 2004 Ideation International Inc. 1 Increasing Intangible Asset Value with Value Management and I-TRIZ By David C. Bonner, President & COO Peter P. Hanik, Senior Vice President Ideation International Incorporated

 2004 Ideation International Inc. 2 The Global Business Environment

 2004 Ideation International Inc. 3 Global Economic Growth 1991 – 2001 (Average Annual % Increase in Real GDP) United States – 3.3% Mexico – 3.1% Japan – 1.2% South Korea – 5.9% China – 9.8% India – 5.4% Ireland – 7.1% Singapore – 6.9% Source: The Economist, “World in Figures”, 2004

 2004 Ideation International Inc. 4 $ Profits Are Being Caught In A Squeeze

 2004 Ideation International Inc. 5 Methods to Increase Value

 2004 Ideation International Inc. 6 Market Value Share Price x Shares Outstanding + Debt Market Value Added Capital Economic Value Added EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA EVAEVA Market Value Added = Present Value of Future EVA™ EVA™ = NOPAT – Capital Charge EVA IS a trademark of Stern Stewart

 2004 Ideation International Inc. 7 An Alternative View of Value Baruch Lev’s and Feng Gu’s Model α(Physical Assets) + β(Financial Assets) + δ(Intangible Assets) Physical Assets Financial Assets Intangible Assets Economic Performanc e Economic Performance =

 2004 Ideation International Inc. 8 What Drives Stock Performance ? From Intangible Assets Measurement, Drivers, Usefulness; Feng Gu and Baruch Lev; April 2001 Correlation with Shareholder Return

 2004 Ideation International Inc. 9 Implications Companies must focus on Intangible Assets if they are to generate long term value Cost reduction projects alone are a necessary but not sufficient condition for success Any problem solving methodology (Value Management, TRIZ, Six Sigma, etc.) must increase intangible asset value Innovation is the key to success

 2004 Ideation International Inc. 10 Value Management and Return on Intangible Assets

 2004 Ideation International Inc. 11 Cornerstone Relationship of Value Management Value = Function Cost Good Value Options Poor Value Options = Caution Source: J. J. Kaufman, Value Management: Creating Competitive Advantage. pp4-6, Crisp Publications 1998

 2004 Ideation International Inc. 12 The Value Management Process Pre-Event – define project Collect Information – organize using FAST diagrams Identify Alternatives – brainstorming techniques Analyze and Screen – economic evaluation of best alternatives Prepare Proposals – Develop a plan of attack Present Proposal Plan/Approval & Funding – Acquire management approval and funding Source: J. J. Kaufman Associates, Inc. (

 2004 Ideation International Inc. 13 Value Management Strengths Structured process defines project goals well and carries through to implementation Clearly identifies “good” value options is the most preferred option is commonly chosen option FAST is a robust analytical tool

 2004 Ideation International Inc. 14 Value Management Weaknesses Relies on traditional, psychologically based brainstorming techniques Many are drawn to as the preferred option Often accused of preferring cost reduction over function improvement Not well connected to intellectual property

 2004 Ideation International Inc. 15 ITRIZ and Return on Intangible Assets

 2004 Ideation International Inc. 16 Cornerstone Relationship of I-TRIZ No Innovation Ideality Incremental Improvement Nearly Ideal Solutions Innovation Scale

 2004 Ideation International Inc. 17 The I-TRIZ Process Define the Problem (ISQ) Problem Formulation Prioritize Directions for Innovation Develop Concepts Evaluate Concepts Artificial Intelligence Engine Knowledge base of over 3MM patents Generates potential resolution of contradictions System of Operators

 2004 Ideation International Inc. 18 I-TRIZ Strengths I-TRIZ is System for Innovation Broad knowledge base (3MM patents) Problem Formulator™ relates useful functions to harmful functions Harmful functions not restricted to cost Breakthrough solutions

 2004 Ideation International Inc. 19 I-TRIZ Weaknesses Weaker in up front problem definition Weaker in valuation and implementation of solutions May be overkill when incremental solution is desired

 2004 Ideation International Inc. 20 Value Management/ITRIZ and Return on Intangible Assets

 2004 Ideation International Inc. 21 Combined Value Management /I-TRIZ Methodology Pre- Event Collect Infor- mation Identify Alter- Natives Analyze & Screen Prepare Proposal Present Proposal Approva l & Funding FAST Diagram Add Design Element s Add Harmful Effects Add Cost Element s Develop Directio n Develop Concept s Value Management Process I-TRIZ Process High Impact Solution Concepts

 2004 Ideation International Inc. 22 Starts with FAST Diagram Value Engineers very familiar with FAST Expands FAST Diagram for use in I-TRIZ Adds design elements, harmful effects, cost Structured innovation in “Identify Alternatives” step of Value Management Near exhaustive set of broadly based alternatives More opportunities (increased Function with reduced Cost) Advantages of Combined Value Management / I-TRIZ Process

 2004 Ideation International Inc. 23 Conclusions Value Management and I-TRIZ are not competitive methods I-TRIZ can enable the brainstorming step in Value Management FAST diagrams accelerate the I-TRIZ process Synergistic Benefits Produce Enhanced Intangible Asset Value = Increased Shareholder Value