Archive for 'Intangible asset risk tolerances and thresholds.'
Michael D. Moberly April 21, 2017 ‘A intangible asset business blog where attention span really matters’.
Transaction due diligence is, most always warranted, particularly in today’s ‘always on’, aggressively competitive, predatory, and often ‘winner-take all’ global business environment in which asset loss, erosion, and undermining can occur at ‘keystroke speed’. However, when transaction due diligence is framed – conducted through a conventional, IP only (intellectual property) lens, opportunities to recognize and exploit the value of embedded IA’s and (proprietary) competitive advantages can be, and frequently are, under-estimated, overlooked, dismissed, or considered redundant, or irrelevant to the presumptive deterrent effects associated with conventional IP enforcements, i.e., a registered patent, copyright, trademark, or designating specific knowledge and/or knowhow (intellectual, structural, relationship capital) as a trade secret.
Today, business transaction due diligence must be far more than a cursory review of (legal, accounting) documents and the status of IP, i.e., P&L’s, financial statements, and/or balance sheets. Through my lens, these documents often constitute little more than ‘snap-shots-in time’ as incomplete glimpses into a company’s financial – competitive advantage circumstance.
Too, its unlikely such conventional ‘snap-shots’ will surface-reveal the contributory role, value, sources of revenue, and competitive advantages produced – generated by IA’s, which are embedded and interwoven in various levels of a company’s intellectual, relationship, competitive, and structural capital. More specifically, in conventionally practiced-conducted business transaction due diligence, these, and other characteristics and attributes of IA’s, are unlikely to be recognized as having actual dollar value and competitive advantages, or otherwise have a bearing on a transactions’ outcome, that is, for the IA ‘operationally un-familiar’.
Be it an acquisition, merger, alliance, partnership, buy-sell transaction, or new market entry initiative, each circumstance can quickly become mired in impediments if-when the IA’s in play are overlooked or not effectively unraveled relative to their origins, ownership, control, and the manner-in-which they are utilized and exploited. This-is-why, I recommend transaction due diligence be IA-centric and conducted in pre, and post (transaction) contexts.
Again, conventional ‘check the box’ conceived templates of due diligence are unsatisfactory because they are seldom inclusive, comprehensive, or sufficiently forward looking to capture, unravel, and monitor the (risk and value) relevant to the IA’s in play and are often constrained by unwarranted anxieties and requests for speed. Too, it’s worth noting again, it is a globally universal economic fact – business reality today that 80+% of both a company’s and a targets’ value and sources of revenue lie in – emerge directly from IA’s. This makes it all-the-more essential that any business transaction due diligence fully address IA’s.
The primary objective for any IA due diligence activity is unraveling the circumstances pertinent to the IA’s in play, which, in turn, serve as a basis for providing superior knowledge about a target and the transaction being undertaken in a manner that contributes to decision makers’ determination about whether the targets’ IA’s can sustain the terms and objectives of the proposed deal.
Specifically, IA due diligence should describe, for decision makers, the status, fragility, stability, and defensibility of about-to-be-purchased and/or exchanged IA’s, including IP, and other forms of proprietary competitive advantages, by revealing, among other things, any evidence of:
• over confident – embellished representations.
• purposeful or premature disclosures, or open source leakage that
leads to assets being compromised.
• internal/external entanglements involving the IA’s in play.
• probing by and/or adverse impact from business intelligence,
competitive advantage adversaries, or economic espionage.
A thorough pre-post IA-specific due diligence conveys a strong and important message to actual or prospective (transaction) targets, by zeroing in on their centers of value, competitiveness, revenue generation capacity, brand, and sustainability, etc., while minimizing non-essential – (irrelevant) information drawn from conventional and gratuitous ‘check-the-box’ actions which seldom provide the level of specificity that’s essential for today for IA intensive and dependent businesses and transactions in which IA monitoring is critical to lucrative, competitive, and sustainable outcomes. That’s because IA value and competitive advantage fluctuation, erosion, and/or undermining can commence at ‘keystroke speed’.
Michael D. Moberly February 15, 2017 ‘A business intangible asset blog where attention span really matters’!
The manner-in-which companies – businesses, and their leadership, approach, prepare for, and ultimately respond to the potential for and/or the materialization of risk(s) to their IA’s, as one may expect, varies considerably. Practically speaking, I find the most significant variable is learning whether business leaders I have engaged even conceive of risk (exposure) in threshold or tolerance contexts. With little doubt, there is far more attention paid to the cost of premiums and total dollar limits to the occurrence of a specific adverse event. So, it becomes more of a matter of business-company leadership equating or assuming their threshold and/or tolerance for risk is reflected in the insurance plan and/or insurer in which they have struck a deal. However, truth-be-told, in a large percentage of conversations between insurers and insureds, the words ‘intangible assets’ seldom, if ever, are a distinct-separate aspect to such discussions.
Of course, there is a percentage of forward looking – thinking business leaders and management teams who recognize the absolute importance of anticipating and trying to mitigate IA-specific risk, which is what we are about here. After all, it is economic fact that 80+% of most company’s value, sources of revenue, competitive advantage, and reputation lie in – emerge directly from IA’s. Experience suggests however, that IA specific risk, if-when it is distinguished from other (general) types-categories of risk, many of which remain fixated on tangible-physical assets, is likely to be-a-reflection of and addressed relative to (subjectively) pre-determined (risk) thresholds and/or tolerances of insurers and underwriters. This conventional approach of course, is generally weighted toward the type and content of a company’s physical-tangible products and services vs. the contributions of intangibles.
It is after all, the manner-in-which the company’s IA’s are integrated and applied to those products and/or services that individually or collectively elevate their value, competitiveness, and revenue generation capacity. Ironically, it is those same intangible features and characteristics, i.e., inputs, which simultaneously find attractivity-appeal to global cadres of ultra-sophisticated economic and competitive advantage adversaries.
This leads to another facet of IA risk management which is emerging with consistent frequency and is a consequence of a management team’s felt obligation and/or necessity to ‘get to the market space first’ with their innovation, product, or service. In other words, the go fast, go hard, go global phenomenon is itself a driver of risk to IA’s. In these circumstances, risk is likely to materialize at a very rapid pace commensurate with the accelerated investment, innovation, and product development-launch cycles, etc., which are necessary to the race to be first. Therefore, IA risk is indeed relevant to the globally predatorial and ‘legacy free’ entities, operating at each stage of product-service development functions, which includes drawing economic-competitive advantage information from targeted-companies’ value, supply, and distribution chains, which…
• adversely affects the fragility, stability, and defensibility of
• renders IA’s more distinguishable and thus, their content, more vulnerable
to (specific, targeted) compromise, infringement, competitive advantage
undermining, and value dilution.
• creates more fertile ground for reputation risk(s) to materialize.
Still, another (third) facet of IA-specific risk management lies within company leadership who (mistakenly) assume IA’s constitute infinite resources which are readily and fully renewable, retrievable, recapturable should they be subject to compromise, infringement, or undermining, etc. Those holding such perspectives usually find fewer distinctions between IA’s and tangible assets, even, sometimes, espousing the former are mere extensions of the latter which presumably can be repaired, restored, and returned to productive – operational status in relatively brief periods of time following an adverse act or event. In this reality, IA’s exist primarily-variously in the form of intellectual, structural, and/or relationship capital and often are more fragile and diverse. Thus IA’s tend to be more challenging, costly, and time consuming to replicate, i.e., develop and exploit in a manner that is equally collaborative, competitive, and profitable as before.
For these reasons, I am suggesting, it would be prudent to characterize any one, or combination of the risk management issues cited above, not in contexts of if, rather, in context of when they will materialize and the specificity, depth, and/or breadth which the risk will manifest. Corollaries to these particular-characterizations of IA risk management is another aspect which I call ‘risk illiteracy’. I define ‘IA risk illiteracy’ as an absence of operational awareness-familiarity for the need of having, at the ready, rapid and effective mitigation – intervention measures specific to a company’s valuable and competitive advantage IA’s.
IA risks that do materialize will, in most instances, alter the parameters of a businesses’ tolerance, threshold, and literacy of risk, irrespective of a companies’ – businesses size, sector, maturity, and/or financial health.
To be sure, risks to IA’s, representing most all types and categories, are persistent and can materialize even in circumstances in which experienced and talented management teams are in the lead. Of course, a percentage of business leaders, whether they acknowledge it, or not, signal their thresholds and/or tolerances for risk to the IA’s under their (company’s) control, use, and ownership. Of late, this is especially relevant to IA risks that can materialize at ‘keystroke speed’ to adversely impact (product-service) value, revenue, competitive advantages, sustainability, and equity, ala reputation risks.
Ultimately, a company’s thresholds-tolerances for IA risk, which each presumably signals or establishes, should never be of the one-size-fits-all variety. That’s because, in large part, the materiality of IA’s can fluctuate, ala their fragility, defensibility, sustainability, and contributory values. Instead, company leadership and management teams are obliged to consider (assess – factor) IA risk management variables such as…
• speed of (risk) materialization and its expansion – embeddedness
throughout an enterprise.
• criticality of risks to all or specific parts/units of a company and its
products and services.
• a company’s current capabilities and speed which it can mitigate –
• a company’s overall resiliency, ala recuperative capabilities as a target
of a materialized risk vis-à-vis customers, clients, consumers, and
As such, business leadership and management teams are obliged to approach and engage IA risk mitigation and management as integral to structuring (engaging, undertaking, negotiating, and executing) any new business initiative, transaction, product-service rollout, R&D, etc.