Michael D. Moberly December 26, 2012
When clients I serve, find it necessary to have their intangible assets valued, I draw their attention to the necessity for the valuation to address – reveal much more than merely the assets’ standalone value, that is, without regard to their relationship – connection to other (revenue, competitive advantage producing) assets.
Instead, I prefer (intangible) asset valuations be framed (conducted) on the basis of what I refer to as their contributory value, i.e., as individual and/or integrated clusters of intellectual, structural, or relationship capital relevance or contribution to (current) projects, products, services, new ventures, R&D, efficiencies, competitive advantages, and/or revenue streams, etc.
My rationale for encouraging intangible asset valuations be conducted in this manner are…
- 65+% of most company’s value, sources of revenue
and ‘building blocks’ for growth, sustainability, and profitability today, lie in – evolve directly from intangible assets. In other words, in this knowledge-based global economy, companies are becoming more intangible asset intensive!
- this approach will provide boards, c-suites, and management teams with much needed, but frequently overlooked insights about their intangible assets, i.e., best practices for their management, stewardship, oversight, monitoring, and protection based on their contributory value and functionality cycles, not for the lifetime of a company, and
- most conventional (asset) valuation methodologies are variously subjective or speculative which tends to inflate or minimize asset value.
The ‘contributory value’ approach, allows assets to be more readily tracked, traced, and measured relative to their origins and contributions which minimizes subjective and/or speculative inputs that have little or no bearing on assets’ actual contribution to a company’s and/or business unit’s core objectives.
When intangible asset valuations are applied specifically to intellectual property, i.e., patents, I wonder, particularly as auctions of standalone patents are becoming a global fixture, whether, by applying the ‘contributory value’ approach, it may lessen or perhaps even alleviate the need for conventional IP-only valuations, other than to establish a minimum bid. An example of such a patent auction was the ICAP Patent Brokerage Auction held in San Francisco in July, 2012.
Should this ‘contributory value’ approach be recognized as a viable methodology for valuing intangibles, it will, in my judgment provide business decision makers with much needed and practical (additional) strategic insights and options for optimizing the contributory value of their company’s intangibles.
Too be sure, conventional (business) valuation practitioners will surely critique and possibly find some disagreements with my ‘contributory value’ methodology as described here. I am the first to admit the methodology warrants more study. However, I do not believe it should be summarily dismissed, particularly during a time when management teams, c-suites, and boards are assuming more fiduciary responsibilities (regulatory) mandates for the management, stewardship, and oversight of intangible assets under their control, use, and ownership.
After all, it is my genuine intent to not only elevate operational awareness of intangibles, but contribute to learning how to develop, utilize, and exploit intangibles in the most efficient, effective, and profitable manner possible.
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