Knowledge has always been a form of power, and in the second half of the last century, it gained prominence as a key component in wealth generation. The relationship between knowledge and wealth creation referred to here is not limited to the field of revolutionary ideas or deeper scientific investigation of an isolated subject. The concept of wealth is closely tied to the economic value of ideas, which is often facilitated by coordinated initiatives.

The rapid pace of globalization and specialization has fundamentally altered the relationship between value and knowledge, and consequently, the nature of business and its boundaries. The result is an extraordinary increase in interactions between individuals and organizations, requiring adaptability between industrial and service companies. Therefore, knowledge has become an indispensable tool in the construction and maintenance of sustainable competitive advantages.

A few decades ago, intangible assets served as a platform to generate cash flow, and early industrial age companies had their value derived mainly from physical assets.

These giant corporations, such as General Motors and Standard Oil, owned buildings, equipment, and facilities that were accounted for based on their acquisition values and supported market valuations for these companies. Today, tangible assets are often undesirable and represent a real burden on the capital budget of these companies, especially during periods of uncertainty.

In the last half-century, a new generation of companies emerged, with much of their value based on intangible assets. These assets can be diverse, such as a brand (Nike), patents (like those of Pfizer), or technological expertise (like that of Microsoft). Companies also emerged and developed the ability to combine various intangible assets with extreme competence, further enhancing their ability to differentiate. Companies like Fedex (distribution of know-how and brand) and Apple (technological know-how, differentiation of products and after-sales services, in addition, obviously, brand), have characteristics that are difficult to replicate, due to the complexity of their structures and processes that support and encourage knowledge and which, throughout their history, have become ingrained in the culture of these companies.

Currently, company managers have observed that strategic management of intellectual capital must be the primary focus in efforts to create and maintain these competitive advantages, which are difficult to replicate. Intellectual capital is the only asset capable of generating knowledge, a fundamental factor to value creation.

But this kind of strategic management is not easy. Traditional processes that aim to improve efficiency in factories or offices do not apply to high-performance professionals. The performance of a sales department, for example, cannot be measured only by the number of sales calls, proposals, and signed contracts. This approach can compromise the effectiveness of key sales professionals who require more interaction with clients to obtain information relevant to closing a more profitable deal.

A company, depending on the industry and its strategy, should have on its staff more or fewer people with dynamic and highly performing skills. A company will never have 100% of its staff comprised of high-performing professionals, as these professionals typically only thrive in positions where they are constantly challenged. For example, an organization with a focus on differentiation should have more people with this profile than a company with a strategy of cost leadership. For companies where executives are shareholders themselves, they often lack a management system with appropriate intellectual capital. This is either because they do not need a management information system or because they lack the necessary time commitment, resulting in the accumulation of functions that should be performed by a team of properly trained middle managers. Accordingly, efforts must be directed toward structuring a multidisciplinary management team with engaged and motivated professionals to perform activities such as creating products and services, improving internal processes, interacting with internal and external groups to ensure the achievement of company goals, managing financial planning, among other complex activities: Intensive intangible companies x Intensive tangible companies – A comparison between Bovespa companies. Research conducted in 2009 surveyed several economic indices to evaluate companies and compare the return on investment between companies that focus on intangible assets and those that focus on tangible assets. As shown in the charts below, the advantages that strongly intangible companies hold over companies with a greater focus on tangible assets are obvious.

Intellectual Capital and Mergers & Acquisitions

Like any asset, intellectual capital has market value and can be purchased. As a result, many mergers and acquisitions are motivated by the absorption of intellectual capital, as this is often the easiest and most direct way to acquire some desired knowledge.

In many cases, the management team is what maintains the business and its competitive advantages. It is possible, despite a change in control, to keep the business model and leverage synergies that arise from integrating the company’s structure. It can be said that in many merger or acquisition processes, maintaining a management team is a prerequisite condition for the transaction.

Sources:
Trombetta, M. S. Grau de intangibilidade e o desempenho econômico das empresas no mercado acionário brasileiro. Federal University of Rio Grande do Sul. Business school. Undergraduate conclusion final paper. 2009
Damodaran, A. Dealing with Intangibles: Valuing Brand Names, Flexibility and Patents. Stern School of Business. 2006

 

João Eliezer Cunha Guimarães is a partner at Camaya Partners.

Marcos Cordeiro contributed to this article.