OECD Conference Parallel Session 3A Utilization of Intellectual Asset Evaluation Setsuko Morishita Director, Actcell Corporation December 8, 2006
Intellectual Asset: Concept and Definition It is the root of a tree that nourishes and drives to produce the e fruit. The same happens in the corporate world. Product and service, business performances and financial return are visible outcome of the activities of a company. However, the source that brings out the outcome is intangible people, organization, customer and partner network, know-how and IP, knowledge, brand, etc.. Fruit: Financial Outcome Visible result of past performances Financial Outcome Root: Intellectual Asset (IA) Source that nourishes tree and produces fruit =Invisible and futuristic capabilities for value creation IP Processes Brand People Customer base Partner Network Intellectual Assets 1
IA Evaluation Framework IC Rating Structure IC Rating : Developed by ICAB, Sweden-based rating company. Skandia s first IC Director Leif Edvinsson contributed to the concept building. Corporate Value Financial Results Intellectual Assets Business Recipe Organizational Human Relational Corporate vision and strategy Market Competition Profitability Differentiation Business Risk Intellectual Properties Patents License Copyrights Trade secrets Software Processes Business process Knowledge management Org. culture Org. systems Database Etc. Management Employee Skills Attitudes Experience Motivation Leadership Etc. Skills Competency Experience Attitudes Motivation Etc. Network Sales Development Distribution Supplier Financial Recruiting Etc. Brand Awareness Reputation Contribution for other IC Customer Customer base Relationship Satisfaction Value proposition Etc. Assessment based on internal and external stakeholders perception 2
Utilization of IA Evaluation 1. Restructuring & Improvement Purposes Identify success factors for strategic execution and change management by visualizing IA Mechanism and driver analysis Cases Large companies Business Revitalization Projects 2.Communication & Disclosure Enhance communication and understanding among/with member companies by IA diagnosis Communication and disclosure contents for listed companies Stock Exchanges Industry Association Listed companies (IR, PR) 3. Loan Examination & Credit Rating Information for loan screening for intangibledriven businesses More speedy, structured and holistic examination process to evaluate the company IPA (Intangible measurement system for software developers) Financial institutions 4. Due Diligence for M&A Comprehensive business evaluation In combination with traditional financial DD for M&A and partnership deals Better turnaround scenario building based on intangible information Private equities Venture Capital Other investment bodies 3
1. Restructuring and Improvement: Our Model Corporate Value Intellectual Assets Financial Assets Organizational Human Relational B/S P/L Investors Disclosure and Communication Visualization IAM Enhancement: Strategic Alignment Exposed as Financial Results Transparency IR Strategy Enhancement: Execution 4
1. Restructuring and Improvement Case Study: Company A (Large Manufacturing) Evaluation Strategic Planning Improvement execution Output & Review Purpose Visualize strengths and weakness of each business unit using IC Rating Reflect the rating results on strategies and business plans Strategy/Initiatives execution using Balanced Scorecard Measure and share results and outcome. Continue monitoring Current Status Strength in development and operation. Weakness in management leadership and customer relationship Mid-term plan is well made, but lacks in details and linkage with day-to-day activities Focus and prioritization is problem Logical and comprehensive scorecard, but commitment is weak Deep-rooted problems such as people/org. issues typically left out Not enough sharing and communication Future Plan More detailed and accurate measurement scheme tailored for each business Support for more realistic and workable mid-term planning Consensus building to prioritize and choose focus areas Deeper and longerterm commitment for hands-on support in order to solve specific business issues. No sanctuary policy for improvement and stronger support for communication (internal and external) and sharing 5
2. Disclosure Traditional Disclosure Financial-driven report and explanation of strategic direction only Financial Result Market Environment Positioning Business Model New Disclosure using IA Process-oriented reporting explaining strengths and value creation scenario Financial Result Market Environment Positioning Business Model Strategies Enhance Sales Force Enhance Product Development Value Creation Scenario R&D Technology Partnership Production Production mgmt Supplier Human Capabilities Organizational Culture Sales Know-how Customer base Explanation similar to other competitors. Not able to appeal unique strengths Little description about resources that can support strategies Unclear whether positive financial return is assured 6 Capable to differentiate from others by clarifying competitive advantages Clear and convincing description about resources that can support strategies Better forecasting for strategy realization and sustainable growth
2. Communication Case Study: IA Diagnosis of Stock Exchange X Communication: To understand its listed companies and build trusted relationships Support: To better support the member companies and create more vigorous stock market Governance: To provide appropriate guidance and enhance the stock market accountability Diagnosis Features 1. Quick Assessment Questionnaire to measure resources and capabilities 3 dimensions (potential/ utilization / management) 2. IA Concept Growth-based perspective instead of financial-only assessment To realize own strengths and weakness Sustainable Growth Concept supported and promoted Effect and Impact Improve management quality Enhance self-awareness and give hints for improvement Identified strengths and area for improvement and contribute to improve IR activity quality 3. Direct Reporting One-on-one result feedback to management Dialogue opportunity 4. Know-how accumulation Data mining opportunities Know-how for better understanding companies More satisfaction and Loyalty for the Stock Exchange Accumulated data and information as value added 7 Create the stock exchange that can meet the corporate needs based on the information and insight acquired from this unique one-to-one marketing activities
3. Loan Examination: Case Study: IPA Debt Guarantee Application for Software Development Project Software Developer IPA Examiner IA-based Assessment Assessment Criteria Product Factors Development Capabilities Market handling Problem Solving Ability Development Cost Company Profile Other IPA developed a prototype system/tool to assess the intangible capabilities of software developer using IA concept. For more details, see their HP Financial Assessm ent + Assessment Result + Technology & market Evaluation http://www.ipa.go.jp/software/hosyo/chiz aiken.html Result (Credit Evaluation) 8
IA Assessment Framework for Software Developer Evaluation Indicators Financial Indicators Non Financial Indicators Source for Innovation Technological Know-how People Market handling Sales Channel Design Development Support Managers Employee Efficiency Productivity Cost performance Reliability Project management Efficiency Know-how Outsource Security Operation Documentation Service level Quality Control QA Flexibility Knowledge management Leadership Training and people development HRM Communic ation Competenc ies Competitive edge Customer base Value Creation Sales results Partnership Market size 9
4. Due Diligence for M&A Purpose for IA-based Due Diligence Non financial part is crucial for accurate and fundamental evaluation of a company 4 To articulate the bottlenecks and missed linkage between intellectual assets and business performance Create common language between management/employee and investors 4 Third-party evaluation makes both parties to communicate more easily and productively Utilize for Post M&A business planning and turnaround policies 4 Drastic measures and actions are required for time-pressing turnaround. IA-rich information will help to make vital decisions. Identify linkage between IA and value creation IA Evaluation Implicit knowledge provided from stakeholders Vision Mid-term Objectives IA Value Creation Mechanism Management dialogue about how to enhance the company s value creation processes Grand Design for Value Creation Enhancement Finan cial Cust ome r Proce ss Hu man Rene wal SO Align with Vision CSF Financial/Busin ess Review Based on dataproved past performances KPI Set KPI and targets for monitoring Actions Periodi cal review on actions 10
4. IA-based Due Diligence Approach Intangible Potentials Intangible Drivers Scenario to improve performances Mid-term Biz Plan Strategic Plan Are Business Potentials sufficient for the performance targets? Business Potentials Biz Model excellence Market position Customer/Channel Are Corporate Potentials ready for strategy execution? Corporate Potentials Human Resources Process Brand Technologies etc. Business Due Diligence Evaluate feasibility of the assumed turnaround scenario based on business potentials analysis Stability and growth space of existing businesses Growth potentials of new businesses Risk assessment Intellectual Asset Due Diligence Evaluate intangible business and corporate potentials based on information acquired from internal/external stakeholder interviews Management Competency Employee Competency and Motivation Market Environment (competition, growth potentials, etc.) Customer base/ Partnerships Operation/Process efficiency 11 Complementary