1. Ferrara’s 10 th Conference on Intangibles BARUCH LEV NEW YORK UNIVERSITY BLEV@STERN.NYU.EDU September 2014

2. 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 1

3. 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 2

4. 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. 3

5. 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. 4

6. 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? 5

7. 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. 6

8. 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. 7

9. 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 8

10.  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. Should I Do It? 9