New ISO Standards: Is Brand the Right Proxy for Intangibles Valuation?
I read with interest this discussion about new ISO standard 10668 for brand valuation.
It's great that intangibles valuation is getting this kind of mainstream attention. My first reaction was to be concerned--in my view, a company's reputation is very hard to separate from its brand. But maybe that's the answer: this is focused on brand specifically, which is different from reputation.
Following along with this logic, I would have to agree with the writer that
Royalty Relief focuses on the brand in terms of third party transactions. That works for me. And it keeps it separate from the reputation story which is much more complex--and much more about the management of the entire portfolio of intangibles.
I hope to hear what others think...
It's great that intangibles valuation is getting this kind of mainstream attention. My first reaction was to be concerned--in my view, a company's reputation is very hard to separate from its brand. But maybe that's the answer: this is focused on brand specifically, which is different from reputation.
Following along with this logic, I would have to agree with the writer that
"Each approach has merits but for financial reporting purposes accountants, lawyers and tax practitioners unanimously recommend the Royalty Relief method."
Royalty Relief focuses on the brand in terms of third party transactions. That works for me. And it keeps it separate from the reputation story which is much more complex--and much more about the management of the entire portfolio of intangibles.
I hope to hear what others think...
Tags: 10668, ISO, brand, capital, relationship, relief, reputation, royalty, valuation
Views: 13
Replies to This Discussion
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Permalink Reply by Abhijit Talukdar on -
Mary, I think you have asked a question which is very pertinent to IC professionals. It has been at the back of my mind for some time now. Especially since I have seen cases where Intellectual Capital is sought to be quantified in some quarters using a combination of Human Capital valuation and Brand valuation techniques, both of which are relatively mature.
The question I have is whether this is an appropriate technique. In particular, can the brand be a proxy for the IC of the firm? We all know that brand building is a capital intensive and time consuming exercise. Hence even in the case where firms chose to consciously invest on brand building, the results will be slow. Would that imply that the firm has no IC worth the name? Lets ask the reverse question. What happens in the case of suppliers who provide white label products to their Customers, who then package it with their own brand and take it to market. This is an increasing trend nowadays in the retail world (FMCG, cosmetics, beverages, etc.) where big businesses focus on marketing and outsource the production to their suppliers. Would that imply that the supplier has no IC at all, just because his name is invisible on the final product? We will immediately agree - obviously not.
Therefore, I hold the opinion that brand valuation is first of all applicable only to established businesses. Secondly, it is orthogonal to other IC valuation techniques. Valuation being a forward projection of net worth of the business, needs to be as conservative as possible in its assumptions. In that regard I have found that income based IC valuation techniques are more conservative in their predictions compared to brand valuation methods such as the royalty relief method, in the case of businesses where I have specifically studied both. Hence I for one am not a great proponent of brand as a proxy for IC. However, I look forward to reading other opinions.
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Permalink Reply by Galen McPherson on -
As I read through this article, I kept hearing the voice of Dr. Deming in the back of my mind, solemnly intoning, "There is no instant pudding." While the notion of brand as proxy/surrogate for intangibles might appeal to some quarters, my belief is that it will only be a partial and diminished facsimile of the true capital it purports to represent, relational capital. Brand is no more representative of this capital than Intellectual Property is representative of all structural capital.
What concerns me more, though, is the concluding sentence:
"Whichever method is used they will all now be completed under the ISO banner, giving credibility to a discipline which in the past was often regarded as a ‘black art’."
Moving a black art from a glade in the forest into the front parlor does not make it any less a black art, it simply makes many of the artifices and assumptions more public. As with many other processes that have difficulty facing the light of day, making this valuation process more open will inevitably drive more discussion among the camps as to which method is [a] better, [b] valid under difficult circumstance, or [c] pre-eminent in the food chain of evaluation techniques.
The ISO imprimatur will only make it offical, not more effective nor accurate.
Certainly, brand must be considered as part of relational capital, and it needs to be evaluated in a manner best suited to the needs of the investigator. And as with any intangible, measuring what "can't be seen", "doesn't exist" or "didn't happen" is always open to criticism. But let us never tire from the task.
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Permalink Reply by Dan on -
Brand is diminishing in it's ability to serve as a proxy for for valuation in my opinion. Brand itself is intangible because it is what the PR department says it is - and little else. besides, if 70% of the organizational value is in the knowledge of the people, valuation by brand equity sounds a lot like valuing an intangible with another intangible - that is like a derivative. Many people work for free or reduced wages in order to get a "Brand" on their resume. People join all kinds of crowdsourcing "contests" for the reputation that they would gain winning a "Branded challenge". So when a brand goes sour, or even blips bad, all that social capital is diminished as well. The battlefields are strewn with the corpses of brands gone bad, but what is little seen is the wake of social capital squandered along the way.
Where the brand is built and controlled by the knowledge assets, then a direct valuation is possible without a proxy - so the question becomes moot.
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