Michael Porter (Harvard) has popularized the competitive forces theory–believing that you look for the areas of the highest margin and then jump in and try to develop products–after which you spend all your time fighting off competitive forces.
Patrick Sullivan (Intellectual Capital Management Group) cites an alternative and complementary approach–the resource-based theory. “This has the advantage that you can control it–you develop value by controlling assets that you have at hand. So it’s particularly applicable to intangibles value,” he told the audience at last week’s BVR/Morningstar Summit on Best Practices in Intellectual Property Valuation.
“We continue, particularly among our ‘ICM’ group of intangible asset managers, to believe that one of the most important thing to increasing value is to have an IP asset manager.” The ICM group meets three times a year to discuss this topic–“knowledge that can be converted to profits.” Sullivan has written books on what he’s learned from all the years of discussions on this topic, including Value Driven Intellectual Capital.
Sullivan respects accountants (“some of my best friends…”) but recognizes that financial accounting, even with fair value improvements, has severe limitations:
- It can’t quantify internally generated intangibles
- It can’t recognize projected future values, and
- It tends to only identify one value stream for each asset
So, whether for investment, management, licensing, or other reason, IP managers and appraisers are often left to non-financial accounting methods.
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