Intangible Asset Risk Management…Thresholds, Tolerances

The manner-in-which businesses and their leadership…approach, prepare for, and ultimately respond to the potential for and/or the actual materialization of risk(s) to their intangible assets, as one may expect, varies considerably.

As an intangible asset strategist and risk specialist…I find the most significant variable is learning (assessing) whether business leaders I have the privilege of engaging, conceive of risk (exposure) in contexts of thresholds and/or tolerances to their intangible assets?

Frankly, my experiences suggest…business leadership frequently are more attuned to the cost of (risk insurance) premiums and the dollar ceilings-limitations relative to the occurrence (materialization) of an adverse event – act. Perhaps, that’s OK from a business leadership perspective, i.e.,

  • assuming – equating a projected threshold and/or tolerance for risk will be adequately reflected and will be accommodated in the insurance plan and/or insurer’s strategy.

Truth-be-told however…in a not an insignificant percentage of conversations between insurers and existing – prospective business clients regarding risk, ‘intangible assets’ are seldom, comprehensively addressed in terms of probability – vulnerability – criticality aside from reputation.

This is interesting insofar as the globally universal economic fact that today, and for the foreseeable future…

  • 80+% of most businesses value, sources of revenue, competitiveness, and sustainability lie in – emerge directly from intangible assets!
  • growing percentages of businesses, are indeed, intangible asset intensive and dependent.

Respectfully, it is unclear whether business insurance and asset management firms…as a matter of routine practice, are sufficiently and operationally familiar with each business clients often uniquely embedded and developed intangible assets which have direct bearing on (business) value, revenue, competitiveness, and vulnerability to certain risks!

Of course, there is a percentage of forward looking – thinking – practicing business leaders…who absolutely recognize the importance of anticipating and mitigating intangible asset specific risks, which is what ‘the Business Intangible Asset Blog’ regularly endeavors to address.

Businesses, be they research-based startups, maturing companies, or mature companies…cannot and should not try to escape the economic fact that 80+% of most company’s value, sources of revenue, competitive advantage, and reputation lie in – emerge directly from intangible assets, i.e., variations of intellectual, structural, and relationship capital.

Experience suggests however, that intangible asset specific risk…if-when it is distinguished from other (general) types-categories of risk to tangible – physical assets, as it should be, there remain a percentage of business leaders who remain fixated on the tangible, and much less on the intangible asset side of their business.

In part, this is likely a reflection of albeit (subjectively) pre-determined (risk) threshold and/or tolerance calculations…produced by insurers and underwriters. This, of course, is a very conventional approach which I find is generally weighted toward a company’s physical-tangible products and services and not the contributory role and value of intangibles, i.e., various forms of intellectual, structural, and relationship capital collaboratively – collectively embedded in other intangible assets, which, again comprise 80+% of most businesses value, sources of revenue, and competitive position.

It is after all, correctly understanding – having sufficient operational familiarity about…when, how, where, and why a business’s intangible assets (intellectual and structural capital especially) are best integrated (applied) to certain products and/or services to, individually or collectively, elevate their value, competitiveness, and revenue generation capacity.

And, often, it is those same intangible asset inputs…that are deemed attractive and lucrative to global cadres of ultra-sophisticated economic and competitive advantage adversaries which produce persistent risks.

Such circumstances of (intangible asset) risk leads to…another facet of risk mitigation and management for business’s crucial intangible assets, which unfortunately, occurs with unnecessary frequency…

  • it is a consequence of a management team’s felt obligation to ‘get to the market space first’ with their innovation, product, or service.

Specifically, the go fast, go hard, go global phenomenon is a factor…relative to the type and aggressivity of external risk to businesses value laden, competitive advantage, and revenue generating intangible assets.

In these circumstances, the risks posed to…specific intangible assets will likely to materialize at a  pace commensurate with – influenced by the globally predatorial and ‘legacy free’ entities, operating at each stage of product-service development, investment, and market launch cycles, which includes drawing economic-competitive advantage intellectual, structural, and relationship capital from targeted-companies’ – product’s value, supply, and distribution chains, which…

• adversely affects the fragility, stability, and defensibility of (targeted) intangible assets.

• renders intangible assets more distinguishable and thus, their content becomes more vulnerable to (specific, targeted) compromise, infringement, competitive advantage undermining, and value dilution, etc.

• creates more fertile ground for reputation risk(s) to materialize.

Still, another (third) facet of intangible asset specific risk mitigation – management…frequently lies business leadership who (mistakenly) assume intangible assets constitute…

  • infinite resources which are readily and fully renewable, retrievable, recapturable should they be subject to compromise, infringement, or undermining, etc.
  • presumably can be repaired, restored, and returned to productive – operational status in relatively short order following an adverse act or event, or the reverse, i.e.,
    • intangible assets may be presumed to be more challenging, costly, and time consuming to replicate, i.e., develop and exploit in a manner that is equally collaborative, competitive, and profitable, pre-risk materialization.

It  is for these reasons, I am suggesting…it would be prudent to characterize any one, or combination of risk perspectives cited above, not in contexts of if, rather, in contexts of when they will materialize. 

Corollaries to these particular-characterizations of intangible asset risk mitigation – management…I respectfully refer to as ‘risk illiteracy’. I define (intangible asset) risk illiteracy as an absence of operational awareness-familiarity in businesses relative to the absolute need of having, at the ready, rapid and effective (risk) monitoring – mitigation measures specific to the intangible assets in play.

  • should there be any lessons to be learned by business leadership once risks materialize, it is to often alter the parameters of a businesses’ tolerance, threshold, and literacy of risk, irrespective of a business’s size, sector, maturity, and/or financial health.

To be sure in today’s globally aggressive and predatorial business (development, transaction) environments…risk to intangibles is persistent and can materialize at keystroke speeds.

Of course, a percentage of business leaders…whether they are aware or not, signal their thresholds and/or tolerances for risk, or the absence thereof. Of late, this is especially relevant to business reputation risk.

Ultimately, a company’s thresholds-tolerances for risk…to its key intangible assets can seldom be characterized as one-size-fits-all. That’s because, in large part, the materiality of key – project specific intangible assets can fluctuate, ala their fragility, defensibility, sustainability, as well as their contributory role and value. Here, business leadership and management teams are obliged to consider (assess – factor) intangible asset risk with these and other variables, such as…

  1. speed of (risk) materialization and its expansion – embeddedness throughout an enterprise.
  2. criticality of risks to all or specific parts/units of a company and its products and services.
  3. a business’s capability and speed which it can mitigate -neutralize certain risk(s).
  4. a business’s overall resiliency, ala recuperative capabilities as a target of a materialized risk vis-à-vis customers, clients, consumers, and suppliers, etc.

As such, business leadership and management teams today are obliged to… approach and engage intangible asset risk mitigation and management as integral to structuring (engaging, undertaking, negotiating, and executing) any new business initiative, transaction, product-service rollout, R&D, etc.

Michael D. Moberly St. Louis May 1, 2019 [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published posts, read in 137 countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’!  (This post was initially published here February 15, 2017 and underwent significant revisions at my hand.)  

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Reader comments, as always are invited and respectfully welcome!


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