Dissecting intangible assets

By Donal O’Connell

Dissecting intangible assets

Imagine for a moment the Royal Air Force’s roundel, that red, white and blue circular identification mark painted on aircraft to identify them. That roundel has also been associated with pop art of the 1960s It became part of the pop consciousness when British rock group The Who wore RAF roundels as part of their stage apparel at the start of their career. Subsequently it came to symbolise Mods and the Mod revival.

I use that simple roundel for another purpose, namely to explain intangible assets, as such assets comprise of three main sub-categories, namely intellectual capital, intellectual assets and intellectual property,

Intellectual capital (the outer blue circle):

Intellectual capital refers to the knowledge and know-how, skills, competencies and experiences of your people. It is the value that the employees of a business provide through the application of their skills, know-how and expertise. Intellectual capital is an organisation’s combined human capability for solving business problems. Intellectual capital capital is inherent in people

Intellectual assets (the middle white circle):

I basically see this sub-category as including everything and anything documented either manually or automatically within a company or organisation. Business plans, meeting minutes, supplier lists, customer details, process descriptions, product specifications, test scripts, data both raw and processed, etc etc all fall into this important sub-category. It does not matter if the information is written on the back of a cigarette packet or properly and professionally document, it all qualifies as intellectual assets. That said, I would recommend that it is properly documented. And of course certain documents or data have more value than others.

Intellectual property (the inner red circle):

It is most important to realise that there are multiple regimes of intellectual property rights, such as patents, trademarks, designs, domain names, copyright and trade-secrets.  Intellectual property rights ares recognised as some of the most important asset of many of the world’s largest and most powerful companies.

The importance of intangible assets

The importance of intangible assets is growing, often equaling or surpassing the value of physical assets for a company.  The state of the intangible assets of a company can determine their share and corresponding influence on the market.  The size and quality of a company’s intangible asset portfolio can have a direct impact on several factors, such as the reputation of the company, the level of returns on investments and their access to the market, amongst others.

The way a company is valued has also changed considerably.  In the mid 70s, approximately 80% of the value of a company was made up of tangible assets, with the remaining 20% being made up of intangible assets.  Today this is completely reversed, with intangible assets making up 80% of the value of the company and only 20% being made up of tangible assets.

The exact percentage split will vary from one industry sector and from one company to another. Regardless, the relative value of a company’s intangible assets will be significant.

Business & intangible assets

Intangible assets, created, managed and exploited intelligently, have the potential to provide strategic flexibility, decrease corporate costs, build bottom-line return and increase shareholder value. At this time of great economic and financial uncertainty, it has never been more important for companies to focus on the proper growth and development of their intangible assets and maximising its value.

Companies must have an intangible assets strategy in place on how to build a control position around the key intellectual building blocks of their innovations, markets, and business ventures in order to creation and communicate business value.

It is also important to take a holistic view of intangible asset rights, and to realise that the premeditated use of multiple legal and IP regimes can help achieve sustainable differentiation.

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