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

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


The Global Business Environment


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


$

Profits Are Being Caught In A Squeeze


Methods to Increase Value


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


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 =


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


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


Value Management and Return on Intangible

Assets


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


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)


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


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


ITRIZ and Return on Intangible Assets


Cornerstone Relationship of

I-TRIZ

No Innovation Ideality

IncrementalImprovement

Nearly IdealSolutions

Innovation Scale


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


[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


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


I-TRIZ Weaknesses

Weaker in up front problem definitionWeaker in valuation and implementation of solutionsMay be overkill when incremental solution is desired


Value Management/ITRIZ and Return on Intangible

Assets


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


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


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

Documents

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