In my last post, I shared my experience selling a software line of business valued by the buyer entirely for the business’s intellectual assets rather than for its tangible assets. As it turns out, my experience is not unique.
In today’s economy, intangible assets constitute nearly 80 percent of corporate value. The other 20 percent of market value comprises physical and financial assets found on a typical business’s balance sheet. Worldwide, the total asset value of patents (just one type of intellectual asset) is estimated at $1 trillion. Intellectual asset licensing revenues in the United States alone increased from $15 billion in 1990 to $110 billion in 2000, and is expected to be $500 billion by 2015. Clearly, intellectual assets are big business.
With so much company value on the line, Intellectual Asset Management (IAM) is absolutely critical to success in modern business. IAM is the discipline of creating, managing and exploiting intangible assets to realize value for the owner. Over a decade ago, practitioners in the IAM field adopted the Intellectual Property (IP) Value Hierarchy as a business leader’s roadmap for improving an organization’s IAM capability. Not unlike process improvement models applied to improve organizational capability in other business disciplines, the IP Value Hierarchy consists of levels representing a continuum of intellectual asset process maturity that a business entity may attain.
The focus of organizations operating at each level may be summarized as follows:
- Defensive Level: Identify the company’s assets, protect those assets from competitors, and avoid encroaching on others’ intellectual rights.
- Cost Control Level: Minimize the cost to establish and maintain the company’s rights to intellectual assets.
- Profit Center Level: Use intellectual assets proactively to generate revenue for the company, primarily through licensing or selling assets.
- Integration level: Tie intellectual asset decisions to the company’s business plan, and embed the IP function into departments across the organization.
- Visionary Level: Foster an IP culture throughout the organization, and proactively drive intellectual assets to exploit future trends and gain market share.
The key to a business improving its IAM capability is less a change in organizational practices than it is a transition in thinking. Specifically, as a company graduates to higher levels of maturity in the IP Value Hierarchy, intellectual assets are viewed less as legal rights to be managed exclusively by the legal department and more as business tools to be strategically employed throughout the company.