Innovation in culture and the importance of Intangible Asset Management
Businesses that claim innovation as one of their corporate values need to look closely at whether they are paying only lip service, or whether innovation is truly ingrained in their organisational culture.
At the heart of building an innovation culture is the organisations approach to intangible asset management (IAM). Intangible assets include more than just intellectual property such as patents, trade secrets, designs, copyright and trade marks; in addition there are things such as goodwill, know how, human capital and brand recognition.
Businesses holding themselves out as innovators should have a well defined IAM process, addressing identification of intangible assets, capture and cataloguing of intangible assets, regular review and management of the intangible asset portfolio, extracting value from intangible assets and systems for recognising and reporting to the Board of Directors the value created by these IAM processes.
Comparing the market capitalisation of listed companies to the book value of their physical assets shows intangibles account for anywhere between 60% and 80% of total value. If actively managing intangible assets is not a priority for the Board of Directors, that’s a fundamental problem.
Great companies will treat intangible asset management and intellectual property protection as a strategic issue requiring proactive management at the highest levels.
Suzanne Harrison and Julie Davis in their book Edison in the Boardroom (http://suzannesharrison.com/writing/edison-in-the-boardroom-2001/) categorise companies’ approaches to IAM according to five levels in a value hierarchy.
Level one companies view IP as a defensive legal asset, used to shield their patch from competitors, and leave management of IP to legal counsel.
Level two companies concern themselves most about managing escalating costs of establishing and maintaining IP portfolios. IP is still regarded as a legal asset, most likely managed by an in-house lawyer or financial controller.
Level three companies view IAM as a profit centre, a major attitude change where IP is viewed as a business asset, not a legal asset. IP is seen as potentially contributing significant growth through proactive strategies like licensing. Usually companies at this level have a dedicated IP function.
Level four companies integrate the IP function throughout all departmental processes. Rather than being a standalone function, IAM is fully integrated in much the same way that quality control is integrated into a manufacturing organisation.
Level five companies operate in a visionary manner, embedding IAM into their cultural fabric. The few companies that operate at this level anticipate technological revolution.
At what level does your organisation currently operate?
Most New Zealand companies operate at level one or two, with little prospect of attaining higher levels due to a lack of understanding of intellectual property as a business asset amongst corporate leaders. If “innovation” is listed as a key corporate value in your organisation, but there is little in the way of IAM processes, or intellectual property is managed in a silo distinct from other functional departments, then you revisit your list of values, or start taking action to move up Harrison and Davis’ IAM value hierarchy.
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