Whether we you call it a knowledge-based, idea-based or innovation-driven economy, our firms’ value is more and more driven by our intangible assets. Dr. Robert Shapiro captures this quite eloquently in NDN’s Globalization report, “The Idea-Based Economy and Globalization: The Real Foundations of American Prosperity in the 21st Century.”

This shift is evident in the way U.S. and international investors value America’s public companies. In 1984, the market value of the physical assets of the top 150 U.S. public companies – their “book value” – accounted for 75 percent of the total value of their stocks. A firm was worth nearly what its plant, equipment and real estate could be sold for. By 2004, the book value of the top 150 U.S. corporations accounted for 36 percent of the total value of their shares. Nearly two-thirds of the value of large companies now comes from what they know and the ideas and relationships they own.

Intangible assets include things that are created through time and effort: trade secrets, copyrights, patents, trademarks, source code, know-how, organizational competencies (technologies, databases, culture, capacity for innovation), business processes , company brand, customer loyalty, and not to forget your skilled and trained workforce, i.e. human capital, all contribute to your intangible asset portfolio. Though these are not physical assets that you can see and touch, they can positively effect your bottom-line and the valuation of your firm. Here are some examples:

• Famous brands: Lexus, McDonalds, …
• Coco-Cola’s formula: Merchandise 7X
• Famous logos: Apple, Google, BMW, Nike, …
• Amazon’s customer review database, Google’s search database
• Trademarks: Kleenex, iPod, Trinitron, …
• IBM’s patent database

As important as these assets are, in most cases, management of them are an afterthought. Just like anything else, intangible assets require active management to support, to build and to grow in order to maximize their value while keeping the overall cost down. At the same time, for a variety of reasons, it is difficult to properly manage these valuable intangibles.

• Challenges of putting together an effective measurement system to track the performance of the intangible assets.
• Not spending adequate time to understand your core business, its key performance drivers and how they are linked to your intangible assets. But don’t stop there: learn to how to legally protect them.
• Only focusing on your intellectual property, and not properly analyzing/including your source code, know-how, business processes, workforce skills/expertise, …
• Neglecting to put together a risk management plan for your intangible asset portfolio to defend as well as advance your leadership position.
• Solely focusing on defensive moves while forgetting to find ways to nurture and grow your intangibles.
• Intangible assets may not have direct tangible impact, and very likely complement other intangible assets, such as the case with workforce training in software quality that eventually improves revenues through increased customer satisfaction.
• Treating your intangible asset analysis as a one time activity, and not managing them as part of your strategic business cycle.

To manage your intangible assets, start with identifying them and determining how they are linked to the success of your strategy and your competitiveness. Perhaps tools such as the cause-and-effect diagram can help narrow down the field while keeping it meaningful, relevant and long-term focused. Balanced Score Card performance metrics can also help to incorporate your intangible assets with your strategy.

Next, put in place a tracking and measurement system to monitor the progress of your intangible assets. Since it can be challenging to put together an effective system, keep it simple and start small. As I mentioned before, make sure your metrics are clear, actionable, support business objectives, and based on data and facts. Finally, build internal awareness for your most valuable intangible assets.

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