Michael D. Moberly June 24, 2014 ‘A long form blog where attention span really matters’.
The knowledge – intangible asset era, paradigm shift…
Growing numbers of companies and organizations are seeing steadily rising percentages of their value, sources of revenue, and ‘building blocks’ for profitability, sustainability, and growth evolve directly from intangible assets produced either internally or acquired externally. Today, that percentage consistently hovers at 80+%. As readers recognize, there are numerous variables to this global economic paradigm shift, e.g.,
- companies’ are more dependant on the development, application, and exploitation of their knowhow which materializes as intellectual, structural, and relationship capital, i.e., intangible assets.
- intangible assets have surpassed tangible – physical assets, i.e., buildings, equipment, inventory, property, etc., as companies’ overwhelmingly dominant source of value and revenue.
Beginning in the late 1980’s, I was fortunate to become one the early thought leaders actively engaged in the intangible asset arena, initially as an investigative academic researcher, and now as a practitioner.
Still reluctance among company management teams and c-suites…
Unfortunately, there remains considerable reluctance regarding the whole ‘intangible asset thing’! Much of the reluctance is influenced by managerial past practice embedded in pre-knowledge era industry standards and statutes (accounting, legal, etc.) which, in many instances, have morphed into ideological and professional discipline ‘turf protection’. Collectively, each poses unique challenges to rationally refute for those committed to – satisfied with past practice, regardless of the availability of objective studies that demonstrate the irreversibility of business and industry globally being dominated by intangible assets.
Through my lens, there is an analogy here to the persistent global warming debate. That is, despite overwhelming scientific and visual evidence of its existence and consequences, there remain sufficient numbers of doubters and/or deniers who, irrespective of their motivation, achieve a public stage from which to express dispiriting and misguided messages. Such circumstances exist in the intangible asset arena.
I have the opportunity to engage countless business decision makers and their supporting professional service disciplines, i.e., accounting, law, and financial services particularly because their persistent and dismissive questioning of intangibles’ value, utilization, and exploitation is the most apparent. Respectfully, I don’t believe these disciplines are actually denying the existence of intangible assets, but their expressions remain aligned with conventional thought and practice leaving little time or room to objectively consider current realities.
It’s quite clear that each discipline specific objection evolve around challenges associated with intangible asset valuation and how or whether intangibles are to be reported on company financial statements and balance sheets. This makes numerous company management teams, c-suites, and boards retain attitudinally hesitance – resistant) to making the necessary managerial transition which includes fully engaging their intangible (non-physical) assets.
No global precedent…
Admittedly, there is no precedent for what’s occurring today, i.e., international business and country economies’ being overwhelmingly dominated, economically and competitively by intangible assets. And, unlike most tangible (physical) assets, intangibles’ require consistent stewardship, oversight, management, and monitoring of fluctuations in the value and competitive advantage they deliver and the risks which render them vulnerable.
There are various acts, behaviors, and/or events, many of which are asymmetric, that collectively create fertile ground for risks and threats to materialize and cause a company’s (intangible) assets to experience declines in value and sources of revenue, or become competitively undermined which can have adverse bearing on company reputation and goodwill. In numerous instances such adverse circumstances are attributable to the surreptitious and purposeful activities of global economic and competitive advantage adversaries. That’s because increasingly higher percentages of company value and revenue lie in – evolve directly from intangible assets prompting economic – cyber espionage to emerge in ways that are more calculating, stealthy, and designed to target specific, usually ‘knowhow’ assets which, when lost or stolen, cause far more immediate and irreversible damage-harm (economically, competitively) to a company than their tangible (physical) asset predecessors.
It should be to no one’s surprise that economic and competitive advantage adversaries are really targeting intangible assets…
Willie Sutton, a notorious bank robber during the 1970’s, is alleged to have responded to the question ‘why do you rob banks’?, by saying, ‘it’s because that’s where the money is’!
Similarly, I urge companies, particularly those with intensive portfolio’s of valuable proprietary information, trade secrets, and other forms of intangible assets to recognize, as they engage in business transactions, strategic alliances, and technology transfers, etc., it is all but certain those intangibles assets will be in play.
Experience clearly suggests that when certain, particularly lucrative intangible assets are in play, they will be targeted by an economic and competitive advantage adversary. Examples of this, which I have examined for many years, are university research and corporate R&D units, which in most instances are repositories of potentially valuable and competitive advantage intangible assets. As noted previously, this includes specific categories of ‘knowhow’ that exist as intellectual and structural capital primarily which global economic and competitive advantage adversaries, whomever they may be on any given day or future time frame, want and/or need, and are quite willing to assume risk to achieve their acquisition using various methodologies and tradecraft.
So, it should be to no one’s surprise that the most frequently targeted asset today are intangibles’, and the risk predominates from the growing global array of economic – cyber espionage players, be they state or corporate sponsored or individual brokers, data miners, or legacy free players.
Admittedly, evidence to support this contention are largely anecdotal, but it stands to reason, like Willie Sutton’s remark ‘I rob banks because that’s where the money is’, the economic fact that 80+% of most companies value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability globally lie in intangible assets, the economic and competitive advantage adversaries of the world are targeting intangible assets. The reason, like Mr. Sutton, it’s because specific – select intangibles are the greatest sources of value and competitive advantage others covet the most.
It’s not all about national defense and security…
I can think of few better ways to portray this more succinctly than to refer to a conversation I had several years ago with a senior government official representing a county’s interior ministry who expressed a genuine need for agricultural knowhow to render very low crop yield land into high crop yield producing land. This official said, in very matter of fact terms, referring to U.S. superiority in agricultural science, ‘you have something I need and want to properly feed my people now, and I shall endeavor to obtain it through whatever means are at my disposal’.
My interpretation of the official’s provocative statement left me with no doubt that…
he understood the quickest and least expensive path to achieve this ‘utilitarian’ objective was not by his government taking time to gear up and fund the necessary R&D internally, or engage in a covenant filled and potentially risky and intrusive strategic alliance with a private corporation based outside his country, either of which would be a long term, 2-3 years out, undertaking before progress, of a sufficient scale, would likely materialize. Instead, this individual, and countless others globally, share precisely the same view and are intent on acquiring the necessary knowhow by utilizing other means at their disposal.
A real example, but…
I respectfully ask readers not to interpret the above example, as real as it is, as being wholly representative of the global economic – cyber espionage arena, other than recognizing it as one critical reality – consequence of knowledge – intangible asset based global economies, i.e., ‘you have something I want and need and I shall attempt to appropriate it or copy it without incurring the time and expense of independent origination’.
It is my contention then, that seldom are economic – competitive advantage adversaries’ actually seeking-stealing conventional intellectual properties, i.e., patents particularly. Instead, it’s the intellectual, structural, and relationship capital (intangible assets) embedded in and otherwise underlying the valuable proprietary information and trade secrets which have become the real targets. In other words, it is simply a misnomer to state intellectual properties are being targeted, stolen, or otherwise misappropriated.
As always I welcome readers comments and perspectives at email@example.com in St. Louis!