10 Steps to realising real cash value from Innovation and IC Assets. Ludo Pyis Areopa

Transcription

1 10 Steps to realising real cash value from Innovation and IC Assets Ludo Pyis Areopa Areopa Trust Oct 2014

2 Topics The Fundamentals of Intellectual Capital and Intellectual Property Quick Scan of IC approach to identify key risks The creation of new Intellectual Capital including IP The development of IPR and IC protection strategies. The Collection of Evidence, the Rules, the conditions for International Accountancy Standards 36 and 38 The use of Intellectual Capital to create new products and services, new business models and new markets. Putting IC on the Balance Sheet 2 Areopa Trust October 2015

3 Why do I need to take care of my IC? Today, know how is the key source of competitive advantage in the global market. Companies that manage knowledge, innovation and complexity are showing us the key to future long term growth. Companies that understand that their business models have to change quickly over time are winning the race. This shift reversed the historical pattern where tangibles made up 80% of corporate value. Today, the exact opposite is true. Tangibles make up just 18% of corporate value and the remaining 82% is intangible. If you don t manage your intangibles you are not managing 82% of your organisation 3 Areopa Trust October 2015

4 What Is Intellectual Capital? Intellectual Capital, knowledge that can be converted into profits, has two components: Intellectual Capital Value Creation - Tacit Value Extraction -Explicit Human Capital Intellectual Assets Intellectual Property 4 Areopa Trust October 2015

5 Why is Intellectual Capital Management Different? IC is 1. Context specific 2. Used to create multiple simultaneous value streams 3. Used in combinations with other assets (both tangible and Intangible) to create new services and product mixes 4. Key part of strategy, innovation, performance, market development, customer satisfaction, and relate to ensuring multiple simultaneous revenue from the same assets. This is the real management challenge 5 Areopa Trust October 2015

6 Why is IC Different? Let us take an example The Company has a customer database. If this was a fixed asset e.g. (a piece of furniture) you could only use it one way. However as an intangible asset that can be separated, protected, managed, and controlled it can be used in many ways to derive future value depending on the companies objectives. 1. It can be used to drive sales of products or services 2. It can be used to market the brand 3. It could be used to beta test new products from R&D 4. It could be packaged with a tangible asset and licensed to other complimentary businesses 5. It could be separated from the company and sold Depending on the strategy of the organisation, the way that this asset is treated and is valued would be different. Therefore it is important to understand the purpose and context of the asset and to analyse it with that set of purposes and context in mind. The determination of whether such assets can be placed on the balance sheet is determined by whether it conforms to the rules of IAS Areopa Trust October 2015

7 4 Types of Intellectual Capital Areopa Approach Human Capital Structural Capital Customer Capital Strategic Alliance Capital 7 Areopa Trust October 2015

8 Stage 1- Classify your IC - Areopa s 4-Leaf Model 8 Areopa Trust October 2015

9 Putting it together - Managing For a business to manage its development and revenue creation it must 1. Attract the right people, partners and knowledge to the organisation 2. Safeguard and protect that knowledge 3. Put it to work inside a business model that connects with a market need 4. Develop the products and services that generate the revenues and profits in line with the market 5. Account for those revenues and assets in its accounts and on its balance sheet using the Areopa method 9 Areopa Trust October 2015

10 4 Steps to Realising the real Cash Value of your Intellectual Capital Prepare Protect Deliver and Grow Account and Audit IC Quick Scan Build IC Inventory Safeguard the knowledge Control Manage Prepare Areopa IC Accounting System Create a Management Plan Estimate Value Ensure Ownership Protect Create and Combine to Deliver additional Value Audit using IAS 36 and Areopa Trust October 2014

11 Stage 1 :Identify your Intellectual Capital Explicit Build the Inventory Some examples 1. Training materials 2. Databases 3. Documented Systems 4. Models and tools 5. Trademarks 6. Research Papers 7. Patents 8. Standard Operating Procedures 9. Quality Standards 10. Documented Strategies 11. Market Information 11 Areopa Trust October 2015

12 Stage 1 Identify your Intellectual Capital Tacit- Build the Inventory Some examples derived by semi structured questionnaire and interviews 1. Knowledge about your processes 2. Knowledge about your systems 3. Knowledge about your customers 4. Knowledge about your networks 5. Knowledge about partners 6. Knowledge about strategies and direction 7. Knowledge about your content and subject matter 8. Service and Product Information 9. Service and Product Delivery standards 12 Areopa Trust October 2015

13 Evidence Collection Rules The data collection sheet and the inventory should contain a Full Description of asset what does the asset include key information from the document, artefact or discussion Describe objectives, roles how the relationship works targets markets type Age Info on separation Info on Safeguarding Info on Protection and ownership 13 Areopa Trust October 2015

14 AREOPA s Wheel of Fortune AREOPA s 4-Leaf Model IC Balance Sheet 15 IC Areas 4 Plain 11 Hybrid IC Assets conformimg to the IAS 36 and 38 Process Clusters Costs Added Value Parameters-Variables 14 Areopa Trust October 2015

15 Stage 2 - Estimate Carry out an IC Estimation exercise where we will Provide From Stage 1 an Inventory of Intellectual Capital Estimate the value of your present IC assets Estimate the value of your future IC assets Provide a route plan to cover all 10 stages of the Areopa Method 15 Areopa Trust October 2015

16 Stage 3 Safeguard Begin to turn Tacit into Explicit Identify Key Knowledge Identify Key Knowledge Carriers Write down processes Collate and Manage Inventory of IC Assets Ensure that the company owns the IC either by Acquistion Contract 16 Areopa Trust October 2015

17 Stage 4 - Ownership Who is the owner in the following? employer and employee relationship independent contractor. government employee. joint-ownership. Commissioned works 17 Areopa Trust October 2015

18 Stage 5: Protection Why is IP important in IC 1. Protects the economic rights of creators 2. Enables the commercial exploitation of the IC by the owner 3.May attract capital expenditure 4.Enables the transfer of technology 5. Drives Future Value Streams 18 Areopa Trust October 2015

19 Universal Right Copyright Industrial Rights Trademarks Patent Industrial designs Intellectual Property Confidential information Trade Secrets Geographical Typical Indications Plant Rights

20 IP as Intangible Property Tangible property Land, houses, estates, car Intangible property (Assets) intellectual property Intangible wealth, easily appropriated and reproduced, once created the marginal cost of reproduction is negligible

21 The role of IP within intangible property 1. Protects the economic rights of creators 2. Enables the commercial exploitation of owner of IC 3.May attract capital expenditure 4.Enables the transfer of technology

22 Why IP protection is sought by companies Capital expenditure for new products R and D Marketing and advertisement No free loaders Maintaining loyal followers profit

23 The Five Approaches for Measuring Intangibles (1/3) 1. Direct Intellectual Capital methods (DIC): Estimate the $-value of intangible assets by identifying its various components. Once these components are identified, they can be directly evaluated, either individually or as an aggregated coefficient. 2. Market Capitalization Methods (MCM): Calculate the difference between a company s market capitalization and its stockholders equity as the value of its intellectual capital or intangible assets. 3. Return on Assets methods (ROA): Average pre-tax earnings of a company for a period of time are divided by the average tangible assets of the company. The result is a company ROA that is then compared with its industry average. The difference is multiplied by the company s average tangible assets to calculate an average annual earnings from the intangibles. Dividing the above-average earnings by the company s average cost of capital or an interest rate, one can derive an estimate of the value of its intangible assets or intellectual capital 23 Areopa Trust October 2015

24 The Five Approaches for Measuring Intangibles (2/3) 4. Scorecard Methods (SC): The various components of intangible assets or intellectual capital are indentified and indicators and indices are generated and reported in scorecards or as graphs. 24 Areopa Trust October 2015

25 The Five Approaches for Measuring Intangibles (3/3) 5. Areopa 10 stage integrated process Only Method Directly related to IFRS and IAS 38 Identify Estimate Ensure Ownership Safeguard Protect Manage Control Derive Future Value Calculate and PUT ON THE BALANCE SHEET 25 Areopa Trust October 2015

26 International Accounting Standards (IAS) IAS 38 Intangible Assets (1/3) Key definitions Intangible asset: an identifiable non-monetary asset without physical substance. An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Intangibles can be acquired: by separate purchase as part of a business combination by a government grant by exchange of assets by self-creation (internal generation) 26 Areopa Trust October 2015

27 International Accounting Standards (IAS) IAS 38 Intangible Assets (2/3) Thus, the critical attributes and rules of an intangible asset are: Identifiability: an intangible asset is identifiable when it: [IAS 38.12] is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract) or arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets (see below). The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination. [IAS 38.33] 27 Areopa Trust October 2015

28 International Accounting Standards (IAS) IAS 38 Intangible Assets (3/3) Examples of intangible assets patented technology, computer software, databases and trade secrets trademarks, trade dress, newspaper mastheads, internet domains video and audiovisual material (e.g. motion pictures, television programmes) customer lists mortgage servicing rights licensing, royalty and standstill agreements import quotas franchise agreements customer and supplier relationships (including customer lists) marketing rights 28 Areopa Trust October 2015

29 IAS 38 Exceptions IAS 38 applies to all intangible assets other than: Financial assets (see Financial Instruments: Presentation) Exploration and evaluation assets (see Exploration for and Evaluation of Mineral Resources) Expenditure on the development and extraction of minerals, oil, natural gas, and similar resources Intangible assets arising from insurance contracts issued by insurance companies Intangible assets covered by another IFRS, such as intangibles held for sale (Noncurrent Assets Held for Sale and Discontinued Operations), deferred tax assets (Income Taxes), lease assets (Leases), assets arising from employee benefits (Employee Benefits (2011)), and goodwill (Business Combinations). 29 Areopa Trust October 2015

30 IAS 38 Valuation approaches IAS 38 is not just a financial approach but an econometric approach. Areopa has developed and trade secreted 77 econometric formulas that enable through the collection of evidence the identification of present and future value. Econometrics are defined as Econometrics is an inter-disciplinary effort to understand economic and financial behaviour through the use of data, economic theory, mathematics, statistical methods, and other quantitative and qualitative techniques in order to reach a valuation. 30 Areopa Trust October 2015

31 Stage 6: Managing Intellectual Capital Some objectives of managing IC for companies 40% Increase in Revenue Generation 40% Increase in your assets on your balance sheet 25% Increase performance linked to strategic objectives Greater Management of Risk 35% Greater Customer Satisfaction 10% Increase in customers and investors To be clear about the Key assets of your company To know the real value of your company when you decide to retire 31 Areopa Trust October 2015

32 Business strategy and plan Technology audit IC and R&D processes Information mining Tactical decision making Valuation in context Brand strategy evaluation Data systems integration Coaching in communications and managing the change Stage 6: ICM Toolbox IC Tactics to meet plan Portfolio Management Identifying and packaging deal elements Negotiating business deals Audit technology licenses Effective scenario planning Dynamic cash flow analysis Measurement of success of ICM activity Value reporting to stakeholders 32 Areopa Trust October 2015

33 Stage 7 : Control some key questions Who will Control the IC process in house How will IC help to deliver the companies products and services How will it be exploited Who will decide which IC asset to protect, which to trade, which to sell, which to invest in, which to combine and which approach should be taken for Exploitation Who will manage IC risk Who will decide on IC costs How will IC revenue be monitored 33 Areopa Trust October 2015

34 Stage 8- Deriving Future Value Intangibles differ from tangibles in many ways that change the rules of the game, (if not the game itself): Value in context Multiple simultaneous value streams Understand how technologies will evolve (Both your own and those on which you rely) Understand how customer needs will evolve Develop world class products and services that meet customer needs 34 Areopa Trust October 2015

35 Stage 8: Deriving Future Value Converting Ideas Into Cash No Competitors Better Positioned in Marketplace? Yes Integrate Strategic Alliance Use IC as source of funding through Securitisation Yes Complementary Assets Available? No Joint Venture Yes Specific Complementary Assets Required? Yes No Out-license or Contract Adequate IC Protection Available? No Store Yes Invention Meets Market Need No Adapted from David Teece, Store 35 Areopa Trust October 2015

36 Stage 8: Deriving Future Value Strategic Investment is the Foundation of a Successful Commercialization Model 36 Areopa Trust October 2015

37 Step 9 & 10 Calculating the IC Value The look at the Fundamental Dilemma The main problem with measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy All measurement systems, including traditional accounting, have to rely on proxies, such as dollars, euros, and indicators that are far removed from the actual event or action that caused the phenomenon This creates a basic inconsistency between manager s expectations, the promises made by the method developers and what the system can actually achieve and makes the systems very fragile and open to manipulation SOLVE THIS BY HELPING YOU MEET THE INTERNATIONAL ACCOUNTANCY STANDARDS 38 AND ENABLE YOU TO INCREASE BOTH YOUR REVENUES AND YOUR BALANCE SHEET BY USING AN ECONOMETRICS APPROACH 37 Areopa Trust October 2015

38 Step 9 & 10 Calculating the IC Value (Financial) Balance Sheet 38 Areopa Trust October 2015

39 Step 9 & 10 Calculating the IC Value Intellectual Capital Balance Sheet Assets are either Internal or External and vary from highly structured to not structured at all Assets are owned by the company (explicit) by contract or as described in IAS 38 Assets not owned by the company or borrowed from 3rd parties: staff, customers, alliances, partners, public authorities may be considered liabilities or risks. 39 Areopa Trust October 2015

40 Step 9 & 10 Calculating the IC Value IC balance sheet: follows the structure logic of the financial BS 40 Areopa Trust October 2015

41 Step 9 & 10 Calculating the IC Value Consolidated Balance Sheet Consolidated Balance Sheet shows the total value of the enterprise, combining financial with IC elements The assets side gives a clear insight into the relative values of ALL assets, offering THE ultimate management tool to managers The liabilities side shows how assets are financed, i.e. who owns the assets Balance Sheet analytics can be developed in line with BS analysis concepts which already exist for the classical BS 41 Areopa Trust October 2015

42 Step 9 & 10 Calculating the IC Value The fundamentals of accounting 42 Areopa Trust October 2015

43 IC Accounting: the same principles apply 43 Thursday, November 24, 2016

44 Step 9 & 10 Calculating the IC Future Value In addition to the Book Value of IC Assets we need to add A second portion which expresses the Future Potential (FP) of the IC Asset on hand. This FP will be calculated based on the 77 added value calculation formula s of the AREOPA 4 leaf model. If we use the basic resources ( see BV ) in the business processes they will have to create added value. This added value is calculated by useing the 77 formula s 44 Areopa Trust October 2015

45 Step 9 & 10 Calculating the IC Value Areopa s Intellectual Capital Calculation Example Non Structuralized Human Capital 45 Areopa Trust October 2015

46 Step 9 & 10 Calculating the IC Value 46 Areopa Trust October 2015

47 Step 9 & 10 Calculating the IC Total Value Bringing the 2 elements (Book Value (BV) and Future Potential (FP)) together allows us to complete the Total Value Equation of an IC Asset: whereby: and: TV IC = BV IC + FP IC BV IC = (AC IC + EC IC ) )- D IC + (VI IC - VD IC ) The formula s which calculate the added value of the 77 phenomena s Each of these composing elements will have to be assessed, defined and computed while putting together the initial inventory of the IC assets of an organisation. In preparation of the calculation of the IC value of all or a set of assets at preset intervals (monthly, quarterly, yearly) or the start of a continuous IC accounting exercise. The most difficult part lies in the calculation of the future potential of each of the IC Assets. These potential margin contributions will depend on the nature of each asset and The parameters and variables driving the value creating potential of each individual asset. 47 Areopa Trust October 2015

48 Additional thoughts Areopa s Positioning on Karl-Erik Sveiby s Overview 48 Areopa Trust October 2015

49 The box we have the fillings need to be gathered 49 Areopa Trust October 2015

50 Thank You If you have any questions or you would like to discuss with us further Please Contact 50 Areopa Trust October 2015