Michael D. Moberly March 20, 2009 (Part 5 of 5 Part Post)
Six things companies can do now with their intangible assets…
While there’s no silver bullet or rabbit to be pulled out of a hat, understanding your company’s intangible assets and recognizing various strategies to (better) utilize, leverage, and extract (more) value from those assets, especially during this financial crisis (recession) is a worthy use of decision makers’ time.
1. Strategic planning for intangible assets, it’s never too late…
Strategic planning processes tend to see all things tangible by focusing on a company’s physical (balance sheet) assets and overlooking (a company’s) internally developed and/or acquired intangible assets. Today’s management and strategic planning (of intangibles) should include processes to (a.) identify-locate them, (b.) unravel them, (c.) value them, (d.) position them, (e.) leverage them, (f.) sustain (protect, preserve) their control, use, ownership, and (g.) extract value from them.
Omitting intangible assets from strategic planning, given the economic fact that 65+% of most company’s value and sources of revenue lie in – are directly linked to those assets, is the proverbial example of the ‘900 pound guerilla in the room’ that’s being overlooked.
2. Conduct an intangible asset assessment…
A key step to effective strategic planning with respect to intangible assets is conducting an intangible asset assessment. An intangible asset assessment is not merely a generic version of an IP audit, rather, its an efficient, methodical, and company specific process that identifies, unravels, and values those assets in a manner that brings business insights and clarity to their production, acquisition, positioning, utilization, leveraging, as well as ways to extract value.
From a procedural (execution) standpoint, an intangible asset assessment should not rigidly adhere to preconceived views or generic templates. Rather, the assessment should include specially designed and company specific protocols to respectfully reveal – unravel a company’s, often times, nuanced and embedded procedures, processes, know how, competitive advantages, etc., in other words, the various contexts and formats that intangible assets exist, are produced, and used internally.
When conducting an intangible asset assessment there are three key objectives:
– identify and mitigate risks-threats that elevate the vulnerability of those assets, i.e., circumstances that will ensnare and/or entangle them in costly, time consuming, and momentum stifling legal challenges and disputes that can undermine and/or erode their value and the competitive advantages they produce which can exacerbate a company’s current financial (recession influenced) challenges.
– align the assets with the company’s core competencies and mission.
– identify practical, efficient, and relatively immediate strategies to utilize, leverage, and/or bundle the intangibles to lay the necessary foundation for extracting as much value as possible, e.g., sell them, barter them, transfer them, license them, and/or use them to create joint ventures or collaborative relationships, etc., preferably absent circumstances of distress that will adversely affect the assets’ value.
3. Decision makers need to know more about intangible assets…In 2004, Accenture commissioned a survey conducted by the Economist Intelligence Unit in which ‘senior executives from companies around the world were asked to share their views on the management of strategic assets, both tangible and intangible’. Not surprisingly, 94 of the 120 respondents said that ‘managing intangible assets and/or intellectual capital is an important management issue’. But, despite this, 95% of the respondents said (in 2004) they ‘do not have a robust system in place to measure the performance of intangible assets, with 33% saying they ‘had no such system in place at all’ even though, nearly half of the respondents said that ‘the stock market rewards companies that invest in intangible assets’.
While I understand that each of those executives’ emphasis on measuring the performance of intangibles, equal emphasis should be placed, up front, to aid business decision makers, along with their boards, officers, and business unit managers, to:
– recognize precisely what intangible assets really are, i.e., how to identify, unravel, and approximate their value, and
– the various roles – contributions intangibles make to a company’s overall value, revenue, and future wealth creation which include image, goodwill, reputation, brand, relational capital, and equally important, sustainability and profitability, and
– bring greater business and economic clarity to a company’s intangible assets in terms of how they can best be utilized, leveraged, along with strategies to extract as much value as possible.
4. Know the Value of Your Company’s Intangible Assets
Companies should assess their intangible assets’ value using (a.) fragility, (b.) stability, and (c.) sustainability as the primary criteria. Particular attention should be directed to those assets whose value has already been adversely (irreversibly) affected by the current financial crisis (recession), i.e., consider-seek opportunities to transfer, license, sell, or barter the assets.
Existing valuation techniques are still largely absent the rigor and uniformity which governs the valuation of tangible (physical) assets. Valuation of intangible assets remains somewhat subjective and some techniques express value only in snap-shot-in-time contexts that provide business decision makers with little more than estimates and/or ranges of value.
Standing alone, a ‘range of value’ does not necessarily constitute an objective, over-the-horizon picture necessary to make well grounded strategic decisions (regarding the assets, use, positioning, bundling, etc.) It can ultimately can leave decision makers holding considerable uncertainty (risk). More specifically, valuations typically do not address – provide adequate insight – perspective regarding the (a.) fragility, (b.) stability, and/or (c.) sustainability of the assets. Absent that level of insight, a conventional valuation may be little more than speculation.
5. Steps to better management, oversight, and stewardship of a company’s intangible assets in times of financial crisis…
The management, stewardship, oversight, and monitoring of a company’s intangible assets are not passive functions. Neither should they be delegated (relegated) to the uninitiated who may lack the requisite ‘fire in the belly’ appreciation and understanding of intangibles.
At minimum, the stewardship, oversight, and management of a company’s intangible assets should:
– integrate awareness programs linked to training and personnel evaluations.
– integrate ‘best practices’ related to ensuring the value, use, control, and ownership of intangibles are effectively sustained which includes periodic monitoring (assessment, evaluation, audit)
– develop an ‘internal map’ of the company’s intangibles, i.e., producers, location, value, linkages, contributions, status.
6. Companies should avoid devoting time and resources trying to sustain assets that have already experienced significant compromise, obsolescence, and/or de-valuation…
That doesn’t necessarily mean the only remaining option is to summarily cast those assets aside for a zero return. Rather, it means identifying those assets’ remaining value and utilization potential that may still be leveragable, i.e., sell them, barter them, transfer them, license them, hold them, and/or explore ways to bundle them perhaps with other assets, to extract value.
What really matters is, there is no other time in company governance history when measuring, managing, and overseeing intangible assets is more necessary, more integral, or more critical to a company’s sustainability, stability, growth, profitability, ultimately, survival during this financial crisis!