Michael D. Moberly   August 2, 2012

I routinely have the opportunity to talk with a cross-section of business leaders and entrepreneurs about my favorite topic; intangible assets.  Recently, I had the pleasure of having a particularly stimulating conversation with a very astute and intelligent colleague and yes, it was about intangible assets.

This colleague certainly intended no disrespect to me or other intangible asset strategists by suggesting, if I understood her correctly, that the development, use, and exploitation of intangible assets remains largely theoretical.  Without elaboration, I presumed she meant intangibles in general, lacked sufficient testing, practical application, and business (bottom line) relevance to move outside the theoretical realm.  Obviously, I disagree!

Having taught  in higher ed for 25+ years, I can say, without hesitation, that a significant percentage of the time when I uttered the word theory in a classroom or at a professional association presentation, the ‘first blush’ reaction was fairly consistent and would tend to occur in the following order, (1.) a muffled, but audible sigh, followed by (2.) a glazing of the eyes, as if to say, we’re going to take a nap now while this guy (me) tries to explain a theory which we’re already inclined to presume has little, if any, relevance to the proverbial ‘real world’.

As a result, I adapted my classroom presentations to characterize ‘theories’ differently, by merely pointing out that any theory is merely a thoughtful and tested attempt to explain a particular activity, behavior, or overall phenomenon.  This approach appeared to work rather well and one I still apply today as a business founder and entrepreneur.  Unfortunately however, there remain some, who are inclined to rudely characterize theories as merely constituting an academics’ guess, hunch, untested opinion, or supposition.

So, it certainly comes as no surprise today to hear otherwise intelligent, savvy, and successful business persons express dismissiveness or reject certain well established and globally recognized economic facts about intangible assets by characterizing them as unsubstantiated (theories) and will not hold up to the scrutiny, rigors, and stresses of today’s aggressive and competitive business (transaction) environment.

In reality though, a theory is an expression of a concept or idea that is testable, replicable and based upon well-grounded hypotheses.  And, in the world of business management, economics, and organizational behavior intangible assets have become an economic fact and global business reality, i.e., 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, stability, sustainability, and profitability lie in – evolve directly from intangible assets.

In my judgment, what prompted Brookings Institution, Athena Alliance, IC Knowledge Center, the Intangible Asset Finance Society and other prominent ‘think tanks’ and professional associations to engage intangibles was by demonstrating…

• their conspicuous role in business transactions and subsequent need for effective stewardship, oversight, management, and monetization
• assuming an active and forward looking role by intangible assets in practical business contexts was the unrelenting reality that conventional financial statements and balance sheets no longer conveyed an adequate picture of a company’s entire financial health.

So, identifying and including a company’s intangible assets in valuation and management was a more comprehensive way to accurately describe a company’s value, its sources of revenue, future wealth creation potential, sustainability, profitability, and overall stability. Thus, to respectfully appeal to the reluctant and the skeptics, what follows are real definitions, categories, and examples of intangible assets!

Intangible assets…

• Are comprised of unique blends, combinations, and/or collections of a particular process, activity, asset, relationship, and/or market condition that companies exploit to differentiate themselves from competitors, and thus create value.  Adapted by Michael D. Moberly from work by Michael Porter, Harvard Business School
• Can produce economic benefits (profits, royalties) which are anchored in distinctive features, processes, or programs that set a company/business unit apart from its competitors by creating efficiencies, value, and/or generate sources of revenue.   Michael D. Moberly
• Generally evolve over time within a company and may not always be the result of a planned action or the product of specific capital allocation decisions.  Michael D. Moberly (adapted from Brookings Institution – Understanding Intangible Sources of Value)
• Lie increasingly in unique and sometimes proprietary intellectual, relationship, and structural capital and processes a company has developed and utilizes and the special value that comes with the unique understanding of how those intangibles can be best used to create a competitive edge.  McKinsey Quarterly, 2004

Categories – Examples Of Intangible Assets…

 Asset Categories                           Examples Of Intangible Assets

1. Technology:  internally developed (proprietary, unpatented) software, databases, source code, custom applications, and technology sharing agreements…
2. Marketing:  advertising concepts, focus group findings, subscription lists, music, promotional characters/devices, newsletters, credit information files…
3.  Engineering:  designs, drawings, blueprints, schematics, diagrams…
4.  Relationship Capital:  customer/client relationships, mailing lists/data bases, retrieval systems, distribution channels, 1-800 numbers…
5. Competitor Research:  actionable business intelligence, i.e., competitors plans, intentions, and capabilities…
6. Real Estate: zoning, permits, water/mineral/development rights, easements, location visuals and proximities, options…
7.  Human-Intellectual Capital: work force in place (experience, education, training), training manuals, operating processes, non-compete/disclosure agreements (if transferable), the sum total of employees’ specialties, skills, attitudes, abilities, competencies, and technical (proprietary) know how, insurance enrollment/expirations
8.  Internet:  domain names, website design, B2B/e-commerce capabilities, web links, accessibility, use, URL’s…
9.  Company/Business Identity:  image, goodwill, reputation, trade name, logos, brand name…
10.  Contracts/Agreements:  most any contract that has a definable life and some form of exclusivity, i.e. employment, affiliation, advertising, sales, subscription, service, long term lease, non-compete covenants, joint ventures, value of future purchases due to special relationships with vendors, royalties, technology sharing/joint ventures…
11.  Products/Services:  warranties, production capability, order/production back log, operating permits, licenses, renewals, processes, expirations, retail shelf space, distribution rights/networks…
12. Intellectual Property:  patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, logo design, brands…
13.  R&D:  (in-process) studies, formulas, processes, assembly data, regulatory agency approvals, collaborative alliances, formulas, outstanding RFP’s, specialized technical repositories, libraries…
14. Communications:  methods, cable/transmission rights, FCC licenses, certification, bandwidth…
15.  Structural Capital:  structures and processes employees develop to increase productivity and performance (business process/method patents)

Adapted by Michael D. Moberly from professional experiences, engagements, Weston Anson’s ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’ and Section 197 of the IRS Code.

Readers are encouraged to examine the categories and examples of intangible assets above, and identify those which you and/or your company produce and possess.  Then ask yourself, in what ways do these assets contribute to and deliver sources of revenue, value, competitive advantages, and serve as ‘building blocks’ for growth and sustainability to your company?