Innovate or Perish: Managing the Enduring Technology Company in the Global Market

Valuation of IP Assets

Employment trends over the past 60 years bear this out: in 1939, 60% of U.S. workers were engaged in goods production.^[1] In 2000, this had fallen to only 20%, with 80% employed in “services production.” The capital markets have also recognized the growing impact of a strong IP portfolio and other intangible assets in an increasingly “knowledge-based” economy. A recent Brookings Institute study indicates that a substantial shift in the drivers for a firm’s market value has taken place over the past two decades.

^[1] http://www.smartecon.com/articles/new_economy/service_economy.asp.

As a result, it is clear that by properly harnessing and managing IP assets a company can directly influence and drive overall valuation (see Exhibit 4.1). This has a direct impact on shareowner value and company performance. In fact, in the absence of clear information about a company’s IP strategy and operations, the markets develop an implied view of a firm’s IP effectiveness and worth. This has been documented in a variety of studies, including one^[2] that uncovered the cost to firms of improperly managing their intangible asset base. Baruch Lev’s work documents a downward spiral in some firms. It begins with a lack of clear information regarding the value and use of IP by a firm, causing investors to undervalue intangibles/IP. This results in a higher cost of capital for such firms, causing the firms to underinvest in IP development and commercialization. Thus, these firms bypass ...