Recognizing Value Of Intangible Assets

Michael D. Moberly   January 20, 2012

I, like other intangible asset advocates routinely meet with astute and successful business leaders who are apt to apply sophisticated techniques and/or technologies to, for instance, schedule employee work schedules to reduce overtime, but, mention the words intangible assets and it’s quite likely they will exhibit a dismissive attitude.

We’re well into the 21st century and the important role intangible assets’ play in companies, according to numerous respected studies and personal experience, is slowly, but surely, being recognized at the c-suite and board level globally, i.e.,

…that steadily increasing percentages (65+%) of most companies value, sources of revenue and  future wealth creation have literally shifted from tangible (physical) assets to intangible assets.

However, there doesn’t appear to be sufficient incentive for management teams and boards to go beyond mere recognition of intangibles to actually devoting time and resources to acquire the operational familiarity necessary to develop, safeguard, position, and convert them to sources of value and revenue.  So why…

  • isn’t this economic fact – business reality resonating more and assuming a broader sense of urgency at all levels of a business enterprise? 
  • aren’t more management teams and boards eager to engage their company’s intangible assets and devise strategies to exploit – extract as much value as possible?

After all, intangible assets, are, in most instances are the proverbial ‘low hanging fruit’, but unfortunately they’re still routinely overlooked, neglected, or sometimes, literally dismissed. 

Respectfully, the lack of management team and board enthusiasm for intangible assets may, in part, be attributed to…

  • accountants who may not fully appreciate the business significance of intangibles because they’re not reported on balance sheets or financial statements unless bundled together as goodwill
  • measuring the performance of intangibles’ is often perceived to be difficult, subjective, and readily defensible
  • over emphasis on short term planning that diminishes positive outcomes of strategic planning that excludes the development, utilization, and exploitation of non-physical (intangible) assets.
  • the misconception that intangible assets are synonymous with intellectual property, when, in reality, IP is actually a subset of intangible assets
  • a self-deprecating assumption by some management teams and boards that their company does not produce or possess any significant or valuable intangible assets worthy of their time to identify and assess.
  • the mere lack of physicality of intangible assets, i.e., their non-physical nature.
  • the often times poorly understood and articulated ’value proposition’ related to utilizing intangible assets.
  • and, consultants’ who, for their own reasons, may be inclined to characterize any one, or all of the above as being far more complicated, time consuming, and costly to execute than necessary.

In response, I say to reticent management teams and board’s that positioning and aligning a company’s intangible assets to extract value and create/enhance competitive advantages involves several processes or steps, that are worthy of their time and attention, starting with…

1. Acquiring a genuine curiosity about identifying the intangible assets a company produces and/or has acquired.

2. Recognizing that intangible assets exist in many different formats and contexts other than merely goodwill.

3. Learning how to identify centers, clusters, and origins of intangibles within a company. 

Unfortunately, in far too many instances, management teams and boards initially learn about the existence and/or value of their firm’s intangible assets under distressed circumstances, i.e., the assets have been lost, stolen, undermined, or the commencement of a merger-acquisition in which case it may be too late to fully (economically) benefit from those assets.  That’s because, intangible assets are often perishable and readily transferable, and once compromised, recovery can be costly, time consuming, and seldom whole.

Interestingly, in 2004, Deloitte teamed with the Economist Intelligence Unit to conduct a survey titled; ‘In the dark: What boards and executives don’t know about the health of their businesses’.  The survey produced three key findings related to the importance that boards and senior managers should attach to tracking non-financial aspects of their company’s performance, i.e., its intangible assets.

The Deloitte study revealed…

1. Factors driving boards and senior managers to monitor key non-financial performance indicators as:

    a. increasing global competition

    b. growing customer/stakeholder influences

    c. greater awareness of risks to company reputation (which is an intangible asset), and

    d. accelerated product innovation

2.  Despite the growing need to monitor a company’s non-financial vital signs, i.e., intangible assets, most boards and senior managers still struggle to do so.

3.  The biggest obstacles to enabling boards and senior management to track non-financial vital signs of their business are:

    a. lack of sophisticated measures, and

    b. doubts that they truly matter.

4.  An overwhelming majority of respondents (90+% to 78%) described ‘critical and important drivers to (their company’s) success’ as:

  • customer satisfaction
  • service quality
  • efficiency and effectiveness of business processes
  • brand strength
  • innovation, and
  • quality of relationships with external stakeholders

Please note that each of the above constitute intangible assets!

Understanding and taking affirmative steps to identify, unravel, exploit, and extract as much value as possible from a company’s intangible assets is not rocket science, it’s just a very prudent business practice today!

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