Measuring Management Team and Board Effectiveness: Their Ability To Create Value From Intangible Assets!

Michael D. Moberly   June 1, 2010

At the nexus of the knowledge-based economy, in my view, lie three variously interwoven factors, (a.) global competitiveness, (b.) continually changing  technologies, and (c.) the ability to create, sustain, and extract value from intangible assets!  The latter factor, is increasingly relevant metric for assessing management team and board effectiveness on two levels:

1. Recognizing and grasping future opportunities will depend on identifying, managing, and developing a companies full spectrum of intangibles…

2.  The consistency of company preparedness to engage and correctly execute initiatives focused on building and extracting value from intangibles…

This requires, of course, management teams and boards to recognize that strategic planning, irrespective of industry sector or company size, must embody the economic fact (business reality) that growing percentages (65+% ) of company value, sources of revenue, sustainability, and building blocks for growth and expansion lie in intangible assets.  When taken as a whole, this economic fact challenges management teams and boards to…

1. Look beyond conventional balance sheet approaches that are essentially rear view mirror descriptors of what happened last week, last month, or last year and often focus on tangible (physical) assets, not intangible assets.

2. Engage the ‘intangible value’ of their company which is the difference between its market value (share price multiplied by the number of shares issued) and its net book value (recorded value of all tangible assets).  

So, what I am encouraging management teams and boards to do is fully integrate the ability to create, sustain, and extract value from their intangible assets into their (asset) management and oversight  responsibilities and that their overall performance should include, at least in part, just how well they achieve this!  Why, because, again, the economic fact that 65+% of most company’s value, revenue, and future wealth creation lie in intangibles should not be overlooked, dismissed, or neglected. 

A useful starting point for commencing (achieving) this worthy and necessary strategy, in my view, is through the inclusion of seven key intangible assets described in a survey (report published by) U.K.’s Department of Trade and Industry titled ‘Creating Value From Your Intangible Assets: Unlocking Your True Potential’. 

Collectively, the report states, these intangibles form the essential ingredients upon which a company’s future success can be built, i.e., (1.) relationships, (2.) tacit knowledge, (3.) leadership and communication, (4.) company culture, (5.) reputation, and trust, (6.) skills and competencies, and (7.) processes and systems.  The report characterises these ‘ingredients as the intangible raw materials that talented employees use to engage-collaborate with one another to (a.) achieve goals, (b.) solve problems, (c.) identify opportunities, and (d.) maximize their potential’.

To achieve the returns which these assets are potentially capable, management teams and boards should (a.) invest in them, (b.) do what’s necessary to sustain them. and (c.) genuinely manage them as the strategic assets they are.

(This post was inspired by U.K.’s Department of Trade and Industry report titled ‘Creating Value From Your Intangible Assets: Unlocking Your True Potential’.)

The ‘Business IP and Intangible Asset Blog’ is researched and written to provide insights for companies, their management teams, boards, and employees to identify, assess, value, protect, and profit from their intangible assets.  It is in this context that I welcome and respect your comments and perspectives on these increasinly important matters at m.moberly@kpstrat.com.