Growing numbers of companies globally are recognizing…higher percentages of their value, revenues, and competitiveness, etc., have shifted away from the tangible – physical, to the intangible – non-physical. A paradigm shift, to be sure.
Underlying this is the business operation reality…is the fact that today, and for the foreseeable future, companies, organizations, and institutions are increasingly, if not wholly, intangible asset intensive and dependent, i.e., 80+% of most company’s value, sources of revenue, competitiveness, and sustainability, etc., lie in – emerge directly from intangible assets, primarily, intellectual, structural, and relationship capital.
Beginning in the late 1980’s, I was fortunate and motivated to…become one the early thought leaders actively engaged in all things intangible, initially as an academic (investigative) researcher (1982-2002). I continued my investigative research track as a practitioner, for specifics, see ‘About’ section at this blog site).
As most business leadership recognize, there are numerous variables to this economic, e.g.,
- companies’ are more dependent on the development, application, and exploitation of their (internally developed – externally acquired) knowhow which materializes in three primary forms, i.e., intellectual, structural, and relationship capital ala intangible assets.
- more specifically, intangible assets have surpassed tangible – physical assets, i.e., buildings, equipment, inventory, property, etc., as companies’ overwhelmingly dominant source of value and revenue.
Unfortunately, there remains varying levels of reluctance, perhaps skepticism, among some company management teams and c-suites…regarding ‘the contributory role and value of intangible assets to their business.
My experiences suggests, a not insignificant level of the reluctance – cynicism toward accepting the dominant role of intangible assets…is influenced by convention and managerial past practice embedded in the tangible – physical asset eras when standards and statutes (accounting, legal, etc.) were ‘hard and fast’ on the tangible, i.e., physical assets which morphed into ideological and professional discipline of ‘turf protection’.
Collectively, conventions and sustained importance attached to the tangible asset side of business…poses challenges to practitioners, as myself, to rationally refute when business leadership remains committed to – conveys satisfaction with past practice and wholly or partially disregard objective evidence studies to the contrary, i.e., the irreversibility of business and industry globally becoming intangible asset intensive and dependent.
Through my lens, there is an analogy here, it’s akin to the persistent politicized debates of climate change…that is, despite overwhelming scientific and visual evidence of the existence and probable consequences, there remain sufficient numbers of doubters and/or deniers who, irrespective of their motivation, achieve a public stage from which to express dispiriting and misguided messages.
Unfortunately, similar circumstances still exist for some business leaders, who…for various reasons, choose convention and past practice which largely neglect – overlook the active contributory roles and value of their intangible assets.
I have initiated numerous opportunities to engage business decision makers…and their respective professional societies and associations, i.e., accounting, law, financial services, venture capital, etc. I did this, in large part, because the latter’s consistent dismissiveness – disregard for intangibles’ contributory role and valuation.
I am not suggesting these professional disciplines are actually denying the relevance of intangible assets…instead what appears to be occurring structurally, is akin to being so vested in convention – the status quo, with little, or no interest in straying too far from milieus of ‘settled’ standards, rules, and regulations, etc., regarding if or how intangible assets are to be applied, valued, and ultimately reported…
- on company financial statements and balance sheets.
- as legally held assets, aside from intellectual properties, i.e., developed, nurtured, bought, and sold, etc.
- are subject to states of risk, i.e., vulnerability, probability, criticality of-to misappropriation, infringement, manipulation, etc..
Either of the above, individually – collectively, may influence...business management teams, c-suites, and boards retain to be practically hesitant – resistant to commencing a transition which includes fully engaging their intangible (non-physical) assets.
Admittedly, there are few precedents for what’s occurring today, i.e.,
- the sustainability of business and country economies’ economically and competitively,
- dependent on developing, acquiring, monetizing, and commercializing specific intangible assets, i.e., relevant variations of intellectual, structural, and relationship capital. to fit a specific initiative or venture, and,
- unlike most tangible (physical) assets, intangibles’ require consistent stewardship, oversight, management, and monitoring insofar as fluctuations in value, materiality (life, functionality cycle) and competitive advantages they deliver.
Intangible assets are subject to various types – levels of risk…which can materialize as adverse behaviors, circumstances, events, and/or transactions, etc., in which particular, perhaps key, intangible asset will inevitably be in play.
Many, if not most of the risks (to intangibles) which materialize in the above contexts, are…
- variously global and asymmetric, and
- their vulnerability (probability, criticality, cascading) is dependent on the circumstance, and
- their attractivity ala their ability to remain operationally-functionally intact vis-a-vis contributory role and value to other parties and/or projects.
When the above are absent consistent oversight, stewardship, management, and mitigation…serves as fertile ground for adverse risks – circumstances to materialize, and…
- cause a company’s intangible assets (the rightful holder) to experience declines in asset value, revenue, competitive advantage, etc., or be wholly undermined which can have adverse – cascading affects on reputation, brand, and goodwill.
In numerous instances I have witnessed, adverse risks – circumstances that materialize are attributable to…the surreptitious and purposeful activities of global economic and competitive advantage adversaries and ‘legacy free players’….
- in large part, that’s because increasingly higher percentages of company value and revenue lie in – evolve directly from intangible assets.
- prompting economic – cyber espionage to emerge in ways that are more calculating, stealthy, and designed to target specific ‘knowhow’ assets which, when stolen,
- cause substantially more immediate and irreversible damage-harm (economically, competitively) to a company than their tangible (physical) asset predecessors.
Few business leaders then, should express surprise that…global economic and competitive advantage adversaries are , after all, really targeting specific intangible assets, i.e., intellectual, structural, and relationship capital, not merely intellectual properties!
- after all, Willie Sutton, a notorious bank robber during the 1970’s, is alleged to have responded to the question ‘why do you rob banks’?, by saying, ‘it’s because that’s where the money is’!
- today, its specific intangible assets which hold – contribute to value, revenues, and competitive advantages!
So it is that I urge companies…particularly those with intensive portfolio’s of… valuable proprietary information, trade secrets, and other forms of intangible assets…
- to recognize, as they engage in their R&D, business transactions, strategic alliances, or technology transfer, etc., it is nearly certain particularly relevant intangibles assets will be in play, and therefore
- at risk!
Again, my experience leaves little doubt that when certain, particularly lucrative-competitive intangible assets are in play…
- they already have or soon will be targeted by economic and competitive advantage adversaries – legacy free players globally.
Particular examples of this, which I have examined for many years...are RBSU’s, i.e., university based research startups and corporate R&D units, which in most instances are…
- repositories of potentially valuable and competitive advantage intangible assets.
These repositories include specialized categories of ‘knowhow’ (intellectual and structural capital, which…global economic and competitive advantage adversaries…
- whomever they may be on any given day or future time frame, want and/or need, and are quite willing to assume risk to achieve their acquisition using various methodologies and tradecraft.
So, it should be to no business leader or researchers surprise that the most frequently targeted assets today are intangibles’…
- and, the risk predominates from the growing global array of economic – cyber espionage players, be they state or corporate sponsored or individual brokers, data miners, or legacy free players.
Admittedly, evidence to support my perspective is both anecdotal and research based…but, it stands to reason, like Willie Sutton’s remark ‘I rob banks because that’s where the money is’…
- the economic fact that 80+% of most companies value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability globally lie in intangible assets, thus…
- economic and competitive advantage adversaries of the world are targeting intangible assets.
- the reason, again referencing Willie Sutton, it’s because specific – select intangibles are the greatest sources of value and competitive advantage which others covet the most.
It’s not all about national defense and security…I can think of few better ways to convey this more succinctly than to refer to a conversation I had several years ago with a senior government official representing a county’s interior ministry.
This individual expressed a genuine need…for agricultural – crop science knowhow to be applied in his country as quickly as possible that would convert existing low crop yield land into high crop yield producing land!
This official said to me, in very matter of fact terms…referring to U.S. superiority in agricultural – crop science…‘you have something I need and want to properly feed my people now, and I shall endeavor to obtain it through whatever means are at my disposal’.
My interpretation of the official’s provocative statement left me with no doubt that…he understood the quickest and least expensive path to achieve this ‘utilitarian’ objective was not by…
- his government taking time to gear up and fund the necessary R&D internally, or
- engage in a covenant filled and potentially risky and intrusive strategic alliance with a private corporation based outside his country,
- either of which would be a long term, 2-3 years out undertaking before progress, of a sufficient scale, would likely materialize.
Instead, this individual, and countless others globally, share precisely the same view and are intent on acquiring the necessary knowhow by utilizing other means at their disposal.
A real example,, to be sure, but…I respectfully ask readers not to interpret the conversation as being wholly representative of the global economic – cyber espionage arena, other than, of course…
- recognizing (accepting) it as one critical reality – consequence of knowledge – intangible asset based global economies, i.e.,
‘you have something I want and need and I shall attempt to appropriate it or copy it without incurring the time and expense of independent origination’.
It is my contention then…that seldom are economic – competitive advantage adversaries’ actually seeking-stealing conventional intellectual properties, i.e., patents particularly.
Instead, it’s the intellectual, structural, and relationship capital (intangible assets)…embedded in and otherwise underlying the valuable proprietary information and trade secrets which have become the real targets.
Michael D. Moberly [email protected] St. Louis June 24, 2014 ‘Business Intangible Asset Blog’ since May 2006, 650+ posts, ‘where intangible assets, business, and solutions converge’.
Please explore other relevant blog posts, video, books, and position papers at https://kpstrat.com/blog
As always I welcome readers comments and perspectives.