Recognizing and Utilizing Intangible Assets: A Three Step Process

Michael D. Moberly   January 25, 2012

Intangible assets generally evolve over a period of time within a company and frequently come to serve as market and competitive advantage differentiators, that is, if management teams and boards recognize and utilize them as such.

Intangibles are seldom, what I call, standalone assets, however.  Instead, in many instances, they evolve (are developed or acquired) to serve in a synergistic and/or supportive context-capacity to facilitate and enable other assets, i.e., intellectual, relationship, and organization capital to maximize their contributory value.  This is particularly true for those intangibles embedded in a company’s products, services, and/or capabilities. 

For example, intangibles may exist (again) as collections of intellectual, relationship, and organizational capital that create efficiencies and/or synergies that favorably influence a firms’ overall value by creating new/additional sources of revenue,  serve as ‘building blocks’ (foundations) for company growth and sustainability.

The production, acquisition, bundling, and effective utilization of intangible assets is often reflective of the entrepreneurial and forward looking-thinking orientation of a management team and board.  To say then, that it’s essential, if not critical today for management teams, c-suites, and boards to identify, assess, and effectively utilize their intangible assets is certainly not an overstatement, rather a prudent business reality.

I advocate a three step process or set of practices for recognizing and utilizing intangible assets:

1. They should be thoughtfully, perhaps strategically produced and/or acquired rather than merely succumbing to a dismissive attitude about their development, potential use and contributory value.
2. Intangible assets must be assessed and effectively integrated in the appropriate – relevant (company) processes, products, and services and monitored (measured) relative to how they enhance (company) value and contribute to creating new sources of revenue and serve as foundations (building blocks) for competitive advantages, growth, and sustainability.
3. Insofar as their development and utilization is concerned, management teams may find it prudent to consider ways in which their intangibles can, when/if feasible, serve as hindrances or inconveniences to market entry by competitors.  This can be achieved by developing intangibles to include certain degrees of (proprietary) complexity and obscurity that will elevate competitors’ time, expense, and resources for their replication or imitation.

In addition, its increasingly essential for management teams and boards to recognize, as their company matures, it’s likely there will be a commensurate growth in (employee) experience, expertise, and knowledge  that enables – facilitates development and integration of new – additional intangible assets in the form of intellectual, relationship, and organization capital, etc., that essentially mirrors a business’s stage of maturation.

(This post was inspired by a 2006 research report titled ‘SME Intangible Assets’ produced by the (Association of Chartered Certified Accountants with Chris Martin and Julie Hartley serving as principle investigators.)