Extracting Value From Intangible Assets: Remaining Challenges For Management Teams and Boards

Michael D. Moberly   April 23, 2010

Are there sufficient incentives for management teams and boards to devote time and resources to consistently and aggressively engage their company’s intangible assets as a prelude to extracting value and converting it into revenue?

We’re well into the 21st century and the role intangible assets’ are playing in companies as value and growth contributors and creators is widely understood at the 5,000 foot elevations in business communities globally.

At those elevations, it’s a well known economic fact and business reality that steadily increasing percentages (65+%) of most companies value, sources of revenue and future wealth creation have literally shifted from tangible (physical) assets to intangible assets, or, as the British sometimes refer to them as the ‘invisibles’.

But, why isn’t this reality resonating more and with a broader sense of urgency at all levels of a business enterprise?  And why aren’t more management teams and boards willingly, and yes, even perhaps eagerly, engaging their company’s intangible assets and devising strategies to maximize, exploit, and otherwise seek ways to extract as much value as possible from un-under-utilized assets.

I, like other voices advocating greater recognition and utilization of intangible assets, meet with very astute, intelligent, and extraordinarily talented and successful business leaders who are apt to use sophisticated techniques and/or technologies to, for instance, schedule employee work schedules to reduce overtime pay, but, mention the words intangibles or intangible assets and their eyes are likely to glaze over and their minds wander.

Intangible assets, are, in most instances, the ‘low hanging fruit’ and the ‘in your face’ sources (facilitators, enablers, creators, and contributors) of value and revenue for companies, but, in many instances, they’re overlooked, neglected, or sometimes, literally dismissed. 

In part, the lack of management team and board enthusiasm for intangible assets may be attributed to:

1. Accountants who may or may not fully grasp the contributory significance of intangibles (and reporting – accounting for same) and therefore are reluctant to introduce or explain the relevance of intangibles to their clients.

2. Faux strategic planning, e.g., near term – quarterly focused perspectives that exclude interest in longer term (strategic) planning, particularly regarding the development, utilization, and exploitation of non-physical and intangible assets which are not typically reported on company balance sheets and whose performance is often perceived as being difficult to objectively measure with precision.

3. A tendency to characterize intangible assets as being synonymous with intellectual property (IP), when, in reality, IP is actually a subset (category) of intangible asset.

4. A self-deprecating assumption by some management teams and boards that their company does not produce or possess any significant or valuable intangible assets worthy of their time to identify and assess.

5. The mere lack of physicality of intangible assets, i.e., their non-physical nature which can’t necessarily be seen or touched in the same vein as conventional tangible (physical) assets such as equipment, inventory, property, vehicles, etc.

6. The seldom portrayed or poorly articulated ‘value proposition’ (pathways, strategies) for extracting value from intangible assets.

7. And, consultants’ who, for their own reasons, may be inclined to characterize any one, or all of the above as being far more complicated, time consuming, and costly to execute than necessary, and I hasten to add, is the reality.

In response, I say to those hesitant management teams and boards; positioning and aligning intangible assets to extract value involves several intellectual/conceptual processes, or steps, that are indeed worthy of your time and attention, starting with…

1. Acquiring a genuine curiosity about identifying the intangible assets a company produces and/or has acquired.

2. Recognizing that intangible assets exist in many different formats and contexts, in other words, not solely as goodwill.

3. Learning how to identify centers, clusters, and origins of beneficial and contributory intangibles within a company. 

Unfortunately, in far too many instances, management teams and boards initially learn about the existance and/or value of their firm’s intangible assets under distressed circumstances, i.e., the assets have been lost, stolen, undermined, etc., in which case it may be too late for a company to fully (economically) benefit from those assets.  That’s because, often times, intangible assets are perishable and transferrble and once compromised, recovery and/or retrieval can be costly, time consuming, and seldom whole.

Interestingly, in 2004, Deloitte teamed with the Economist Intelligence Unit to conduct a survey titled; ‘In the dark: What boards and executives don’t know about the health of their businesses’.  The survey produced the following three key findings related to the importance of boards and senior managers to track non-financial aspects of company performance, i.e., intangible assets:

1. Factors driving boards and senior managers to monitor key non-financial performance indicators are:

    a. increasing global competition

    b. growing customer influences

    c. greater awareness of risks to company reputation, and

    d. accelerating product innovation

2.  Despite the growing need to monitor non-financial vital signs of their businesses, most boards and senior managers are struggling to do so.

3.  The biggest obstacles to enabling boards and senior management to track non-financial vital signs of their business are:

    a. lack of sophisticated measures, and

    b. doubts that they truly matter.

This Deloitte survey also found that an overwhelming majority of respondents (ranging from 90+% to 78%) described ‘critical and important drivers to (their company’s) success’ as (a.) customer satisfaction, (b.) service quality, (c.) efficiency and effectivness of business processes, (d.) brand strength, (e.) innovation, and (f.) quality of relationships with external stakeholders.  Please note that each of the aforementioned are routinely classified as intangible assets!

Understanding and taking affirmative steps to identify, maximize, exploit, and extract as much value as possible from a company’s intangible assets is not rocket science, it’s just prudent business practice today!

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