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1 2004 Ideation International Inc.
Increasing Intangible Asset Value with Value
Management and I-TRIZ
ByDavid C. Bonner, President & COO
Peter P. Hanik, Senior Vice President
Ideation International Incorporated
2 2004 Ideation International Inc.
The Global Business Environment
3 2004 Ideation International Inc.
Global Economic Growth1991 – 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
4 2004 Ideation International Inc.
$
Profits Are Being Caught In A Squeeze
5 2004 Ideation International Inc.
Methods to Increase Value
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MarketValue
Share Price x
Shares Outstanding
+ Debt
Market Value Added
Capital
Economic Value Added
EVA
EVA
EVA
EVA
EVA
EVA
EVA
EVA
EVA
EVA
Market Value Added = Present Value of Future EVA™
EVA™ = NOPAT – Capital Charge
EVA IS a trademark of Stern Stewart
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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 =
8 2004 Ideation International Inc.
What Drives Stock Performance ?
From Intangible Assets Measurement, Drivers, Usefulness; Feng Gu and Baruch Lev; April 2001
0
0.1
0.2
0.3
0.4
0.5
0.6
Operating CashFlow Growth
EarningsGrowth
Intangible-Driven Earnings
GrowthCorr
ela
tion
wit
h S
hare
hold
er
Retu
rn
9 2004 Ideation International Inc.
Implications
Companies must focus on Intangible Assets if they are to generate long term valueCost reduction projects alone are a necessary but not sufficient condition for successAny problem solving methodology (Value Management, TRIZ, Six Sigma, etc.) must increase intangible asset valueInnovation is the key to success
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Value Management and Return on Intangible
Assets
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Cornerstone Relationship of Value Management
Value =Function
Cost
1 2 3 4
1 2 3 4Good Value Options
Poor Value Options
= Caution
Source: J. J. Kaufman, Value Management: Creating Competitive Advantage. pp4-6, Crisp Publications 1998
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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. (http://www.valuemanagement.com/aboutvm.html)
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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
1
2
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Value Management Weaknesses
Relies on traditional, psychologically based brainstorming techniquesMany are drawn to as the preferred optionOften accused of preferring cost reduction over function improvement Not well connected to intellectual property
2
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ITRIZ and Return on Intangible Assets
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Cornerstone Relationship of
I-TRIZ
No Innovation Ideality
IncrementalImprovement
Nearly IdealSolutions
Innovation Scale
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The I-TRIZ Process
Define the Problem
(ISQ)
Problem Formulatio
n
Prioritize Directions
for Innovation
Develop Concepts
Evaluate Concepts
[Useful] Factor 1 produces [Useful] Factor 2
[Useful] Factor 1 produces [Harmful] Factor 4
[Useful] Factor 3 counteracts [Useful] Factor 1
[Useful] Factor 3 produces [Harmful] Factor 4
[Harmful] Factor 4 produces [Harmful] Factor 5
[Useful] Factor 1 produces [Useful] Factor 2
[Useful] Factor 1 produces [Harmful] Factor 4
[Useful] Factor 3 counteracts [Useful] Factor 1
[Useful] Factor 3 produces [Harmful] Factor 4
[Harmful] Factor 4 produces [Harmful] Factor 5
[Useful] Factor 1 produces [Useful] Factor 2
[Useful] Factor 1 produces [Harmful] Factor 4
[Useful] Factor 3 counteracts [Useful] Factor 1
[Useful] Factor 3 produces [Harmful] Factor 4
[Harmful] Factor 4 produces [Harmful] Factor 5
[Useful] Factor 1 produces [Useful] Factor 2
[Useful] Factor 1 produces [Harmful] Factor 4
[Useful] Factor 3 counteracts [Useful] Factor 1
[Useful] Factor 3 produces [Harmful] Factor 4
[Harmful] Factor 4 produces [Harmful] Factor 5
Factor 1
Factor 3
Factor 2
Factor 4
Factor 5
Artificial Intelligence Engine
• Knowledge base of over 3MM patents
• Generates potential resolution of contradictions
• System of Operators
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I-TRIZ Strengths
I-TRIZ is System for InnovationBroad knowledge base (3MM patents)Problem Formulator™ relates useful functions to harmful functionsHarmful functions not restricted to costBreakthrough solutions
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I-TRIZ Weaknesses
Weaker in up front problem definitionWeaker in valuation and implementation of solutionsMay be overkill when incremental solution is desired
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Value Management/ITRIZ and Return on Intangible
Assets
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Combined Value Management /I-TRIZ
MethodologyPre-
Event
Collect Infor-
mation
Identify Alter-
Natives
Analyze &
Screen
Prepare Propos
al
Present Propos
al
Approval &
Funding
FAST Diagra
m
Add Design Elemen
ts
Add Harmfu
l Effects
Add Cost
Elements
Develop
Direction
Develop
Concepts
Value Management Process
I-TRIZ Process
High Impact Solution Concepts
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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)
1
Advantages of Combined Value Management / I-TRIZ
Process
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ConclusionsValue Management and I-TRIZ are not competitive methodsI-TRIZ can enable the brainstorming step in Value ManagementFAST diagrams accelerate the I-TRIZ process
Synergistic Benefits Produce Enhanced Intangible Asset Value = Increased Shareholder Value