Michael D. Moberly August 31, 2010
If you’re like me, you want to know ‘back stories’ or, what prompts and/or influences certain phenomena to take shape (occur). In the case of intangible assets, one of the first, and perhaps most influential early studies on intangibles that I read was Brookings ‘Understanding Intangible Sources of Value’. But, for all the forward looking insights gleaned from the Brookings study itself and the product of its various working groups, it wasn’t intended necessarily to provide readers with the ‘underliers’ of why intangibles evolved so rapidly at the outset of the twenty-first century.
Or, as Baruch Lev stated it so well, ‘if intangibles are so risky, their benefits so difficult to measure and secure, and their liquidity (tradability) so low, how did they become the most valuable assets most companies possess?
The answer, Lev suggests, lies in two international economic developments, i.e., (1.) the increasing intensity of business competition, and (2.) the commodization of physical assets.
The first international economic development that influenced the ascendance of intangible assets was, according to Lev, the de-regulation of particular economic sectors, i.e., transportation, financial services, and telecommunications, etc. In other words, as these, and other sectors de-regulated (went global), it served to intensify the overall competitive (global business transaction) environment. As competitiveness intensified, a demand for continual/perpetual innovation evolved, i.e., the development and introduction of new products, services, and cost efficiencies. Thus, continual/perpetual innovation quickly came to be a requisite to not merely competitiveness, but, successful business operations and sustainability. As the global competitive pressures intensified further, companies already in the mix, or those that aspired to do so, responded by engaging in more innovation, fueled, in large part by greater awareness, appreciation, and investment in intangible assets.
The second international economic development that influenced the ascendance of intangible assets was, again, according to Lev, the commmodization of physical assets. Translated, this means that competitors globally, had access, essentially on an equal footing, to those physical assets that were now so necessary for becoming global in scope. For example, the ‘physical assets’ of FedEx, DHL, and UPS became globally operational, almost simultaneously. Companies worldwide would now have access to, what I often call ‘instaneous supply – distribution chains for their goods and products’. Therefore, a truly global and more responsive (timely) marketplace could evolve, and did so quite rapidly.
But, as competitors globally gained (equal) access to those physical (transportation, financial services, and telecommunication) assets, it meant that those assets, now engaged in intense competition, would not, standing alone, generate extraordinarily high profits and create sustained values. Rather, profits and elevated shareholder value would come to be created through the prudent use (development, acquisition of) intangible assets unique to, for example, each air cargo carrier. Each carrier then developed their own distinctive bundles, combinations, and/or synergies of intangible assets that better enabled them to withstand and respond more aggressively to the competition.
Obviously today, all three air cargo carriers remain intact and compete against one another. But, the intangibles each company developed, out of necessity (competitive pressures) influenced the contributory value of intangibles and their ascendancy to representing 65+% of most company’s value, sources of revenue, and ‘building blocks’ for future wealth creation.
(Adapted by Michael D. Moberly from the work of Dr. Baruch Lev, ‘Encyclopedia of Social Measurement’ Volume 2, Elsevier, 2005.)
The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets. I welcome and respect your comments and perspectives at [email protected].