Managing intangible assets for exponential growth

Article  \  29 Apr 2021

Intangible assets do not occupy physical space. However, they have the potential to provide high value and exponential growth when identified and managed appropriately.

Define intangible assets

Intangible assets are assets that are not physical in nature, but which provide a business with a competitive edge in the marketplace. In 1975 intangible assets accounted for only 17% of the S&P 500 market value, but in 2020 it accounted for 90%.[1]

Unlike physical assets, intangible assets are not worn out and replaced and can be scaled exponentially. However, it is important to manage intangible assets carefully because they carry different challenges and risks.

Identify intangible assets

It is crucial to identify and value intangible assets so that they are properly accounted for and managed. Examples include:

Confidental intangible assets

Software source code (not published and not open source):

Human-readable programming code.

Data:

Information about customers, operations, supply chain, product development and delivery, financial, and industry trends.

Know-how:

Practical knowledge or skill.

Confidential information:

Written or oral non-public business-related information.

Trade secrets:

Commercially valuable formulae, patterns, designs, methods, practices, processes, and so on.

Publicly known intangible assets

Patents:

Inventions which give the owner an exclusive right for a specific term to prevent others from exploiting a patented invention in a particular jurisdiction.

Trade marks:

Words, logos, shapes, colours, sounds, smells, or any combination of these that distinguish a product or service in a particular jurisdiction.

Designs:

The appearance of an article that is new or original, which gives the owner an exclusive right for a specific term to prevent others from exploiting a registered design in a particular jurisdiction.

Copyrights:

Original literary, artistic, or musical works.

Regulatory approval:

Approvals necessary for the manufacture and sale of a product or service in a particular field and jurisdiction.

Goodwill:

Reputation, brand name, and location that lead to repeat business.

Recognise risks associated with intangible assets

Like any other asset, it is important to assess and manage risks associated with intangible assets. The types of risks that fall under the two categories identified above include:

Confidential intangible assets

  • Valuable intangible assets could be inadvertently published, disclosed, leaked, or stolen by employees or third parties.
  • Privacy and regulatory guidelines could be breached when sensitive data is not managed properly.
  • Use of open source software could result in your own source code being disclosed or could introduce cybersecurity issues.

Publicly known intangible assets

  • Ownership rights could be lost if chain of title is not properly managed.
  • Owning your own intellectual property does not mean you won’t have exposure to costly damages and liability for intellectual property infringement.
  • A copycat or competitor might exploit your intellectual property without consent, leading to market share losses and diminished goodwill.

A critical step is to recognise and manage risks related to intangible assets in order to realise their full potential. Otherwise, any success may be quickly dissipated when these risks materialise.

Protect and manage intangible assets

Risks may be mitigated once they are identified and managed. Typical strategies include:

Confidential intangible assets

  • Non-disclosure agreements should be signed by third parties to prevent leaks.
  • Intellectual property ownership and licensing rights should be outlined in commercial agreements with third parties.
  • Software licensing terms should be understood prior to using any open source code.

Publicly known intangible assets

  • A clear chain of title should be established for the ownership of any intellectual property.
  • To avoid liability for patent, trade mark, design, or copyright infringement, due diligence should be conducted before launching a new brand, product/service, or prior to entering a new market.
  • The market should be continually monitored for copycats and third-party use or sale without consent.

Putting intangible assets to use can help boost your competitive edge. As such, the proper protection and management of intangible assets can make the difference between success and failure.

Conclusion

There is potential to scale exponentially when monetising intangible assets. However, proactive steps should be taken to reduce exposure to risks. Accordingly, it is crucial to identify and develop a robust strategy to monetise intangible assets and mitigate risks.

[1]Intangible asset market value study (2020) Ocean Tomo.