Hidden assets of a company
If a tree falls in a forest when no one is around, does it make a sound? This is a classical philosophical question over centuries. Similarly, if a company’s assets that happens to be intangible (hidden), something which 65+ per cent of a company’s assets are, is stolen, misappropriated, or copied by a competitor or economic-competitive advantage adversary, will anyone in the company notice? After all, intangibles lack a conventional sense of physicality, in other words, they’re not tangible.
Unfortunately, a question that remains on the lips of too many business decision makers, management teams, and boards today is, how can intangible assets tangibly contribute to a company’s value, or create sources of revenue, and serve as ‘building blocks’ for growth and sustainability, i.e., reputation, brand, goodwill and competitive advantages, etc.?
While we clearly know that the answer to the first question is yes, that is, falling trees do make a sound even if no one is around to hear it, the answer to the second question, on the other hand, needs more clarity, i.e., applications, examples, etc. as companies are conventionally driven as ‘MBA’ oriented companies giving short shrift to identifying and explaining intangible assets. This occurs for several reasons in my view, two of which are, intangible assets:
1) With few exceptions, are not reported on company balance sheets or financial statements
2) More challenging and subjective, so far as valuation is concerned compared to physical-tangible assets
One thing that’s needed for sure, in my view, is a clear, concise, and industry-sector relevant definition of intangible assets that is operational in nature and absent in purely accountancy or legal orientation. Presumably, if one can do neither to an asset, it’s intangible.
That is hardly the kind of definition that creates broad confidence in the utilisation and exploitation of intangibles. Nor will it likely ‘pass an MBA smell test’. But, the economic fact remains, 65+ per cent of most company’s value, sources of revenue, and building blocks for growth and sustainability today evolve directly from intangible assets.
Today, regardless of what products or services a company produces or, whether it’s a large multi-national or a small, medium size enterprise, it is increasingly likely that hard earned and valuable proprietary experiences and know how (intangible assets) underlie and are thoroughly embedded (applied, used) in that company’s products and/or services.
What’s often missing in this particular equation though, among business decision makers, management teams, and boards, is:
1) A clearer recognition-appreciation for the forms that value takes, i.e., recognizing the various formats intangibles exist in and assessing their respective contributory value
2) The practicalities of how to extract value from and/or monetize the assets
3) Best practices to sustain (protect, preserve) control, use, ownership, and monitor value and materiality of a company’s intangibles throughout their value functionality cycle.
Another consistent challenge remaining in the business community relative to achieving the above is recognizing and respecting the notion that ideas and innovation (intellectual, relationship, and structural capital) produced and executed internally, constitute intangible assets. Instead, capital of this nature is routinely and unceremoniously embedded in a company’s products and services without fully appreciating its contributory value to a company, i.e., reputation, brand, and goodwill, or its contribution to delivering valuable competitive advantages.
In today’s globally competitive and predatorial business (transaction) environment, company management teams and boards are consistently seeking ways to be innovative and create (additional) value, revenue, and competitive advantages. One way this can be achieved is through the ‘executable inspiration’ that evolves from building a company culture that effectively and consistently identifies, utilizes, and exploits its intangible assets. But, let’s make an important point first.
Intangibles are not the elusive or esoteric constructs as they’re frequently characterized merely because they lack a conventional sense of physicality or don’t appear on company balance sheets or financial statements other than when they’re lumped together as goodwill.
So, to achieve this almost surely profitable state, i.e., a company culture focused on intangibles, and to do so consistently, requires the internalization of:
what intangible assets are
the various forms and contexts in which they exist
how they’re produced, and
recognize (measure) their contributory relevance and value to a company and/or business unit, i.e., underpin sources of revenue, competitive advantages, and growth opportunities.
With respect to the development of a culture, it will emerge and become observable as employees (collectively) recognize and begin to act on…
a shared system of values
that brings clarity to (defines) what is important, and
contains certain norms, values, beliefs and attitudes that manifest as acceptable means to solve problems
And, unfortunately, it’s still likely that substantial benefits like these will go un-noticed, un-respected, undervalued, and equally important and un-protected