Ferrara’s 10th Conference
on Intangibles
BARUCH LEV
NEW YORK UNIVERSITY
BLEV@STERN.NYU.EDU
September 2014
Characteristics of Conference Research
(72 studies)
 Many studies on intellectual capital (intangibles) reporting by companies.
 Many studies on integrated, sustainability, triple bottom line reporting.
 Some studies on valuation of intangibles, mostly brands.
 Some studies on intangibles in the public and not-for-profit sectors.
 Some studies on intangibles at SMEs.
 Others
Most studies very interesting, high quality
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Majority of Research on IC Disclosure
 An old, 20−25 years research effort
 There have been lots of IC disclosure initiatives (NYU, Denmark) but most
of them failed.
 IC reports mainly limited to some European companies; no standardization;
very limited impact.
 By and large, leading corporations resist any meaningful intangibles disclosure.
No incentives for managers, no real demand by investors.
 Sustainable, environmental, social, integrated reporting, all pushed by various
organizations, but so far did not change the map (except in South Africa).
Sorry for the grim report
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Why the Failure?
 Fortune magazing conference of the “100 smartest people.”
“Intangibles are inert, like bricks.”
Inert: to be in a state of doing little or nothing.
 The only interest in intangibles per se, is when you try to sell them (patents,
brands, software). Otherwise, what’s interesting to managers and investors is:
how do the intangibles, with other resources, create value?
 This points at a different research agenda.
This research agenda will be of great interest to managers, investors, and
policymakers.
How do I know? From hundreds of conference calls.
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A New Research Agenda Useful to
Managers, Investors, and Policymakers
 Focus on Strategic Resources, the drivers of long-term competitive advantage
(see Resource-Based Theory)
 Strategic resources, mostly intangible (patents, brands) and some tangible
(oil & gas resources, Amazon’s warehouses) are assets which:
o Create economic value
o Rare
o Difficult for competitors to imitate.
 The research emphasis is on what interest managers, investors, and policymakers:
o How best to create strategic resources
o How to preserve and protect these resources
o How to generate the most value from these resources.
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Research: Creating Strategic Resources
 Is developing patents/products internally (R&D) more or less efficient than
acquiring patents or development companies?
 Is outsourcing IT more efficient than maintaining an IT department inhouse?
 How effective are governments, or EU directives concerning minimum R&D?
 Is the number of company’s patents predictive of its future sales growth or
share performance? (Many companies pay a bonus for patents granted.)
 Are the subsidies given by regional governments to science-based companies
effective?
 What is the relationship between marketing & advertising expenses and brand
values?
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Research: Preserving Strategic Assets
 “Communities of practice.” The success of companies’ efforts
to transform (codify) tacit to explicit knowledge.
The battle against “organizational amnesia.”
 The effect of disruptive technologies on incumbent firms.
Examples: ebooks on book publishers, internet on local
newspapers, moocs (massive open online courses)
on universities.
 The reinvention of bankrupt brands: Converse Allstar, Polaroid,
Fiat 500, or the Mini Minor. Why some brands are resurrected
while others are not.
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Research: Creating Value with Strategic Assets
 Exploiting “Big Data” (see OECD, 2013 Intangibles report). Big data − the new
factor of production (Brynjolfsson− 5-6% productivity increase). Create new
goods and services, optimize production and delivery, enhance research and
development. Netflix CEO: “80% of customer choices based on
“recommendation algorithms.” At this early stage − good case studies will be an
important contribution.
 Design − the new resource. OECD classify KBC to: computer software,
computerized databases, R&D, creative property, brands, human capital,
organizational structure, and design. Most popular course in Stanford business
school. Design differentiates products (Apple, Sony). Contributes to the brand.
Great research opportunities.
 Is Capitalized R&D an asset? Compare the valuation coefficient of expensed and
capitalized R&D.
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Research: Creating Value with
Strategic Assets – Cont’d.
 Monetization of Intangibles
o Licensing and sale of patents
o Intangibles as loan collateral
o Securitization of royalty streams (Bowie bonds)
o Selling shares in patent pools (Deutsche Bank)
Case Studies as well as large sample studies
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Should I Do It?
 This is obviously a more demanding research agenda. You
may have to access internal corporate records (big Data),
learn from managers’ surveys, or identify specific databases
(patent licensing).
 But the rewards are much higher than those of conventional
research.
o Improved publication prospects
o Enhance your reputation (you’ll be cited)
o Approached by companies and policymakers.
 Like in finance: higher risk − higher return.
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