Modern Businesses - Trends & Figures

As I alluded to, the world of today is changing (or rather, has already changed). With the rise of globalisation and the economics of free trade, modern economies can no longer rely on the business models of yesterday to drive the economies of tomorrow.

Whilst companies of old may have relied heavily on creating value through their tangible assets (machinery, products, etc.), the modern companies have had to adapt and shift value creation into their intangible assets (IP, know-how, goodwill, etc.) instead.

Dont believe me? Google "modern businesses" and "intangible assets" and you will easily find many articles and reports on this trend -

• 2011 OECD Report on Intangible Assets

• 2013 "The Increasing Importance of Intangible Assets"

• 2014 Presentation on "The Increasing Importance of Brand and Intangibles in Industry"

The literature in this area generally agrees that pre-1980s, companies generally have a 80-20 split between their tangible assets (80%) and their intangible assets (20%). However, by around 2005, this equation has been totally inverted, with a 20-80 split instead - 20% of tangible assets and 80% of intangible assets.

You may not have heard much about this at the higher management level because the industry is still struggling with how to develop proper IP valuation standards in order to have more accurate estimations of the value of IP assets in the company. It also doesn't help that accounting methods have not been updated in order to account for IP assets in financial reporting.

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