Michael D. Moberly April 9, 2010
In a 2006 ACCA study, the principle investigators (Chris Martin, Julie Hartley) stated that in most instances a company’s intangible assets could be imitated – replicated, presumably by competitors or other economic/competitive advantage adversaries, given (a.) sufficient time, (b.) resources, and (c.) incentives to do so. So far, no big surprise here.
More specifically, the research report stated that (intangible) asset imitation correlated to the assets’ (1.) technological complexity, (2.) obsurity, or non-obviousness, and (3.) cost of replication. Again, a pretty straight forward perspective.
The significance of this study, in my view, does not lie so much in the reality competitors will attempt to imitate/replicate others’ intangible assets, which occurs routinely. Rather, the significance of this study is that it points to management/leadership team and board fiduciary responsibilities to exercise consistent oversight and monitoring of their intangible assets’ status, i.e., value, revenue producing, and competitive advantage delivering capabilities.
Effective starting points to achieve this, in my judgment, are for management teams and boards to:
1. Be less passive and assuming about the development and evolution of their company’s intangible assets.
2. Adopt a much more proactive and aggressive role in developing and utilizing intangible assets as sources of value, revenue, and growth.
3. Put in place practices to effectively protect and monitor the assets (contributory value and performance) throughout their value and functionality cycles.
The key underliers to this lies with management team and board foresight and leadership to recognize two things, (a.) the inevitability that competitors and adversaries will endeavor to imitate others’ intangible assets if/when possible, and (b.) the importance of taking time during the (intangible) asset development and utilization process to integrate often times inexpensive, but critical features that will not only reduce the assets’ vulnerability to imitation, but also create disincentives to imitation, e.g., making the asset more:
1. Technologically complex that dis-incentivizes adversaries because replication requires incurring costs for the aquisition of new, perhaps specialized, technologies.
2. Obscure and non-obvious to competitors and adversaries in ways that they cannot readily observe or deduce.
3. Costly to replicate by requiring time, resources, and costs comparable to the learning and development processes the originator of the asset experienced.
For management/leadership teams and boards today, the above represents not only prudent business practices, but fiduciary responsibilities as well.
Leave a Reply