Intangible Assets: Still Not Easy To Explain or Define

 Michael D. Moberly    December 2, 2011

Intangible assets are not easy to explain or define, particularly for those unfamiliar with their existence or unaccustomed to recognizing, let alone, measuring their contribution and performance, i.e., to company value, revenue, and sustainability.  For some, intangible assets are likely to be interpreted more as theoretical business concepts best espoused in a university lecture hall absent ’real world’ applicability.  For these individuals, intangible assets are interpreted more as theoretical (esoteric) accounting or business concepts best espoused in  university lecture halls and absent ’real business world’ application.

Part of the definitional challenge lies in the fact that intangibles lack physicality.  So, regardless whether they’re called assets or not, it often boils down to a question about how one identifies, manages, and measures things which lack a conventional sense (state) of physicality?  While an experienced business person can’t really see or hear intangibles, even the casual business observer can distinguish companies that effectively capture and exploit their intangibles.

The definitional and application challenges astute business persons routinely face about intangibles can largely be attributed to they’re…

• lack physicality
• seldom reported on balance sheets or other company financials
• often being undistinguished as standalone assets, but merely lumped together as goodwill

Intangible asset specialists who conduct briefings and awareness training on intangibles should always be prepared to field an array of critical and skeptical questions about intangibles and their contribution and valuation.  How such questions are answered of course, affects, as it does in any profession, the overall credibility of intangible asset proponents insofar as articulating better, smarter, and more effective techniques to capture, utilize, manage, and monetize intangible assets.  This includes clearly articulating what intangible assets are, what they’re not, the various forms they take, how they originate, and equally important how and when they can be effectively and profitably applied as ‘building blocks’ to enhance a company’s value and create sources of revenue.

Ironically, in the midst of this extended economic downturn, conventional wisdom would suggest that company management teams and boards would be receptive to considering alternative and proven strategies to elevate and safeguard their company’s potential for successfully weathering this lingering recession.

Respectfully though, it’s often challenging for some management teams and boards to step outside their past practice comfort zones and disengage from what they believe has worked well in the past..  Successful companies ran by successful management teams are, for the most part realists and pragmatic risk takers and therefore understandably skeptical about intangibles for all the reasons cited above.  However, when such skepticism keeps companies tied to practices and strategies of a tangible (physical) asset based economy (world) instead of a knowledge-intangible asset based global economy, we’re not likely to experience the growth which we know we’re capable.