely reach or exceed the 80+% mark. This translates as the attractivity for certain companies to become targets (victims) of economic – cyber espionage is related to specific intangible assets a company has developed, acquired, and assembled in the form of intellectual, structural, and relationship capital or, more simply stated, ‘know how’.
Assessing losses and damages to intangible assets…
First, let me point out that incidents’ of economic – cyber espionage produce the obvious tangible losses, but also losses to various intangible assets a company may have developed or acquired, in this instance reputation and other intangibles in the form of intellectual, structural, and relationship capital.
Assessing (translating) intangible asset losses in dollar values is not for the uninitiated nor is it necessarily for asset valuation specialists whose expertise lies largely in valuing more ‘stationary’ objects or assets.
Valuing (measuring) intangible asset losses-damages present unique challenges which I find may be quite subjective insofar as advancing a particular agenda or accommodating a specific need. In fact, the full extent of a successfully executed economic – cyber espionage event to a target’s intangible assets can seldom be recognized quickly. For example, if a company experiences a theft of specific proprietary information, i.e., intellectual, structural capital, or trade secret, those assets may be distributed and/or applied to multiple beneficiaries internally and externally with each contributing to efficiencies in the production and operability of different products in different industry sectors.
Contributory value of intangible assets…
Be assured, I am not suggesting such losses of a company’s intangible assets are absolutely immeasurable, rather those engaged in their valuation must recognize they have distinctive features and characteristics, the primary one being they are not tangible. So in valuing intangible asset losses, I want to ensure the findings are as objective as possible. So when valuing intangible asset losses, I start by identifying and distinguishing the intangibles at risk – in play. I then commence a process of examining each asset in the context of their ‘contributory value’ .
Understanding intangible asset value…
An important key to understanding, and ultimately estimating the value of a company’s intangibles assets which have been illicitly acquired or stolen through an act(s) of economic – cyber espionage, lie in understanding the processes, procedures, and resources necessary to sustain control, use, ownership, and monitor the value, materiality, and risk to those assets. In today’s hyper-aggressive, predatorial, and go fast, go hard, go global business transaction environments which many companies, regardless of size or sector, routinely operate, any company’s intangible asset safeguards should be constructed to withstand the inevitable consequences of ‘category five hurricanes, cyclones, or Richter scale 5+ earthquakes’ or even the occasional Tsunami. The reason is, there are an abundance of global players working 24/7 in this arena one of which are what Thomas Friedman refers to as legacy free players which I have taken the liberty of re-applying to reflect this current phenomenon.
Legacy free players…
A proper starting point for achieving today’s much warranted level of asset (value, competitive advantage) sustainability, must include…
- measures to monitor of asset value, materiality, and risk.
- being alert to anecdotal reports that provide important glimpses into economic – cyber espionage techniques and methodologies, and
- knowing (understanding) who the global players are, particularly the origins of the increasing number of ‘legacy free players’ (Thomas Friedman, ‘The Flat World).
My definition of ‘legacy free players’ is quite similar to that of Mr. Friedman’s, that is, these individuals/groups may not be necessarily aligned with or employees of nation state sponsors which are frequently technology dependant and sophisticated, or even organized units/cadres of economic spies. Instead, ‘legacy free players’ are, for the most part, independent operators or groups of individuals whose country of origin, and consequently the cultural perspective about honoring the intangible properties of others is a relatively new concept insofar as respecting personal, let alone intellectual property rights. In other words, there is an absence of legal, social, or cultural legacy to others’ properties of the mind, i.e., intellectual – human capital.
No over dramatizations here…
Readers’ who elect to construe these characterizations as over dramatizations would be mistaken. Too, it’s indicative of not being current about the risks and threats posed by increasingly (ultra) sophisticated and organized groups of state sponsored, independent actors, and the growing numbers of ‘legacy free players’, i.e., global economic – competitive advantage adversaries, each functioning quite effectively and probably profitably in their predatorial environments.
So, in my judgment, any asset loss or damage assessment which excludes, in its equation, the economic fact that 80+% of most company’s value and sources of revenue lie in intangible assets, will not convey the full extent/consequence of economic – cyber espionage.
In far too many instances, I observe information asset protection practitioners and programs that appear to have been constructed using quite conventional ‘infosec’ frameworks…
- designed to address subjective, anecdotal, or one-off types of (information asset) threats, risks, or events, or are
- based on pre-conceived notions of who the adversaries’ are, their origins, motives, and methods, or
- that are country (adversary) specific based on presumptions of who the beneficiaries are.
As always, I welcome your comments at email@example.com or 314-440-3593 (St. Louis)
Michael D. Moberly June 26, 2014 ‘A long form blog where attention span really matters’.
So, why are these intangible assets being targeted by economic – competitive advantage adversaries…?
Respectfully, let me re-draw readers’ attention to the various examples of intangible assets previously described (identified) and the fact that intellectual property are merely one type/category of intangible asset, albeit a prominent one.
So, why are intangible assets being targeted by global economic – competitive advantage adversaries?There are, in my judgment, multiple reasons why, which I’m confident experienced reader practitioners will find agreement, i.e.,
- to appropriate the words of the 1970’s bank robber Willie Sutton, it’s because intangible assets are where 80+% of most company’s value, competitive advantages, and profitability originate and are ‘deposited’.
- most intangible assets, once stolen, compromised, or infringed, can be used – applied in competing products and/or services as well as having the potential for being converted for use in unrelated products or services, in other words, they are often readily monetizable or comercializable, in the right hands.
- there is a consistent and often global demand for one or multiple intangible assets like those described above, a demand which is relatively barrier free insofar as having numerous market entry points globally where intangible assets can be sold, bartered, exchanged, or melded into competing or other products or services, etc.
Role of corporate security…
A professional acquaintance, Mr. Greg Acton, served as Director of Global Security for a major telecom – consumer electronics’ company in California. The company had invested heavily in R&D over a period of 12 to 18 months on new and perhaps ‘game changing’ technologies to be incorporated into its long time staple, globally branded, and primary consumer product.
Upon embarking on this initiative, the company’s stock price was experiencing a consistent downward spiral, which, in many respects was due largely to numerous new and well financed competitors entering the market space coupled with the sense that this company’s product had not kept pace with newer, multi-functional technologies which consumers were readily embracing in other brands.
Without over dramatizing the circumstance, there was indeed a demoralizing sense of product – technology stagnation regarding the company’s staple product and the overall brand.
As is prudent with many electronics – telecom firms, this company had timed its R&D and product launch to coincide with the annual consumer electronics show in Las Vegas. This company, as many before it, believed a key to the success of a product’s launch, financially as well as regaining consumer confidence in its product, and by extension its brand, lie in part, in retaining a consumer teasing level of secrecy shrouded around its new product, which as readers recognize is quite common in this sector and perhaps perfected by Steve Jobs and Apple.
The tactical and strategic intent of this shroud of secrecy would be to secure domination, albeit perhaps fleeting, of the electronics show’s dynamics, coupled with the immediate commencement of a strong marketing blitz designed to breathe new and sustainable life into the company, its brand, and its products.
In this, as in many other similar circumstances, this company’s, Mr. Acton played a very significant role insofar as assuming substantial responsibilities for ensuring the company’s new product, it’s planning, technology supply chain, and prototypes literally remained devoid of any leakage throughout the almost two years of R&D and testing phases up to the precisely scheduled time and date of its well hyped public offering at the consumer electronics show.
In this instance, Mr. Acton, clearly a seasoned and well respected ‘silicon valley’ veteran understood the significance of his responsibilities to this product launch along with the extraordinary value of the numerous and contributing intangible assets, all of which would be in play, particularly, the company’s reputation, image, and consumer goodwill.
As I’m confident readers understand, the intangibles which Mr. Acton recognized and effectively oversaw and safeguarded throughout this 20+ month product development and testing period were conservatively worth multiple millions of dollars in potential sales to the company in addition to rejuvenating its reputation, market share, as well as favorably affecting the value of the company as a whole.
Had there been inadvertent or purposeful public leakage by an economic and/or competitive advantage adversary (internally, externally) about this product and its launch in advance of the consumer electronics show, it would have, among other things, allowed ample time for the ever present array of global technology critics and competing firms to mount consumer directed offensives against the product intended to minimize and/or undermine its improvements and consumer ‘likeability’, etc.
Much to the credit of Mr. Acton, there were absolutely no known advance (adverse) leakages. What’s more, the stock price of this publicly traded company shot up 312% by the close of business on the day of its highly public launch at the consumer electronics show. Another metric worth noting is that in addition to the aforementioned stock price gain, the company’s vice president of marketing informed Mr. Acton that the company had spent $1M on marketing the lead up and public announcement. In return for sustaining the product proprietary status, the company received an estimated fifty times that amount in product advertising, at no cost to the company, through the various and globally connected media portals in place at the consumer electronics show.
So what was the contributory value of this CSO’s commitment to ‘no leakage’…?
Perhaps first, and foremost, it laid the essential foundations for the company to fully capitalize and otherwise exploit its presence at the consumer electronics show which very rapidly converted to stock analysts and stock market share price favorables.
So, is this sufficient rationale for not only inviting, but ensuring CSO’s and other relevant security personnel are comfortably seated, with a voice, at the proverbial R&D table from the outset of an initiative, I believe it is!
CSO’s, in a new role as intangible asset strategist and risk specialist, working collaboratively and in unison with a company’s internal and/or external R&D unit and relevant and various supply chains, are uniquely positioned to recognize and differentiate the more valuable and competitive advantage driving elements of promising research. One way is by virtue of their proximity to and operational familiarity with the global expansion of economic and competitive advantage adversaries which are consistently motivated by nation state mandates or monetary remuneration to acquire other entities’ valuable intangible assets.
But what makes a CSO’s voice heard and duly considered…?
Again, first and probably foremost, are CSO’s receptivity to recognizing the relevance and importance of elevating their existing skill sets to acquiring an operational familiarity with their company’s intangible assets. In other words, acquire a level of operational proficiency with intangibles that provides CSO’s with the professional comfort associated with becoming an intangible asset strategist and risk specialist!
Straightforwardly, that would entail recognizing the strategic importance and necessity to develop and respectfully execute ‘under the radar’ practices and processes, all of which are designed to sustain control, use, ownership and monitor the value, materiality, and risk to select intangible assets, distinguished as having the most promising contributory value to a specific or multiple (on-going) proprietary (R&D) initiatives and/or projects along with the array of business transactions a company may regularly engage in which intangible are routinely in play.
This would include conducting (intangible asset) due diligence for such transactions as a merger, acquisition, strategic alliance, or other business activities in which intangible assets are routinely in play and integral to the favorable outcome of a deal.
Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or firstname.lastname@example.org
Michael D. Moberly June 25, 2014 ‘A long form blog where attention span really matters’!
Mis-portraying what’s really being targeted…
Having been actively engaged in the intangible asset arena since the early 1990’s as an academic investigative researcher and now as an intangible asset strategist and risk specialist, I am hard pressed to understand why the administration, cabinet secretaries, corporate c-suites, and various ‘talking head’ pundits consistently portray the target(s) of global economic and cyber espionage as bein intellectual property, i.e., patents, trademarks, copyrights, etc.
My suspicions are that continuing to purposefully mis-portray these events as being exclusively related to intellectual property events, they are intended to elevate business and public awareness about by using a singularly simplistic phrase because officials presume the public is unable to understand the intricacies and distinctions of stolen – misappropriated information-based intangible assets delivered in other formats. So government officials and copy cat punditry continue to portray economic and cyber espionage and data/information mining with presumably the more understandable and common term of intellectual property.
A distinction without a difference…?
I urge readers not to characterize the above perspective as merely constituting a distinction without a difference. It is indeed much more. That is to say, a company’s intangible assets, e.g., intellectual, structural, and relationship capital which comprise the dominant sources of value, attractivity, and revenue that serve as the foundations to conventional intellectual properties are the real targets of economic – cyber espionage and data mining conducted by global economic and competitive advantage adversaries.
In other words, these know how-based assets are precisely what the economic – competitive advantage adversaries’ globally need, want, and therefore will aggressively and stealthily seek because, among other things, being successful in acquiring those categories of assets is the quickest route to global competitiveness and profitability.
Issued patents provide legal standing…
Yes, it is quite true that an issued patent provides holders with (legal) standing to bring criminal and/or civil action against alleged infringers and/or misappropriators. And yes, one requisite for a countries’ seeking World Trade Organization (WTO) membership is enacting a comprehensive (legal, enforcement) intellectual property regime.
I do hold great respect for those who are the recipient of an issued patent from their government, particularly for what the patent holder has deservedly achieved. A patent issuance certificate certainly warrants framing and hung on a wall of prominence for all to see and dutifully admire. But please, avoid assuming that an issued patent today constitutes an absolute and stand alone deterrent to would be infringers, i.e., economic and competitive advantage adversaries with the u know how underlying the patent is somehow magically safeguarded for the patents’ duration or its life-value-functionality cycle, whichever comes first.
The latter of course, is sometimes a business decision pure and simple, particularly in today’s globally aggressive, predatorial, winner-take-all, and go fast, go hard, go global business environment. So respectfully, any assumption that the issuance of a patent serves, in any way, as a specific deterrent to economic – competitive advantage adversaries or insiders inclined to misappropriate the assets along with the underlying know how represents not just wishful thinking, rather naïve, misguided, and certainly out-of-date thinking.
Please consider this…
Why would an economic – competitive advantage adversary or data mining operation, information broker, or competitor intelligence engage in the risk of acquiring (stealing) a patent, i.e., usually its structural capital content, when issued patents (essentially the same information) will be published and are available online and posted in the public domain, the U.S. case, at the U.S. Patent and Trademark Office website?
The answer to that question lies, in my view, in pure economic competitiveness which translates as getting and doing what’s necessary to stay ahead of any and all competitors and rivals, be they a sector competitor, a regional competitor, or a national defense competitor country.
I purposefully belaboring this point to make these distinctions, i.e., after many years of investigative (business) research along the entire spectrum of economic and competitive advantage espionage, this issue goes directly to the heart of perhaps the most important question for security practitioners, which is…
how and which knowledge-based intangible assets originating with a company warrant higher level and more sophisticated safeguards and resilience planning?
The answer is quite clear. It is the intellectual, structural, and relationship capital categories of (intangible) assets that deliver the greatest contributory value to a company’s value, sources of revenue, and otherwise serve as essential ‘building blocks’ for company profitability, competitiveness, and sustainability.
But, perhaps most critical and troublesome to the holder – originator of valuable and competitive advantage driving intangible assets are three, generally irreversible, realities…
- once gone, exclusive – proprietary knowledge and knowhow, will likely be gone forever!
- seldom can an asset holders or companies fully recoup such losses.
- knowledge-based (intangible) assets are often quickly and readily convertible for adaptation and exploitation however and whenever the ultimate recipient or adversary wishes.
Let’s assume, for discussion sake, the targets of preference for a particular economic and competitive advantage adversary, data mining operation and/or information broker is some form, type, or category of intangible asset which can fill an immediate or strategic need or demand and therefore serve as a key component to a previously unsolved puzzle of the adversary.
I encourage readers not to dismiss this perspective as being fanciful or irrelevant. Instead, try ‘drilling down’ a bit, and examine each broad (intangible) asset category through a business competitive, value, and revenue lens, be it held by a company, university, or independent R&D environment. One outcome of this exercise is to recognize what type(s) of safeguards are necessary to fully preserve each assets’ value and potential monetization – commercialization properties for the duration of the assets’ respective life, contributory value, and functionality cycle. The reason, that’s precisely what matters most today and that’s what global adversaries are seeking to disrupt to their benefit.
Entangling Intangibles’ Tamara Plakalo February, 2006. Managing Information Strategies. Australia.xamples of intangible assets…
The following are examples of intangible assets which I have adapted from two well respected and current sources, (a.) ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’. Weston Anson. 2007. American Bar Association, and (b.) ‘Untangling Intangibles’ Tamara Plakalo February, 2006. Managing Information Strategies. Australia.
- Internally developed (proprietary) software and software copyrights, automated databases, source code, enterprise solutions and custom applications…
- Marketing lyrics, jingles (music), promotional characters and devices, photographs and video, newsletters, advertising/marketing concepts, results of focus groups…
- Engineering and industrial (new plant, equipment) designs, engineering drawings (blueprints) and technical knowhow…
- Customer – client communication platforms, including mailing lists, relationships, customer data bases and retrieval systems, special distribution channels, 1-800 numbers.
- Actionable competitor research and business intelligence, i.e., plans, intentions, capabilities…
- Real estate, zoning, construction permits, i.e., air, water, and mineral drilling-exploitation rights, right-of-way, easements, and building (expansion) plans/rights…location visual scenery – proximity to.
- Personnel training, i.e., proprietary manuals, operations, and processes.
- Internet domain names, website design, B2B and e-commerce capabilities, web links, customer/client accessibility and use
- Corporate identity, brand, reputation, image, goodwill, names, trademarks, and logos
- Product and service warranties, trade dress, i.e., product shapes, color schemes, and packaging design/graphics and open purchase orders, order and/or product back log,
- Contracts – agreements which have a definable life and some form of exclusivity, e.g., supply, media, performance and pricing agreements, license and/or royalty agreements, advertising, construction, management, and/or service contracts, leases, operating and broadcast rights and licenses, route utilization, franchise agreements, subscription rights, futures contracts, co-branding agreements, endorsements, spokesperson contracts, venue naming rights…
- Intellectual property; patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, application, logo design
- Prior art search, flanker patents; patent applications, foreign patents, reprints, use/performance rights
- R&D, product research studies, formulas, processes and assembly data, and regulatory agency approval process-status
- Communication and cable rights and/or transmission rights, FCC licenses and/or certification, bandwidth
- Human resource issues, i.e., wage rates, union contracts, non-compete and non-disclosure agreements (if transferable)…
- Structural capital, i.e., the structures and processes a company develops or acquires and deploys to increase productivity and performance (business process/method patents)
- Human capital, i.e., the sum total of employees’ specialties, skills, attitudes, abilities, competencies along with their technical ‘know how’ documentation, i.e., lab notebooks, manuals, formulas, processes, and recipes (food, chemical formulas)
As always, reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or email@example.com
Michael D. Moberly June 24, 2014 ‘A long form blog where attention span really matters’.
The knowledge – intangible asset era, paradigm shift…
Growing numbers of companies and organizations are seeing steadily rising percentages of their value, sources of revenue, and ‘building blocks’ for profitability, sustainability, and growth evolve directly from intangible assets produced either internally or acquired externally. Today, that percentage consistently hovers at 80+%. As readers recognize, there are numerous variables to this global economic paradigm shift, e.g.,
- companies’ are more dependant on the development, application, and exploitation of their knowhow which materializes as intellectual, structural, and relationship capital, i.e., intangible assets.
- intangible assets have surpassed tangible – physical assets, i.e., buildings, equipment, inventory, property, etc., as companies’ overwhelmingly dominant source of value and revenue.
Beginning in the late 1980’s, I was fortunate to become one the early thought leaders actively engaged in the intangible asset arena, initially as an investigative academic researcher, and now as a practitioner.
Still reluctance among company management teams and c-suites…
Unfortunately, there remains considerable reluctance regarding the whole ‘intangible asset thing’! Much of the reluctance is influenced by managerial past practice embedded in pre-knowledge era industry standards and statutes (accounting, legal, etc.) which, in many instances, have morphed into ideological and professional discipline ‘turf protection’. Collectively, each poses unique challenges to rationally refute for those committed to – satisfied with past practice, regardless of the availability of objective studies that demonstrate the irreversibility of business and industry globally being dominated by intangible assets.
Through my lens, there is an analogy here to the persistent global warming debate. That is, despite overwhelming scientific and visual evidence of its existence and consequences, there remain sufficient numbers of doubters and/or deniers who, irrespective of their motivation, achieve a public stage from which to express dispiriting and misguided messages. Such circumstances exist in the intangible asset arena.
I have the opportunity to engage countless business decision makers and their supporting professional service disciplines, i.e., accounting, law, and financial services particularly because their persistent and dismissive questioning of intangibles’ value, utilization, and exploitation is the most apparent. Respectfully, I don’t believe these disciplines are actually denying the existence of intangible assets, but their expressions remain aligned with conventional thought and practice leaving little time or room to objectively consider current realities.
It’s quite clear that each discipline specific objection evolve around challenges associated with intangible asset valuation and how or whether intangibles are to be reported on company financial statements and balance sheets. This makes numerous company management teams, c-suites, and boards retain attitudinally hesitance – resistant) to making the necessary managerial transition which includes fully engaging their intangible (non-physical) assets.
No global precedent…
Admittedly, there is no precedent for what’s occurring today, i.e., international business and country economies’ being overwhelmingly dominated, economically and competitively by intangible assets. And, unlike most tangible (physical) assets, intangibles’ require consistent stewardship, oversight, management, and monitoring of fluctuations in the value and competitive advantage they deliver and the risks which render them vulnerable.
There are various acts, behaviors, and/or events, many of which are asymmetric, that collectively create fertile ground for risks and threats to materialize and cause a company’s (intangible) assets to experience declines in value and sources of revenue, or become competitively undermined which can have adverse bearing on company reputation and goodwill. In numerous instances such adverse circumstances are attributable to the surreptitious and purposeful activities of global economic and competitive advantage adversaries. That’s because increasingly higher percentages of company value and revenue lie in – evolve directly from intangible assets prompting economic – cyber espionage to emerge in ways that are more calculating, stealthy, and designed to target specific, usually ‘knowhow’ assets which, when lost or stolen, cause far more immediate and irreversible damage-harm (economically, competitively) to a company than their tangible (physical) asset predecessors.
It should be to no one’s surprise that economic and competitive advantage adversaries are really targeting intangible assets…
Willie Sutton, a notorious bank robber during the 1970’s, is alleged to have responded to the question ‘why do you rob banks’?, by saying, ‘it’s because that’s where the money is’!
Similarly, I urge companies, particularly those with intensive portfolio’s of valuable proprietary information, trade secrets, and other forms of intangible assets to recognize, as they engage in business transactions, strategic alliances, and technology transfers, etc., it is all but certain those intangibles assets will be in play.
Experience clearly suggests that when certain, particularly lucrative intangible assets are in play, they will be targeted by an economic and competitive advantage adversary. Examples of this, which I have examined for many years, are university research and corporate R&D units, which in most instances are repositories of potentially valuable and competitive advantage intangible assets. As noted previously, this includes specific categories of ‘knowhow’ that exist as intellectual and structural capital primarily which global economic and competitive advantage adversaries, whomever they may be on any given day or future time frame, want and/or need, and are quite willing to assume risk to achieve their acquisition using various methodologies and tradecraft.
So, it should be to no one’s surprise that the most frequently targeted asset today are intangibles’, and the risk predominates from the growing global array of economic – cyber espionage players, be they state or corporate sponsored or individual brokers, data miners, or legacy free players.
Admittedly, evidence to support this contention are largely anecdotal, but it stands to reason, like Willie Sutton’s remark ‘I rob banks because that’s where the money is’, the economic fact that 80+% of most companies value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability globally lie in intangible assets, the economic and competitive advantage adversaries of the world are targeting intangible assets. The reason, like Mr. Sutton, it’s because specific – select intangibles are the greatest sources of value and competitive advantage others covet the most.
It’s not all about national defense and security…
I can think of few better ways to portray this more succinctly than to refer to a conversation I had several years ago with a senior government official representing a county’s interior ministry who expressed a genuine need for agricultural knowhow to render very low crop yield land into high crop yield producing land. This official said, in very matter of fact terms, referring to U.S. superiority in agricultural science, ‘you have something I need and want to properly feed my people now, and I shall endeavor to obtain it through whatever means are at my disposal’.
My interpretation of the official’s provocative statement left me with no doubt that…
he understood the quickest and least expensive path to achieve this ‘utilitarian’ objective was not by his government taking time to gear up and fund the necessary R&D internally, or engage in a covenant filled and potentially risky and intrusive strategic alliance with a private corporation based outside his country, either of which would be a long term, 2-3 years out, undertaking before progress, of a sufficient scale, would likely materialize. Instead, this individual, and countless others globally, share precisely the same view and are intent on acquiring the necessary knowhow by utilizing other means at their disposal.
A real example, but…
I respectfully ask readers not to interpret the above example, as real as it is, as being wholly representative of the global economic – cyber espionage arena, other than recognizing it as one critical reality – consequence of knowledge – intangible asset based global economies, i.e., ‘you have something I want and need and I shall attempt to appropriate it or copy it without incurring the time and expense of independent origination’.
It is my contention then, that seldom are economic – competitive advantage adversaries’ actually seeking-stealing conventional intellectual properties, i.e., patents particularly. Instead, it’s the intellectual, structural, and relationship capital (intangible assets) embedded in and otherwise underlying the valuable proprietary information and trade secrets which have become the real targets. In other words, it is simply a misnomer to state intellectual properties are being targeted, stolen, or otherwise misappropriated.
As always I welcome readers comments and perspectives at firstname.lastname@example.org in St. Louis!
Michael D. Moberly June 17, 2014 ‘A long form blog where attention span really matters’.
Conventional strategic planning irrelevant if intangible assets are not at the center…
The increasingly competitive business terrain in which know how and other intangible assets have become the overwhelmingly dominant drivers and producers of value and revenue is clearly prompting many companies to re-examine the relevance of their often times, conventional and even static business plans and mission statements.
I am not suggesting there is anything inherently wrong with continuing to write business plans and mission statements, because they frequently do serve as a descriptive (Gannt Chart type) of roadmap of what leaders want their business to eventually look like and how to get there!
But, for analogous purposes, some (management teams, boards) are inclined to view business plans and mission statements in a ’constitutional’ like fashion, i.e., either as a ’living’ document that’s malleable and subject to flexible interpretations to reflect an evolving global business environment, or a more static document that can only be interpreted on the basis of its ’original intent’.
A law firms’ strategic plan, particularly one that incorporates client’s intangible assets, is a dynamic and on-going exercise. The reasons are that client’s intangible assets are often nuanced, business/company centric, seldom remain static, and frequently fluctuate relative to the materialization of risks, threats, and the nature and type of transactions engaged in which clients’ intangible assets will inevitably be in play.
Leaders, late adopters, or followers…
Law firms can choose to be leaders, late adopters, or followers. Today however, in an increasingly intangible asset intensive and global business – economic – transaction environments, a law firms’ initiative to devote attention and practice area resources to clients’ intangibles will reap benefits in terms of being more reflective and accommodating to client needs by, among other things, respectfully bringing clarity to the necessity for tactical and strategic stewardship, oversight, management, and assessment if intangibles other than IP, sometimes even before business clients become fully aware of their (the assets’) potentially favorable advantages.
Intangible asset relevancy to each practice area within full service firms is one in which each practice area can contribute through their respective and specialized lens.
Unfortunately, the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets, has yet to become so self-intuitive to management teams, c-suites, and boards that they instinctively recognize the necessity to identify, develop, safeguard, and exploit the intangibles their company produces internally and/or acquires externally.
Effective strategic planning produces client benefits…
Law firms have varying levels of experience and depth in IP matters. This makes it, in my view, all the more legitimate and necessary for firms to include, as part of their strategic planning, the acquisition of the necessary expertise to aid clients to recognize the various ways their company can elevate its value, add sources of revenue, and solidify its sustainability through better utilization, governance, and exploitation of its intangible assets.
Benefits to firm clients can occur not just by recognizing intangibles assets and their relevance to business profitability and market space, but also by taking affirmative steps to guide clients in identifying, unraveling, assessing, auditing, positioning, bundling, and exploiting intangibles and defending intangible asset intensive client companies in the intricacies intangible asset rooted disputes and challenges..
Thus, the more clarity a firm’s client decision makers achieve regarding the intangible assets their company produces or has acquired and the inevitably which they become embedded in the products and/or services a business client produces will lead to better – more informed decisions about the necessity to engage leading edge law firms that provide such services, as competitive leaders, not followers or late adopters.
When prospective clients – buyers of legal (IP) services, or merely consumer products for that matter, initially approach a law firm, if they find it challenging to distinguish/assess a firm’s comparative quality, particularly when such information is neither readily available or distinguishable, a percentage of those prospective clients will be inclined to promptly ask about pricing and fees.
More specifically, such circumstances often translate as an inability to quantify the value of what may appear, to prospective clients, as competing services and/or offerings because, unfortunately, pricing (fees) tends to be the primary form of measurement business decision makers understand insofar as distinguishing competing offerings – services. That’s because pricing (fees) tend to be a more readily recognized and presumably understood form of measurement..
So, a law firms’ ability to attract and secure new as well as retain existing clients, IP, or otherwise, particularly among increasingly frugal, discriminating, and cautious prospective buyers of legal services, can be rotted in a firms’ ability to articulate greater value in understandable and actionable contexts to benefit the client and exceed their respective needs and expectations. (Adapted by Michael D. Moberly from the work of Dale Furtwengler)
My primary rationale for advocating the inclusion of client company’s intangible assets in a law firms strategic planning is that by doing so, it will legitimately produce broader opportunities to re-engage existing clients as well as engage new – prospective clients on yes, a broader range of business legal issues, i.e., their intangible assets.
Too, by virtue of the connections between intangible assets and IP, law firms, particularly those with an IP practice, are pre-positioned and branded, so to speak, for guiding client businesses and companies to legitimately inquire and explore ways to more profitably utilize their intangibles.
Also, law firms, whether they recognize it or not, routinely become a repository of familiarity about ‘all things intangible’ regarding their business clients. It would seem prudent then for firms to develop strategic plans that call for a collaborative convergence, i.e., draw upon their existing practice area expertise, and various other complimentary domains to exploit that expertise and redirect a portion to business clients intangible assets.
However, the speed which intangible assets are coming to the forefront of business profitability and sustainability has produced some challenges for law firm business client services management that lead to maximizing intangibles value and creating opportunities for asset monetization and/or commercialization.
- One challenge is meeting the rising fiduciary responsibilities associated with the overall management of intangibles and the ability/competencies to simultaneously sustain control, use, and monitor asset contributory value and materiality, and risk to ensure that value, revenue producing and competitive advantage potential is neither undermined or lost.
- A second challenge, for law firm business clients and their management teams is recognizing that intangible assets are literally embedded in most every company’s processes, procedures, and practices (as intellectual, structural, and relationship capital) regardless of (company/client) size, maturation, or industry sector. The fact that most intangibles are embedded as noted above, can manifest as competitive advantages, brand, and reputation. What would matter most to clients is engaging a law firm that has already acquired the skill sets and experience to guide clients to identify – differentiate those assets and exploit their contributive – collaborative value as effectively and efficiently as possible.
- A third challenge is ensuring the necessary competencies are in place within a law firm to identify, unravel, assess, position, and bundle, if necessary, the assets and profitably apply-utilize (leverage) them in a broad range of business circumstances and transactions in which intangibles are routinely in play and/or part of a deal.
- A fourth challenge many, if not most client management teams experience is surviving, that is, remaining competitive, profitable, and sustainable while engaged in a global business (transaction) environment that is not just increasingly competitive, but aggressively predatorial, and often functions in winner-take-all business contexts.
These challenges of course, lead us to an even more compelling rationale for law firms to develop a strategic plan, of which one component, includes a viable path for converging a firms collective expertise to effectively address each of the following phenomena on behalf of clients because…
- There is no other time in business governance – management history when steadily rising percentages of company value, sources of revenue, and growth potential are so deeply rooted in intangibles.
- There is a necessity to re-frame the management, stewardship, and oversight of a company’s intangibles as fiduciary responsibilities that warrant enterprise wide collaboration and consensus.
- All too frequently, the contributions intangible assets make to company revenue, value, competitiveness, and market position are overlooked, dismissed, neglected, undervalued, left un-safeguarded, and ultimately lost, diluted, or leach out to competitors and the public domain.
- Intangible assets have become much more than mere tools to manage and/or enhance other (tangible, physical) assets. Instead, intangibles are now valuable and often times stand alone commodities that can be developed, positioned, integrated, and utilized to produce revenue, enhance competitive advantages, and otherwise add real value to a company.
- The financial reality that intangibles and intellectual property can advance a company (economically, competitively, etc.) only so long as control, use, ownership, value and materialty can be sustained.
- The time frame when company’s can realize the most value from their intangible assets generally remains variously compressed relative to an assets respective life, contributory value, and functionality cycles. In part, this compressed state is due to (a.) lower barriers to market entry by competitors, and (b.) rapid profits being achieved from, what I call, predatorially sophisticated and global product/service piracy and counterfeiting operations that consistently pollute and de-value legitimate supply chains.
Michael D. Moberly June 16, 2014 ‘A long form blog where attention span really matters’.
So why shouldn’t every law firm’s strategic plan encourage achieving operational familiarity with business clients’ intangible assets…?
Frankly, in 2014, and for the foreseeable future, I would be very hard pressed to devise a rationale why every law firm should not achieve a fully operational familiarity with their business clients’ intangible assets, and incorporate same in their strategic planning as tools to…
- expand and enhance firm brand and become a leader in intangible asset stewardship, oversight, and management, which in turn will produce more engagements, and
- enhance firm competitiveness by providing legitimate grounds to re-engage existing clients, and engage new/prospective clients.
Law firm’s that continue to be dismissive of strategic planning that includes a full array of intangible assets but do not adjust their client services accordingly should expect to experience stagnation on various levels internally and externally, e.g., sustainability of client relationships, client satisfaction, and service deliverables. So, it’s not a case of when, rather how law firms can build the necessary receptivity and ultimately consensus, initiated by managing partners, to actually achieve a level of profession expertise to comfortably and professionally engage clients’ about their intangible assets.
More specifically, while most firms’ tactical speed, i.e., the efficiencies of delivering its services, etc., remain important, continuing to be dismissive of strategic speed for developing new and proactively relevant client services that directly reflect globally universal changes in economics and competitive advantage drivers. So, law firm strategic planning should be designed and executed, as the adage goes, to ‘avoid continuing to skate where the puck is now, rather skate to where the puck will be’. Law firms strategically guided by assuring their practice areas are effectively aligned to address clients’ intangible assets are far better positioned to elevate their long term sustainability and bring greater consistency in revenue.
Too, a firms’ strategic plan can be further developed to incorporate internal and external client sensors which then can unambiguously constitute a ‘heads up’ to the normative. Of course, strategic planning initiatives must not be shy about challenging convention. One way is for the plan to be sufficiently malleable to absorb and effectively act on the full array of clients’ intangible assets and the various and nuanced forms they take.
Intangible assets are characterized in two primary forms…
- Legal intangibles, i.e., those which once issued by a government agency confer certain legal property rights which provide standing to defend in a court of law, e.g., issued patents, copyrights, and trademarks, etc., and
- Competitive(advantage) intangibles which are often characterized as being non-ownable, but they directly impact – contribute to a company’s financial well being, create efficiencies, increase productivity, and market value, etc. Often competitive advantage intangibles evolve collectively from various combinations of intellectual, structural, and relationship capital. (Adapted by Michael D. Moberly the work of Mary Adams_
A perspective on whether intangible assets are non-ownable…
Intangible assets are assumed to be non-ownable, but for the creator – developer of intangibles particularly those which measurably produce contributory value and competitive advantages, it is certainly in their interest to sustain control and use of the intellectual, structural, and relationship capital embedded in – underlie those assets and consistently monitor their value, materiality, and risk. If not, risks are all but sure to materialized, the effects of which rapidly erode, diminish asset value, sources of revenue, and competitive advantages. So, in companies and/or circumstances where such actions are taken to safeguard and preserve the content and value of intangibles would wisely convey a sense of ownership, as well it should!
Examples of intangible assets…
The following are examples of intangible assets. They have been adapted by Mr. Moberly from two respected comprehensive and current sources, i.e., (a.) ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’. Weston Anson. 2007. American Bar Association, and (b.) ‘Untangling Intangibles’ Tamara Plakalo February, 2006. Managing Information Strategies. Australia.
- Technology – software: Internally developed (proprietary) software and software copyrights, automated databases, source code, enterprise solutions and custom applications…
- Marketing: Lyrics, jingles (music), promotional characters and devices, photographs andvideo, newsletters, advertising/marketing concepts, results of focus groups…
- Engineering: Industrial (new plant, equipment) designs, engineering drawings (blueprints) and technical knowhow…
- Customers – clients: Communication-mailing lists, relationships, customer data bases and retrievalsystems, special distribution channels, 1-800 numbers, relationships
- Competitor research: Actionable business intelligence, i.e., plans, intentions, capabilities…
- Real estate: Zoning – construction permits, air, water, and mineral drilling-exploitation rights, right-of-way, easements, and building (expansion) plans/rights, location visual scenery – proximity to
- Personnel training: Proprietary manuals, operations processes and/or procedure
- Domain names, website design, B2B and e-commerce capabilities, web links, customer/client accessibility and use
- Corporate identity: Names, trademarks, logos
- Products and services:Warranties, trade dress, i.e., product shapes, color schemes, and packaging design/graphics, open purchase orders, order and/or product back log,
- Contracts – agreements: Any contract that has a definable life and some form of exclusivity, e.g., supply, media, performance and pricing agreements, license and/or royalty agreements, advertising, construction, management, and/or service contracts, leases, operating and broadcast rights and licenses, route utilization, franchise agreements, subscription rights, futures contracts, co-branding agreements, endorsements, spokesperson contracts, venue naming rights…
- Intellectual property: Patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, application, logo design, prior art search, flanker patents; patent applications, foreign patents, reprints, use/performance rights
- R&D: Product research studies, formulas, process and assembly data, regulatory agency approval process-status
- Communication: Cable rights and/or transmission rights, FCC licenses and/or certification, bandwidth
- HR: Wage rates, union contracts, non-compete and non-disclosure agreements (if transferable)…
- Structural capital: The structures and processes employees develop and deploy to increase productivity and performance (business process/method patents)
- Human capital: Sum total of employees’ specialties, skills, attitudes, abilities, competencies, and technical ‘know how’ documentation, i.e., lab notebooks, manuals, formulas, processes, and recipes (food, chemical formulas)
Incorporating client intangibles assets in law firms’ strategic planning…
It’s fair to suggest that many law firm managing partners have various, but seldom specified responsibilities, aside from sustaining or expand the firms’ profile and brand, extinguishing the inevitable fires and ‘mending fences’. For some firms, managing partners’ responsibilities can also include garnering and fostering firm wide consensus to develop and execute a strategic plan, as advocated here, inclusive of intangible assets which is best commenced by advocating attorney operational familiarity with intangible assets, i.e., their stewardship, oversight, and management and the assets’ relevance to a firm’s specific practice areas. A law firms’ strategic plan, particularly one that incorporates client’s intangible assets, is a dynamic and on-going exercise. The reasons are that client’s intangible assets are often nuanced, business/company centric, seldom remain static, and frequently fluctuate relative to the materialization of risks, threats, and the nature and type of transactions engaged in which clients’ intangible assets will inevitably be in play. Int