Michael D. Moberly January 6, 2011
I’m starting this post with what I believe are two, equally important views. First, intangible assets are relevant – should be integral to most every company’s strategic planning initiatives. Second, CFO’s, perhaps as much as any other member of a company’s management/leadership team, play an essential role, dare I say (fiduciary) responsibility, to ensure employees, business units, and all members of the management team, etc., are effectively oriented (educated) about the intangible assets the company produces, acquires, and possesses.
The basis for intangibles’ relevance and importance to company strategic planning today is due to the economic fact that 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and future wealth creation lie in – evolve directly from intangible assets!
That said, companies, (and their management-leadership teams) who may not have the operational familiarity, skill sets, or inclination to effectively engage and and profitably use their intangible assets, a real information gap becomes evident particularly in business transaction negotiations or during strategic planning in which intangible assets could, and probably should be in play. Instead, what a company will likely experience are lost opportunities, ineffective strategic planning, poorly structured transactions, and asset value and competitive advantage hemorrhaging, etc.
As we start 2011, there should be little question that companies genuinely need information about their intangible (asset) resources to form the foundation for making better – best (strategic) decisions that reflect the (national/global) shift to the ‘knowledge economy’ which we’re all now in the midst.
One of the most straight-forward ways of illustrating this shift, ala the knowledge-based economy, is to examine the stock market. Ten to fifteen years ago there was a fairly consistent and strong correlation between a company’s stock price and the book value of its assets. Today however, only 20+/-% of the stock price of S&P 500 companies, for example, is explainable via their balance sheet book value. And that readers, represents the ‘information gap’ referenced above and demonstrates why it is so essential that companies (CFO’s) acquire and pass along an operational familiarity about intangible assets throughout their enterprise.
The implications-adverse consequences to companies stemming from this accounting/value discrepancy, or information gap, can be significant. Traditionally, balance sheets are a quick read tool to identify the resources (assets) which a company has available – can use to literally build its future. In the context of today’s knowledge-intangible asset based economy, balance sheets provide few insights insofar as a strategic view of a company’s potential, because a company mos essential resources and drivers of value, i.e., intangible assets, don’t appear on the balance sheet other than in a genericized form of goodwill.
A respectful reality is, in most companies, information about a company’s intangible assets is likely to be scattered throughout the enterprise, seldom consolidated, and therefore, seldom applied. It’s not difficult to speculate then, that CFO’s who lack fundamental information/insights about the intangible assets their company produces, has acquired, and possesses or how to use those (intangible) assets effectively, it literally leaves the most important questions about a company’s future not merely off the strategic planning table, but out of the strategic planning process altogether.
If information about a company’s intangibles was included, it would provide answers to such questions like; a. does the company have the right people, knowledge, technology and network in place to meet its goals?,
b. is the company correctly positioned for continued innovation?, and
c. where is the company at risk?
If the truth be known, in many instances, if such questions are raised, absent relevant and quality information about a company’s intangibles, the answers would likely to be anecdotal or intuition driven. Either way, that doesn’t make for very effective strategic planning.
The first step for maneuvering entire companies to get on the right strategic planning road, with respect to intangible assets, is to develop a mechanism that iidentifies, assesses, monitors, and consolidates all information about intangibles. This would allow strategic questions, as noted above, to be answered objectively, not anecdotally, and would bring business, economic, and competitive advantage clarity about a company’s intangible assets into the strategic planning process.
Ultimately, the CFO’s role and contribution to a company’s strategic planning may well be dependent on whether he/she considers themselves as being the keeper of the traditional (asset-liability) accounting process or the new, more informed source of objective, consolidated, and strategically oriented data about their company’s total resources, especially its intangible assets!
(This post was inspired by the work of Mary Adams in her 2007 ‘Business Edge’ article titled ‘Will CFO’s Keep Their Seat at the Strategy Table’?)
The ‘Business IP and Intangible Asset Blog’ is researched and written by Michael D. Moberly, president and founder of Knowledge Protection Strategies – https://kpstrat.com. The intent of Mr. Moberly’s blog is to provide insights and perspective to aid in a cross-disciplinary approach for identifying, assessing, valuing, protecting, utilizing, and extracting value from intangible assets. Your comments regarding my blog posts are welcome at [email protected].
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