Michael D. Moberly May 14, 2015 ‘A blog where attention span really matters’!
The absence of intangible assets in B-school curriculum is tantamount to business education heresy. Some years ago, while preparing to teach a management course, I framed and sequenced course materials to reflect my determination and eagerness to introduce MBA students not merely to IA’s, but strategies related to managing them, mitigating risks, sustaining ownership, and understanding their competitive content and contributory value.
It’s essential IA’s be incorporated as teaching-learning elements to b-school’s undergrad and graduate programming, if, for no other reason than steadily rising percentages (i.e., 80+%) of most companies’ value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability evolve directly from these non-physical asset class, particularly, intellectual, structural, and relationship capital, brand, reputation, goodwill, competitive advantages, and intellectual property, etc.
Upon commencing this MBA course, I quickly introduced students to intangible assets and affirmed they would be integral learning objectives to the course. Just as quickly, it became clear, with one exception, that, for even the most experienced and employed students, intangible assets were not part of their lexicon, repertoire of talent, or skill sets, save for one student who did acquire a limited, but far from operational familiarity for specific types-categories of intangible assets once they were pointed out. But that familiarity was generally limited to intellectual property (patents primarily), reputation, and brand. Student generally characterized intangibles in standalone – individualized contexts, not reliant on or connected to other company assets.
End of course teaching assessments coupled with student responses to essay questions related to intangible asset issues revealed challenges remained, particularly achieving a sufficient (operational) grasp of intangibles in several key areas, e.g., how…
- IA’s could be subject to a collective framework of (asset) management, stewardship, and oversight.
- to recognize and assess IA’s contributory value (to a company, a particular product, service, or other broader initiative.
- to distinguish particular IA’s as contributing to – being drivers of specific sources of revenue, and
- the assets’ could be persistently vulnerable to various and asymmetric risks which, once materialized, would erode and/or undermine company value, the benefits of competitive advantages, (company, product) reputation, and new product launches, etc.
Respectfully, IA’s represent a variously challenging concept to grasp and apply in value-add, revenue generation, monetization, and exploitation contexts, to name just a few. As for this course, I sensed then, and still do, that an important conceptual hurdle to understanding intangible assets along with achieving some level of operational familiarity, may reside in the word ‘intangible’. That is, IA’s lack a conventional sense of physicality, unlike tangible (physical) assets which one can see, touch, and report on balance sheets and financial statements.
Again, respectfully, this was, for these MBA students, their initial introduction to IA’s. In part, their lack of familiarity is a reflection of shortcomings in the larger business community that still struggles with how to effectively and efficiently engage and utilize the intangible assets their company – organization produces or acquires.
As the nine week course progressed, a significant percentage of the students appeared to concede the role, function, and contributory value of intangible assets. It’s worth noting, one student with an especially progressive career in financial services, clearly conveyed he was grasping IA’s, however, he consistently challenged, even resisted the positive spin I was endeavoring to espouse regarding the relevance and contributory value of intangible assets across all industry sectors.
This particular student articulated his reticence by describing numerous multi-million dollar loan and acquisition transactions which he personally oversaw, throughout which there was absolutely no mention, recognition, or accounting of intangible assets being in play, in either valuation, collateral (securitization) or due diligence contexts.
At the conclusion of the last class, this student said to me in a respectful, yet very definitive tone…”I understand what you’re saying Mr. Moberly about IA’s, but I just don’t see IA’s ever becoming an issue in my bank as you are suggesting they should and will, at least while the current (bank) officers remain in place. In my bank, it’s solely about identifying and assessing the value of physical assets as collateral”.
Of course, the point to all of this is, does the same attitude and perspective hold true for business management teams, c-suites, and boards, in general? To be sure, attitudes toward and fundamental operational familiarity with IA’s is changing as the economic fact – business reality becomes clearer, i.e., 80+% of most company’s value and sources of revenue emanate from IA’s.
Introducing intelligent, seasoned, and already successful business decision-makers, boards, and management teams to intangible assets, and that the time they devote to learning about intangibles, their valuation, and strategies to effectively use and extract value from them, along with the necessity to safeguard and monitor the assets’ value, risk, and materiality are indeed worthy of their time. Unfortunately however, intangible assets remain somewhat of a hard sell!