How to Extract Value from Intangible Assets

The importance of intangible assets has grown exponentially in the last 50 years. Company values can rely on intellectual property (IP) for up to 90% of their value, therefore knowing what they are and how to value intangible assets (IA) is essential in running your business to its full potential.

Understanding the value of your intangible assets, and creating an intellectual asset strategy through a programme like Beyond IP, can leverage value from your business. We explore what IA are and give some top tips in enhancing value from what can be an underappreciated asset class.

What are Intellectual Assets?

The term intellectual assets includes knowledge within a business that has been systematically captured, recorded, and organised to create value for the business. This includes both assets that receive formal legal protection (intellectual property) and assets that do not have formal legal protection but still create value for the business. These non-legal intangible assets include:

·       secure valuable customer contracts

·       an established trusted supply chain

·       distribution channels

·       regulatory approvals

·       data and databases

·       operating procedures and manual

·        licensed technology

·       out-licenses of proprietary technology

·       information systems

Intellectual property is a subset of intellectual assets that enjoy formal legal protection. This usually includes patents, trademarks, copyright, registered designs, circuit layout designs and plant variety rights.

Intellectual assets, being intangible in nature, are sometimes difficult to measure purely in financial terms when using standard valuation methodologies. These assets may be more conceptual. Intangibles may represent inherent potential rather than actualised returns or may require enabling assets to contribute as a means of realising their true value.  Many standard measures are ill-equipped for assessing these characteristics. 

Intellectual Assets are value-adds that often fly under the radar, or defy standard valuation concepts, yet remain important in creating and maintaining business success.

Here, we explore helpful strategies to show how to maximise the value derived from your intangible assets and get the most out of your business.

Proactively Identify Intangible Assets

It might sound simple but identifying what your business’s intangible assets are is the first step to gaining value from them. Just like us, not all businesses are the same and have different types and levels of intangible assets.

Do an audit of your intellectual assets—systematically create an inventory of all the intangibles that drive value within your business and catalogue them.

 Intangibles can drive value in several different ways, including strong branding driving up margins, increasing market share with an effective marketing campaign or pricing strategy, or in-licensed manufacturing technology. People can also be an asset with long-standing relationships providing favourable supply, or even providing collaboration opportunities with third parties in R & D or joint ventures. When these intangibles sit alongside a solid patent portfolio, businesses can more easily secure investment or lending. Other possibilities to add value to intangible assets include enabling licensing business models, reducing risk, and enhancing profitability, which in turn enhances and sustains competitive advantage.

By the end of the exercise, you should have an internal catalogue or register of all the:

·       brand elements

·       inventions (whether patented or trade secret)

·       technical solutions & valuable processes

·       aesthetic designs

·       documentation

·       software & IT systems

·       licences, leases & regulatory approvals

·       data collections

·       key supply and customer relationships, and key employees.

Each of the above should include a description of how they drive value and whether they are “nice to haves” or “mission-critical” assets.

To help you understand how to best manage and use these intellectual assets, they should be linked to metadata concerning their creation (who, when, what project, which collaborators) as well as where they reside in the business, its systems or staff. In addition, it’s important to note whether there are formal intellectual property rights associated with them and whether any legal or contractual agreements apply, for example, NDAs, licence agreements, supply contracts, restraints of trade.

 Value can be assessed based on subjective parameters like uniqueness, value for in-market offers or campaigns, value for further R&D, as well as the degree and type of control the business has over the asset. Measuring control relies on the difficulty of replication or imitation, secrecy controls, or formal IP protection.  Alternatively, if the asset will be used in a transaction such as an internal transfer, third party sale, joint venture or licensing, then a formal valuation might be considered.

Knowing the intricacies of your intangibles through a portfolio is a great way to get an overview of where critical value exists within your business, it’s market-position, further potential investment in assets, or missing opportunities and room for improvement.

Map Intangible Assets to Strategy

Now you know what you’ve got, it’s time to ensure your intellectual assets are deployed to support your wider business strategy.

·       R&D and product development – ensure your R&D activity delivers innovations that will support the marketing or operational needs of the business. Question if they will reduce costs, increase margins, improve competitiveness, or hinder a particular competitor’s progress?  It also pays to understand the various options and trade-offs in make, buy or license decisions.

·       IP & Licensing – utilise your IP to deliver advantages through licensing. This could mean enhanced speed to market, risk reduction, reduced capital requirements, and enhanced profitability.

·       Mergers & Acquisitions – establish a strong decision-making foundation for M&As, joint ventures, and divestments.  This can position the business for favourable negotiations in future transactions.

·       Procurement – improve bargaining positions and mitigate risk in procurement to deliver a lower cost base.

·       Sales & Marketing – understand the relative positioning of competitors helps to establish bases for differentiation and strengthen customer communications and relationships.

·       People & Culture – manage your IA to position the business so as to attract particular skill sets, and to help in the identification and retention of key staff.

A well-curated map of your intangibles can help to ultimately increase your overall market value.

Grow and Invest in Intangible Assets

Identify, measure, map, and now grow. Leverage your intellectual assets by investing in them so they strengthen and expand in the areas required by your business strategy.

Depending on your market, and stage of your business life cycle, it could be advantageous to investigate where smart investments might deliver new or improved intellectual assets that will enhance your competitive position and deliver improved profitability in the long term.  

For example, businesses could enter a research collaboration with a university or Crown Research Institute to deliver a technological advancement over competitors. Alternatively, engage in a rebranding and positioning exercise to shift pricing, roll out a new differentiated service or product line to gain market share, or acquire a competitor or patent portfolio. Commercialising innovation can be tricky, so it might pay to get professionals involved to help.

Don’t forget one of the most important intangible assets—people. The power of an assembled skilled and aligned workforce can often be the most overlooked intangible asset to a business. People’s contributions can be almost immeasurable. Invest in your people; train them, value them, and give them room to move. Your people will wield your intangible assets to deliver tangible profits.  

Report and Manage

When you have a good grasp on your intellectual asset inventory, an understanding of where you’re going, and processes to proceed, it’s time to report, reflect, and plan.   The adage of “what gets measured gets done” is apt in the context of intangible management.

Reporting on selected intellectual asset metrics gives leaders and their teams visibility over the effectiveness of their management of these intangibles.  It is important to design metrics that incentivise activities aligned to your business strategies. These could be simple crude measures such as the number of new patents or trademarks granted per year, or the number of new invention disclosures to the legal team for protection assessment. More complex measures include R&D spend per patent filed/granted, percentage of licensing revenues to total revenues, or reduction in the cost of goods sold.

Reporting on what is and isn’t working is a great way to ensure your intellectual assets are deployed to best leverage value.

From Intangible Assets to Hard-Earned Profits

When you know how to leverage your intellectual assets, you open a world of potential for your business. Each company will have different goals and objectives for their intangibles but knowing what you have and how to use it can aid businesses exponentially.

Innovation Liberation Front can help you value your intangible assets

If you want to get familiar with the intangible assets game, get in touch with Innovation Liberation Front. We can help you commercialise your innovations with proper assessments, planning and strategy tools to take your business up a notch.