It is a requisite for me to…learn about and understand the genesis of certain business phenomena and challenges as a requisite to offering counsel. For example, what influenced intangible assets’ emergence, legitimacy, and integration in business lexicon.
The most influential (early) study I read…that recognized intangible assets was produced by The Brookings Institution titled ‘Unseen Wealth’. This report initially appeared in the mid-1990’s, under the guidance of various (Brookings) working groups.
This study was ultimately titled…‘Unseen Wealth: Report of the Brookings Task Force on Intangibles’ (October 1, 2000). ‘Unseen Wealth’ was edited by Margaret M. Blair, then, a senior fellow in Economic Studies at the Brookings Institution and author of ‘Ownership and Control: Rethinking Corporate Governance for the Twenty-first Century’ (Brookings, 1995) and Steven M.H. Wallman, also a senior fellow at the Brookings Institution and a former commissioner of the U.S. Securities and Exchange Commission, and founder and CEO of a financial services and brokerage firm.
Brooking’s ‘Unseen Wealth’ Task Force working groups…were comprised of business leaders, consultants, accounting professionals, economists, intellectual property lawyers, and policy analysts. Not surprisingly, Blair and Wallman described their work product as…
- intangibles are harder to measure, harder to quantify, often more difficult to manage, evaluate, and account for than tangible assets.
- there is no common language for sharing information about intangible sources of value, and the language used tends to be descriptive rather than quantitative and concrete.
‘Unseen Wealth’ stresses the importance of developing standards for identifying, measuring, and accounting for intangible assets.
- it recommends actions to government and business for improving the quality and quantity of available information about intangible (asset) investments.
- articulating a three-pronged set of reforms to help companies, i.e.,
- construct better business and reporting models.
- improve the quality of financial reporting, and
- clarify intellectual property right laws.
For all the forward-looking insights I gleaned from the Brookings study…I remained curious about why intangibles evolved so rapidly at the outset of the twenty-first century. Or, as Dr. Baruch Lev (NYU economist) generally described intangible assets…
- if intangibles are so risky, their benefits so difficult to measure and secure, and their liquidity (tradability) so low, how did they become the most valuable assets most companies possess?
The answer, Lev suggested, lies in two international economic developments…
- the increasing intensity of business competition, and
- the commoditization of non-physical assets.
The first international economic development…leading to the ascendance of intangible assets,was, according to Professor Lev…
- the de-regulation of particular-economic sectors, i.e., transportation, financial services, and telecommunications.
In other words, as these, and other sectors de-regulated, i.e., became global in scope and practice), it served to intensify the overall competitive (global business transaction) environment.
- As competitiveness intensified (globally), demand for continual-perpetual innovation evolved, i.e., the development and introduction of new products, services, and cost efficiencies. Thus, continual-perpetual innovation quickly came to be a requisite for competitiveness, successful business operations, and sustainability.
- Too, as the global competitive pressures intensified…businesses already so engaged, and those aspiring to do so, frequently responded by engaging in more innovation. This was fueled in large part by an intensified awareness, appreciation, and investment in intangible (non-physical) assets.
The second international economic development that influenced the ascendance of intangible assets was, again, according to Professor Lev, the commoditization of non-physical assets. Translated, this means that competitors globally, had access, essentially on an equal footing, to those assets, which now, were essential to becoming a global business.
For example, the ‘physical assets’ of FedEx, DHL, and UPS became globally operational, somewhat simultaneously… this translated as companies globally, large, medium, and small. would have access to, what I routinely refer to as ‘instantaneous supply – distribution channels for their goods, products, and/or services anytime and anyplace. Therefore, a truly global and more responsive (timely) marketplace could evolve, and did so rapidly, relatively speaking.
Air cargo services, leveling the playing field…but, as companies globally gained (variously equal) access to the transportation, financial services, and telecommunication assets, it translated as circumstances in which each of those assets now became engaged in intense competition among themselves and may not, standing alone, generate extraordinarily high profits and create sustained value.
Rather, profits and elevated shareholder value would come to…be created through the prudent use (development, acquisition of) intangible (non-physical) assets unique to, for example, each air cargo carrier. In turn, each carrier developed their own distinctive bundles, combinations, and/or synergies of intangible assets that better enabled them to withstand and respond more aggressively to their respective field of competition.
Obviously today, these three air cargo carriers remain intact…and compete against one another, along with the upstart Amazon and other online shopping platforms. But, the intangibles each carrier has developed, out of necessity (competitive pressures) influenced the contributory role and value of the intangible assets developed and to their ascendancy, i.e., intangible assets now routinely represent 80+% of most company’s value, sources of revenue, competitive advantages, and ‘building blocks’ for future wealth creation and sustainability.
(Aside from the Brookings book cited above, a portion of this post was adapted by Michael D. Moberly from the work of Dr. Baruch Lev, ‘Encyclopedia of Social Measurement’ Volume 2, Elsevier, 2005.)
Michael D. Moberly November 19, 2017 St. Louis m.moberly@kpstrat.com ‘The Business Intangible Asset Blog’ where one’s attention span, intangible assets, and solutions converge’!
Readers are invited to explore other blog posts, papers, and books I have published at https://kpstrat.com/blog
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