Intangible Value is Irrelevant for Managers

The first thing that businesspeople say in a conversation about intangibles is that they are so hard to value. Many people stop with this thought. They figure that there is no point in having a conversation about intangibles unless and until there is an accepted way to value them.

The value question is a vexing one. Efficient markets for trading intangibles are in their infancy. And valuation methods rely heavily on projections of future revenues that could be generated from individual intangibles-not the kind of hard data that makes businesspeople feel comfortable.

But it is also a dangerous distraction for just about any manager. Unless you are in the business of buying and selling intangible rights, value is a useless metric for you. Your business is probably about creating value for a customer. To create that value you invest in tangible and intangible infrastructure. You use this infrastructure to do something or make something that lets you bill that customer. And you are supposed to make a profit at it.

On average, over half of the infrastructure in today’s business is intangible. It is in systems, processes, trained workers, connections with customers, suppliers and partners. Profits are calculated by subtracting production costs and investment amortization from revenue. The “value” of your intangibles has nothing to do with this equation.

Rather, the important drivers of profits from intangibles are How much revenue you can generate using them? and How much it will cost you to build and maintain them? Forget about the value question and move on to the more important question of how to profit from the unique combination of intangibles in your organization.