ia management

8/3/2019 IA Management

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Management of Intangible Assets

Ebram Zarief


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Agenda:

. Definitions and examples.

. Role and importance.

. Differences between tangibles and intangibles.

. Management challenges.

. Role of strategic management.

. Role of corporate controller.

. Valuation of IAs.


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Definitions:

An identifiable non monetary asset without physical substance


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Definitions:

Elements of business enterprise that exist in addition to working

capital and tangible assets. They are the elements, after working capitaland tangible assets, that make the business work and are often theprimary contributors to the earning power of the enterprise. Theirexistence is dependent on the presence, or expectation, of earnings.


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Definitions:

Knowledge and relationship based assets like the value of the

relationship to the people or organizations a company sells to (customervalue), the value of the relationship to organizations or individuals throughwhich a company sells or doing business within general (business partnernetwork value), the R&D or innovation capital, human capital and structuralcapital.


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Examples of IAs:

The following are categories of intangible assets:

.Technology resources (such as patents and software)

. Contractual resources (e.g. distribution agreements, licenses)

. Reputation resources (trademarks)

. Artistic resources (copyright, design rights, recipes)

. Human resources (competencies, staff engagement)

. Relational resources (suppliers, intermediaries, joint venture partners)

. Organizational resources (processes, culture)

IAs are also known as knowledge based assets or Intellectual

properties.


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Role and importance of IA`s

within enterprises:

1- In 1982 the were representing 38%of 500 companies in the US,but their value reached 85% in 1998.

2- Strong brands influencecustomers decision making processand ensuring that premium pricescan be charged.

3- They guarantee quality and sometimes,in case of luxury, consumers even

derive social status from the brand.4- They support rapid development ofnew markets (e.g. Tesco a UKs leadingretailer has had recent success inpenetrating financial services).

5- They provide potential competitive

advantage.


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Differences between Intangibles and tangibles:

.The main key difference is that they do not follow the economic law ofdecreasing return due to lack of scarcity in IAs while it is a typicalcharacteristic of tangible assets.

A farmer and his land versus a software developer and his copies.

. IAs typically have very low variable costs (e.g. CD copying costs) buthigh fixed costs ( the R&D costs). this effect in combination with globalintegration of worlds economies and in combination with newcommunication technologies such as internet leads to dynamic network

effects and increasing returns and a wealth unseen before.


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Management challenges:

In order to better exploit the full potential of existing IAs and enable the organizationto constantly built new IAs management has to do two things:

1- Adapt structures and business processes ( create appropriate structural capital)that leads to:

. People become more productive.

. Better relationships with suppliers.

. Build sustaining value for customers and build customercapital.


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(cont)

2- Improve management and steering tools ( improve the management system)

. In traditional management systems two papers wereneeded to manage the balance sheet and the P&L to makebusiness decisions but nowadays they only represent 15%of the story .

. There is no direct relationship between an IA and a financialoutcome . Only through activities and initiatives which

combine different IAs financial value is being created.


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Deriving value through effective resource utilization:


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(cont)

In other words managements should:

1- Develop KPIs to monitor the performance of the IA.

2- Conduct a yearly assessment of the brand value.


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(cont)


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The role of strategic management system in managing

IAs:

1- Tie together all the different activities and to focus them onto one direction.

2- Since IAs have only relative values which is very sensitive and dependent on

market perception and changes in customer preferences etc. i.e. on externalinfluences management has to institutionalize that such external changes triggerinternal changes of the companies strategies and trigger also related changemanagement activities.

The modern strategic enterprise management is all about that companieshave to manage strategy as a continuous process so the strategy can be

adaptive to changing business conditions and resource allocation canfollow suit.


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Role of corporate controllers who are responsible to

keep companys management system up-to-date andimprove it have to :

1. Facilitate a common understanding of corporate strategy among themembers of the management team. If they do not agree, your company hasno strategy, because there can be only one, and one focus for yourorganization


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keep companys management system up-to-date andimprove it have to :(cont)

2. Establish a consensus of opinion about the companys value creationsystem: Where are your core competencies? How do you want to createvalue for customers using these competencies? Which tasks do you leaveto others (and outsource them) etc?


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3. Implement a strategic and operative monitoring system based onthis value creation system (a monitoring system that both tracksimplementation of strategy and the efficiency of your operations,

which is your value creation system)


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4. Establish a process of continuous evaluation of business risksthrough rolling forecasting and analysis, because risk associated withintangibles is much higher than compared with a more traditionaltangible assets based business (because of the relative value anddependence on external influences)


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5. Implement internal and external communication and reportingprocesses. Only if managers and investors understand how a company iscreating value and how successful it is, they will be able to contributethrough appropriate action (managers) or further investments (investors)




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6. Facilitate understanding of the dynamics in the business system(enabling for systems thinking in management). This will probably becomeone of the most important management disciplines in the future. Becauseintangibles are very much dependent on other intangibles and are linkedwith each other in a highly dynamic way, managers can either cause

tremendous value creation or destruction by some minor action thattrigger very powerful dynamics in the business system. To get a betterunderstanding and feeling about such dynamics is therefore very important.




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Valuation of IAs:Insights can be gained from:

. Corporate strategistswho are re-evaluating resource-basedmanagement theory to incorporate intangible capital.

. Market researcherswho continually evaluate the functional andemotional product attributes that influence customer choice. Quantitativeanalysis can also reveal the linkages between the drivers of demand andspecific resources.

. Transfer pricing economistswho are increasing their understanding of

the excess returns that can be attributed to specific intangible assets.

. Intellectual property managerswho are exploring a variety of ways tocommercialize intellectual property (IP). This requires an understandingof the value that third parties place on IP, both separately and whenbundled.


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Valuation of IAs:

(cont)

Valuation of IAs is done through establishing the key value drivers for

the brand and then used as inputs into the modeling process . These

value drivers include the following:

Trading history: margin and sales trends. Competitive positioning relative to other brands. Role within value chain. Level and effectiveness of marketing investment.

Existing market footprint.


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Valuation of IAs:

(cont)

The steps of one of the models of IAs valuation:

1- Determine brand earnings.

This is done through:

. Determine brand profits by elimination of the non-brand profits from thecompany profits.

. Restate the historical profits by todays value.

. Provide for the remuneration of capital used for purposes other thanbrand promotion.

. Adjust for taxes.


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Valuation of IAs:

(cont)

2- Determine brand strength or brand-earning multiple.

Brand earning multiple is a function of multitude of factors such asleadership, internationality, stability, market , trend, support andprotection. these factors are evaluated on a scale from 1 to 100 internallyby the company based on the information available within theorganization.

3- Computing the brand value by multiplying the brand value with themultiple derived from step 2.

Example is shown in the next slde.


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And finally after understanding the whole process ofIAa management, management would then be in a

much better position to answer the following key

questions: What are my key intangible assets? How do I create and maintain competitive advantageusing my intangible assets? What are the drivers of value for my intangible

assets? Which KPIs should I use to manage my intangibles? How do I diminish risks to my intangibles?


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Thank You

ia management

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