Untangling Intangibles

conferences

Untangling intangibles Everyone agrees that information is valuable to organisations and to our economy. But will we ever know how to put a price on it? Ralph Adam reports from the latest conference trying to get a grip on ‘intangibles’.

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ntangibles’. Sound like a dreary management buzz-word to you? It shouldn’t. Intangible asset strategies are becoming an increasingly important feature of information policy. Goahead organisations think of the creation (and acquisition), evaluation, development, maintenance, enforcement and exploitation of their intangible assets as being as crucial to their success as highquality business plans are for the more tangible ones. What are intangibles? Anything that has a psychological, knowledge or information content and can be valued as a company asset. The most frequently-discussed are those that can be protected legally: intellectual property rights (patents, trade-marks, registered designs, brands, copyright), licences and royalties, as well as databases and software. These, perhaps, are the most ‘tangible’ of intangibles. However, people bring many other assets to an organisation, such as knowhow (including R&D), links with users/customers and personal knowledge or skills. Then there are business methods and systems as well as knowledge of ‘best practice’ to be considered. The

nies – labour, land and capital. Now their rules need to be changed to take account of the growing concern for intangible assets. July even saw the launch of a new specialist magazine – IAM (Intellectual Asset Management). Investors may not care how such assets are described. They do care that managers understand the issues behind anything that adds value to a company both now and in the future. The same goes for public bodies – all of which are accountable for their assets and need to meet strict auditing criteria. It is widely accepted that intangibles, based as they are on the exploitation of ideas (rather than on material things), have become the drivers of today’s knowledge economy. Yet they remain poorly understood. The 90s answer was to seek ways of measuring their impact – a response, in part, to the recommendations of the influential Hawley Report, which stressed the need for information management to be seen as a boardroom issue.2 WTO agreements

The search for a means of putting a value on information grew even more urgent once

‘... he emphasised the need for librarians, as information experts, to promote themselves. “Where are they?” he asked.’ nature of intangibles seems to encourage vague thinking. The Economist’s Frances Cairncross emphasises this uncertainty: ‘Although companies bandy about the terms “knowledge management” and “intangible assets”, few clearly articulate what either concept means.’1 These issues have increasingly exercised accountants and auditors. We are all familiar with the tangible assets that they have traditionally used to evaluate compa24 | update

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the World Trade Organisation (WTO) set up its two key agreements – Trade Related Intellectual Property Rights (Trips) and the General Agreement on Trade and Services (Gats). These agreements set an agenda for controlling how information is used, by whom and on what terms. They have changed everything. Water may be the most vital resource for life, but information is being seen as the 21st century’s most valuable one.3 For CILIP members, such

matters are of great importance, for they are information and knowledge management issues. However, few commentators have, so far, linked such debates to the information industry. One person who has done so is Clive Holtham, Professor of Information Management at City University’s Cass Business School.4 Can information be measured?

A key difficulty with intangibles is that they are notoriously hard to measure: no one has come up with a satisfactory method. In 2001 the European Commission’s Information Society Technologies programme took a step forward when it provided support for a pan-European multi-disciplinary research project. In doing so, it brought together eight leading business schools, supported by an advisory council from banks, auditors, research centres, multi-national companies and the OECD, to examine how intangible assets might be measured. This is the Prism consortium. (The name was selected partly because a prism allows rays of light to be separated into their constituent parts for better observation and measurement, and partly because the project’s main themes are Policy-making, Reporting, Intangibles, Skills Development, Management/ Measurement.) The information world is not included in the list of its advisory council members, neither does the ‘I’ in the acronym stand for ‘Information/Knowledge’! Prism sees its task as raising the profile of intangible assets by evaluating management policy and investigating new measurement techniques. On 4 July Prism held its final conference – the 2003 European Intangibles Summit – at Cass, under Holtham’s aegis. The EU-sponsored event, taking its lead from Cairncross’s statement, was subtitled ‘Accountability, competitiveness and productivity: understanding the value of intangibles in 21stcentury organisations’. Its purpose was to disseminate

Prism’s research findings to an international audience and to foster informed debate about intangibles issues. The meeting was planned around three themes and consisted of a morning packed with brief presentations, followed by two parallel sessions and a closing panel. Supporting documentation included a collection of articles and ‘thought-pieces’ contributed by the speakers, a DTI study of how ‘talented’ people use key intangible resources to meet goals5 and Prism’s Project Resource CDRom. This contained research papers, case studies and proceedings of previous conferences as well as presentations, reports and the project’s ‘timeline’. The three themes were: ■ understanding and measuring value creation in the 21st century; ■ creating value challenges for firms: how organisations are adapting their strategies and practices; how they evaluate and track intangibles; and the role of intellectual property in the ‘new look’ world; ■ external viewpoints on auditing and analysing value creation in capital markets: relevant (and missing) information for financial reporting to investors, and the needs of providers of finance in the context of intangibles. A ‘thought-wall’, where delegates could place postcards with their comments and questions, was provided, but little use was made of it. The timetable was tough and far from intangible: with 30 or more speakers to be heard, participants were warned that the stop-clock was paramount and sessions would start on time whether or not they were present. There was even a time-warden at the back of the auditorium, with a placard to warn speakers of the number of seconds remaining! As a result, the day zipped by. First came the opening comments: Clark Eustace, Prism’s Director, summarised its headline findings, and the Conference Director, Richard Youngman, set the scene. In 2 (10) October 2003

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conferences questioning how we evaluate information as an asset, he emphasised the need for librarians, as information experts, to promote themselves. ‘Where are they?’ he asked. But this is an old story: readers of Laura Swaffield’s back-page Mediawatching in Update will be well aware of the difficulties of changing the image. The university’s Vice-Chancellor, David Rhind, made a plea for help to develop ways of judging the value certain assets (such as professors!) add to his institution’s balance sheet. Next, Oluf Nielsen, of the European Commission’s Information Society DG (Directorate-General), congratulated Prism on its success in bringing together such a range of stakeholders. He went on to announce the EC’s plan for a multi-sectoral ‘expert group’ across three of its DGs – Industry, Research and the Information Society. Its task will be to investigate intangibles and knowledge management. Let us hope that information professionals, who understand their world, will make sure they are involved from the start. The value dilemma

The morning’s first theme (understanding and measuring value creation) included brief presentations from OECD staff (the management of intangible assets in national statistics, their impact on policy and the need for improved data sources). Prism members suggested how national accounts might be made more useful for economic analysis. The second theme tackled value creation, with speakers from BP, several Danish academics and financiers and Sue Slipman of the Financial Ombudsman Service. She discussed a wide range of topics, including the importance of corporate social responsibility within modern companies, the need for trust in multinationals and the possibility of measuring knowledge per se. The afternoon began with a wide range of papers covering techniques for measuring intangibles, as well as case studies. Then, the conference divided into two streams. One looked at auditing and the types of information needed for an effective understanding of company performance. There was much discussion on the role of auditors and their ability to provide sufficient information for intangibles to be valued as assets. The 2 (10) October 2003

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general view was that, rather than emphasise the need for precision, auditors should concentrate on more meaningful information. How better to do that than through storytelling? One delegate claimed he had turned up in order to get answers on valuing intangibles, but was feeling even less secure with all the talk of narratives. But he was in a minority. The alternative stream was designed to raise questions on the ownership and benefits of intellectual property rights (IPR), but was a little compressed due to timing difficulties. The topic was discussed from three perspectives – none of which came from the information world. Edward Truch (Henley Management College) described how public bodies increasingly identify and generate intellectual property as alternative sources of finance, while Larry Cohen talked about his experiences as head of European intellectual property for a large US legal practice. Cohen outlined the forthcoming European IPR policy in relation to patents, trade marks, designs, copyright and confidential information. He also attempted to distinguish between knowledge and know-how. Finally, Stephen Merrill, of the US National Academies, commented on what the EU can learn from US patent policy and how the US might develop a more ‘European’ agenda. To measure is to know?

The meeting’s subject was obviously a popular one: nearly 250 people took part, but many more had to be turned away. The mix of participants was broad – mostly from industry, academia/ research and finance. Unfortunately, very few came from the information world and almost none from government. The event focused more on the impact of valuing information assets for the balance sheet, less on exploring what it is about information that makes it important for improving business performance. The conference blurb had quoted several versions of Lord Kelvin’s dictum ‘to measure is to know’ as if, despite Kelvin’s own, more open, approach, measurement were an end in itself. This was reflected in the discussion, as these comments show: ‘If you can’t measure it, it isn’t worth having’ (a DTI

statistician). ‘If we live in a world where anything that moves can be measured, we won’t live for long!’ (Sue Slipman). The backgrounds of those present made for a fascinating day’s discussion though, at times, it was a case of preaching

think through the logic of its existence, broaden its perspective and show government that information has a key role to play in the new economy. It could also encourage companies to cultivate openness by sharing ideas, rather than rushing to patent any novelty that might produce future income.

‘Prism could encourage companies to cultivate openness by sharing ideas, rather than rushing to patent any novelty that might produce future income.’ to the converted. Many interesting snippets stayed with me: ‘Talk of a “new” economy is more intuitive than rational’ (Clark Eustace). ‘We need to understand how value is created in the knowledge economy’ (Oluf Nielsen). ‘How can the information stored in libraries or the knowledge absorbed by individuals (and stored in their brains) be recognised in the national accounts?’ (Peter Hill, Prism). ‘How can one give a value to old inventions, such as the wheel?’ (Dominique Guellec, OECD). ‘Music downloading creates loads of wealth and is the motor for broadband’ (Roger Wallis, Royal Institute of Technology, Sweden). ‘What are you paying for in a bottle of wine: the content, the brand, the enjoyment or the effect? Similarly, is a cobbler’s value in the shoe he mends or his analysis of how to mend it?’ (Leif Edvinsson, Unic). There was little discussion of how the EU might be encouraged to take a more proactive approach to IPR policy or how it might cut patenting red tape. The WTO was barely mentioned at all. This was very much a managerial and financial event. Policy-makers were not much in evidence. To have the sort of impact it desires, Prism (and its successor) needs to

There is a need for the economic importance of intangible assets to be recognised. In the 80s the government told us that heavy industry and engineering belonged to the ‘old’ economy and that our future lay with the development of the knowledge (and information) industries. Reliance on this sector implies the ability to measure its value. In his introduction David Rhind had asked: what’s the value of a professor’s mind? He received no answer. Perhaps we should substitute ‘librarian/ information manager’ for professor. Then we will know that intangibles are really being taken seriously. References 1 F. Cairncross. The Company of the Future: meeting the management challenges of the communications revolution. Profile Books, 2002. 2 Hawley Report. Information as an Asset. KPMG Impact Group, 1994. 3 S. Shrybman. ‘Information, Commodification and the World Trade Organisation.’ Paper (No.176-148-E) presented to 66th IFLA Annual Conference, Jerusalem, 2000 (www.ifla.org/IV/ifla66/papers/176-148e.htm). 4 C. Holtham. ‘Valuation has its price.’ Library Association Record, Vol. 103 (4), April 2001, pp. 232-233. 5 Creating Value from Your Intangible Assets: unlocking your true potential. DTI Future and Innovation Unit, 2001 (www.innovation.gov.uk).

Ralph Adam is a freelance journalist, and Reader at City University, School of Engineering (sd324@city. ac.uk). A summary of the conference proceedings and copies of the speakers’ Powerpoint presentations are available at www.euintangibles.net/ conferences/proceedings/ update | 25

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