The most valuable assets in your factory are the ones you can’t see
“Manufacturing” conjures up images of machines, production lines and products. In the past, the value of a manufacturing company lay primary in its tangible assets such as land, buildings and equipment. However times have changed. Today, the real value of a manufacturer is more likely to lie in its intangible assets such as the industrial know-how, systems and processes that keeps such organisations running safely, efficiently and competitively.
In 1975, intangible assets accounted for just 17 per cent of company value. Less than 40 years later in 2015 this had rocketed to 87 per cent. Virtually
all value is now in intangible assets. This shift has been so rapid many companies are still grappling with the fact that their most valuable assets
are invisible and often no longer appear on their balance sheet. Many continue to invest far more time and money maintaining machinery, tracking stock
and protecting physical assets than significantly more valuable but less obvious intangible assets such as data, confidential information and brands.
What is an intangible asset?
- Your brand – the reasons why customers chose you over your competitors
- Your databases of customer and supplier information & order histories
- The systems, processes and industrial know-how that enable you to manufacture your products
- Your unique product and packaging designs
- The software that controls machines or monitors production
- Your presence on the internet – your website and social media sites
The importance of protection
- When a leading sales person left an innovative manufacturer to work for a competitor he was able to take highly valuable details of the manufacturing
process and key products as well as the customer database. The manufacturer had chain link fences, security guards and alarms but had never thought
to protect critical intangible assets. The transfer of value to the competitor was in the millions.
- A major high-value manufacturer created an innovative product and outsourced the production of a key component to a small European contractor. Without
realising the impact a middle-tier engineer supplied the specifications and designs for the entire product so that, once the contractor completed
the project, they formed a new company and begin manufacturing the same product based on the information they had received. They went on to shut
the Australian company out of a $100 million market.
- A manufacturer created a very successful product, however when they launched it in the United States, they were promptly sued by a company that had filed a patent on the technology some years earlier. The matter was settled but only after the Australian company paid $15 million in legal fees almost destroying them in the process.
Accounting Standards Perpetuate the Misfocus
What Next – Questions to Ask
1.Initial Concept & Start Up
- Who owns the intangible assets you are developing?
- How will you stop your new idea from being copied the moment you reveal or sell it? If you can’t protect it you are effectively donating it to your
- Will your product infringe third party intellectual property or another company’s intangible assets? Are you sure no-one beat you to the punch?
- Have you identified all of your intangible assets including data, know how, designs, copyright, innovations and brand?
- Have you developed an intangible asset strategy and is it linked to your business, research and development and investment plans?
- Do your contracts with people such as suppliers, clients and employees include protection for your intangible assets?
- Will you infringe another company’s intellectual property or intangible assets in the new markets you are entering?
- Have you developed a branding and trademark strategy?
- Are you managing your intangible assets to minimise costs and reduce risks?
4. Mature, successful business
- Have you identified the intangible assets that drive your market share and profit margin?
- Have you valued your intangible assets?
- Is your intangible asset strategy linked into your innovation and research & development strategy?
- Are you taking the value of your intangible assets into account when you consider major transactions such as a merger or acquisition, initial public
offering (IPO) or significant investments?
- If you are considering an exit, is the value of your intangible assets clear to potential buyers?