Michael D. Moberly December 3, 2012
Let’s respectfully cut to the chase, c-suites, boards, and management teams not only need, but, it’s a fiduciary responsibility, to know more about – have an operational understanding of the intangible assets they develop, possess, and are embedded throughout their companies.
Professional and objective studies, papers, and articles, too numerous to mention here, collectively draw the same conclusion, which is, growing percentages (65+%) of most company’s value, sources, of revenue, and ‘building blocks’ for growth, profitability, and sustainability reside in intangible assets. In my view, this means acquiring the operational know how to not just periodically, but routinely and consistently identify, nurture, monitor, safeguard, and exploit a companies’ intangible assets effectively, efficiently, and profitably is a very worthy and responsible use of time, but very few resources.
I am increasingly hard pressed to explain why this globally universal economic fact is not being acted on more consistently and ardently, particularly among U.S. firms. Yes, we can acknowledge there exist numerous and real hurdles or impediments to operationalizing a company’s intangible assets. One is, intangibles are seldom integrated in b-school curricula as correctly constituting distinguishable assets that warrant management, quantification, and exploitation to fit the bottom line. We also can acknowledge that far too many, otherwise extraordinary business persons, remain predisposed to understate their relevance and contributory value by assuming intangible assets are merely synonymous with intellectual properties, i.e., patents, copyrights, trademarks.
It is true that part of my being perplexed, if not frustrated by these incongruities, is related to being a 20+ year advocate of utilizing intangible assets to enhance business’s profitability and sustainability, and competitive advantage. It’s actually distressing to observe companies, led by otherwise experienced, successful, and highly educated management teams seriously understate, trivialize, or be inattentive to the relevance and contributory value of the intangible asset either they or their company have developed and instead, merely ‘lumping’ them together into the proverbial catchall of goodwill. And please, avoid assuming intangible assets are merely a euphemism
Yes, developing, building, and sustaining goodwill, for any company is an important and necessary contributor, but, it is one of many intangibles that warrant effective managerial treatment that again, includes consistent oversight, monitoring, and stewardship to achieve the results which most are capable.
But, let’s be clear, this is not about changing canoes in midstream. Nor is it about taking on additional (business) risk by engaging a company’s intangible assets. The evidence is already there and it’s quite clear, and certainly, intangible assets are already in place, that is, they’re integral to and embedded in most every business environment and/or transaction I can conceive. It’s merely a matter of recognizing what more a company can do, how additional competitive advantages can be achieved, solidified, and enhanced, efficiencies created, and of course, favorable effects on company sustainability, profitability, and stability.
Let’s go way back to 2004, when Accenture commissioned the Economist Intelligence Unit to conduct a survey regarding ‘asset’ management. One hundred and twenty senior executives, representing globally operating companies, were asked to share their views on the management of strategic assets, both tangible and intangible.
Not surprisingly, 94 of the 120 executives (respondents) stated that ‘managing intangible assets, one of which is intellectual capital, is an important management issue’. While, at first blush, this may appear to be a favorable finding, especially to intangible asset advocates and business strategists like myself. Fully, 95% of the respondents went on to state that (again, keep in mind, this survey was conducted in 2004) they ‘did not have a robust system in place to actually measure (monitor) the performance of (their company’s) intangible assets’.
Even more distressing, in my view, from an asset management and financial strategist’s perspective, was the revelation that a full third of the senior executives surveyed stated they ‘had no such system in place at all’. At the same time however, nearly half admitted they recognized that ‘stock markets actually rewarded companies that invested in (their own) intangible assets’! For any savvy business person, that represents an irony and missed opportunity in any language.
To put at least a small positive spin on this survey, respondents should be acknowledged for admitting their companies lacked the means and/or systems in 2004 to measure – monitor intangible assets.
Hopefully I am making a respectful but very positive case throughout my Business IP and Intangible Asset Blog, that intangible assets should be front and center in terms of aiding management teams, c-suites, and boards to recognize…
- what intangible assets really are.
- the various types and categories.
- how to unravel and approximate their contributory value…
- relative to goodwill, reputation, brand, relationship, intellectual, and structural capital, etc.
- as sources of revenue and ‘building blocks’ for future wealth creation, i.e.,
- insofar as bringing greater tactical – strategic clarity to
- how intangibles can be most effectively utilized
- strategies to extract as much value as possible.
Two general and perhaps larger points are worthy of making irrespective of the survey. The first is this; intangible assets are not the sole province of large, multi-national corporations. Rather, intangible assets are widely developed, possessed, and embedded in most every company, ranging from start-ups and spin-off’s to SME’s (small, medium enterprises) to mature, as well as, maturing firms.
In other words, intangible assets have little, if virtually nothing to do with a company’s size. It’s truly a case where size does not matter! Rather, it’s a matter of business decision makers recognizing what intangible assets their company possesses, produces, and/or has acquired and how they can be effectively and profitably (exploited) used.
The second point is that most issues today related to – affecting a company’s intangible assets have moved from merely being voluntary (I’ll do it if I have time) to truly constituting a fiduciary responsibility!
So, as most management teams, c-suites, and boards already know, whether they actually elect to act on that knowledge or not, is that the value, sources of revenue, and growth potential of most companies is increasingly embedded, not in physical or strictly financial assets that are reported on balance sheets and financial statements, but in intangible assets, i.e., brands, patents, franchises, reputation, R&D, intellectual, structural, and relationship capital and competitive advantages.
But, as the Accenture – Economist survey clearly revealed, few companies try to measure – monitor either the performance or returns from their intangible assets. Yet intangibles are certainly the clear and unequivocal underliers to most company’s profitability, sustainability, stability, and overall success. Quoting Dr. Roya Ghafele a proponent of intangible asset specialist and prolific Oxford University-based author, balance sheets and financial statements that do not encompass intangible assets simply do not provide the whole picture of a company.
There appears to be growing enthusiasm, albeit, at times, excruciatingly slow, for better management, stewardship, oversight, and monitoring and measuring (the performance of) a company’s intangible assets.
With respect to my particular corner of the world of intangible asset use, enhancement, and strategy, the radar of accounting firms, IP law practices, and insurance companies should surely be picking up the scent for developing and offering new business services specifically related to clients’ intangible assets.
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Please watch for Mike’s book ‘Intangible Assets: Security Managers Roadmap’ to be published soon!