International Journal of Intellectual Property Law, Economy and Management 1 (2005) 47–51

Outcome Management of Intellectual Assets
Junichi Kikuchi
Aoyama Gakuin Women’s Junior College1

Intellectual assets have become new business assets
for the corporate management. Created through intellectual activities, they are separated from the asset
holders (inventors, authors) and organizations (companies, departmental sections), after which they are utilized under a given rule to realize their potential values. The traditional bisection algorithm of physicaland financial assets is rapidly losing ground to thisrevolutionary movement. The current diversified
source for corporate growth and the ambiguity of thescope of core businesses have contributed to the raised
expectations towards this new asset. Intellectual assets
will fulfill their role as business assets if they produce
mid — and long — term outcomes, promote corporate
activities, and stabilize the company’s territorial reign.
In this paper, I shall propose the theoretical models
of intellectual assets from the viewpoint of outcome
management, bearing their properties in mind. To
begin with, I would like to answer the question of what
an intellectual asset is. If one wishes to categorize thisasset he/she may start by defining it from the corereaching out to the more ambiguous outer areas.2 Here,the definition of an intellectual asset is a transferable
asset separable from individuals and organizations,which will create derivative products when combinedwith other intangible or tangible assets. In many discussions and other papers the concept of the “intellectual roots of competitiveness” has been mentioned, inwhich intellectual assets are, in extremely difficult
terms, defined as managerial capabilities, which canlive up to their international reputation while maintaining and improving real profit under a fair businessenvironment. 3 Dividing managerial capabilities isindeed a formidable task, but for the meantime, let’s
not include personal managerial skills in the abovetransferable assets.
Well then, what is the outcome of these intellectual
assets? The outcome here is the change of style in cor-

ISSN 1349-7723© 2005 IPAJ All rights reserved.

porate management that is induced by intellectual
assets such as research papers. The ultimate purpose ofan outcome is to realize the needs of an individual or
an organization, like those categorized in Maslow’s
hierarchy of needs.4 Such outcomes may be measured
by standard monetary values, but it is still a difficult
task to accomplish. The resulting shift in management
style may change the office atmosphere, improve themanagement efficiency, fulfill the self-realizationneeds of the proprietor, and satisfy the stockholders.
However, at the same time, this change in style may
tip the equilibrium of employees and disturb the sleepof stakeholders. An outcome will always have positive
and negative effects. Therefore, while the company
determines the net impact, each department must calculate in detail the pros and cons of an outcome. The
debate has just begun on what kind of indicator a company should employ for the valuation of outcomes.

1. Properties of Intellectual Assets
Intellectual assets are created by a constant retributionof inputs and outputs within a specific field of
research. It normally has a three-faced boundary:statutory, technical, and economic boundary, which allplay an important role in determining the asset value,
like a land boundary would in a real-estate appraisal.
By using intellectual assets with clear-cut boundaries,
the various outcomes will partially or totally become
the income of the relevant organizations.
Such Intellectual assets that follow this process have
two characteristics; one is the value of owning theassets that is based on the “property rule,” and theother is the value of licensing the assets under the “liability rule.” The totals of each value should be theoretically the same, but due to the diversity of ownershipand licensing, it is not so easy to calculate both values
accurately. Furthermore, in licensing the intellectual47

J. Kikuchi

432
SPM（U3）Focused Ion 158
Fuel cell system（UI） Cluster Ion Beam
38
Vertical Magnetic Memory
Ultrafine Particle 113
Nonocarbon
Light Emitting Element（U4）Protein
29
217
172
Function
53
Carbonaceous Material
374
250
Immunological Disease
152
Fuel Cell
Medication
147
Hydrogen Absorber
Composite Particle
252
DDS
Photocatalyst

Figure 1.

Medical Material
System（U2）The Family Map for Patents in the Novel
Nanotechnology Field (Figures represent the numberof patents in 2003)

Taking the above into consideration, I will simplify
the determining factors of the intellectual asset value(v). Where (K) is the intellectual asset’s replacement
cost, the intellectual asset value (v) is proportional tothe multiple function of the specific outcome multiplier (a) and boundary multiplier (g), and is thereby
defined as follows: v ＝ f (a, g) * K. The shift in value
for these multipliers will no doubt change the current
discounted value and the opportunity cost within theintellectual asset’s value-making process. If the company-owned n-type intellectual asset groups could beclassified according to the multiplier level, and, on topof that, if an index for selecting the appropriate path
for asset value-making could be proposed, theimprovement of the strategic management for intellectual assets could be anticipated with more certainty.

2. Introduction to Outcome Management
assets, there is the so-called “boundary problem,” inwhich the boundary of an asset sequentially changes
with time, international territory, and the field of
implementation. The ownership of Intellectual assets,on the other hand, involves the “outcome problem,” inwhich the multipliers (influences) of the outcome willvary with the changing statutes, technologies, and economic situations.
In general, the boundary problem that is stated here
is an issue faced when the Intellectual assets are compared in terms of the department-level business potential and its all-company profitability. For example, inusing an intellectual asset, the vague boundary
between private and public benefits will make it difficult to determine the business potential per se. And
because a certain department’s life expectancy of an
intellectual asset is shorter than the time boundary
defined in the ownership value, some intellectual
assets will be labeled as bad assets.5 As for the outcome problem, it often involves the questions of how
to handle the risk of intellectual asset degradationinduced by other emerging technologies, or how todetermine the degree of contribution of each intellectual asset when combining forces to form new derivatives. Even in the early stages of a novel technology,
e.g. nanotechnology, there are boundary and outcome
problems to be seen. The boundary problem in thiscase would be the negative effects brought forth withthe similar investments from different industries thatare attempting to enter the patent family map that isdefined by the technical boundary.6 The outcome problem is how to measure the relative contributions ofeach intellectual asset when ripple effects or resonancephenomena are made through patent collaborations.

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2.1.

Establishing Liaison Organizations forIntellectual Assets
In order to utilize intellectual assets as new businessassets, the corporate management needs various
human skills and organizational functions that are
stratified in at least the following four categories:
statutory skills, technical information, economic
judgement, and strategic skills. The main problem is
how to manage each of the above-factors, i.e., the socalled “governance issue.” Especially, in light of thevolatility of intellectual asset values, the strategic
skills are the elements that play the major role.
Therefore, there is a strong linkage between the problem of how to place the organizational functions andthe task of making a viable system for intellectual
asset valuation.
To this end, a liaison (collaboration) department is
attached within the corporate structure, which does notnecessarily have to follow the same intellectual asset
valuation pattern of other departments, but will act as atool to create common grounds for deliberating thevalue of the intellectual assets. Strategic skills underlying this movement will greatly influence the outcome
distribution that covers the company’s private and public benefits. As it was often quoted in the old days, freeaccess to a scarce common resource will encourage theexcessive private use of each department and may
thereby destroy the public benefits of the whole company. There is also a possibility that the private usageof water upstream will decrease both private and public benefits downstream.7 In line with this theory, theintellectual asset liaison department will provide information on the virtual third-party valuation to lead theOutcome Management of Intellectual Assets

business judgement in the right direction. The relevant
management style is called the outcome managementof intellectual assets.
According to a survey conducted in 2003, 33% of
the surveyed 700 companies employed a unified management/valuation system for their intellectual assets,
and the average intellectual asset management cost
was 0.14% of the total revenue.8 The same figures, in asimilar survey of 300 companies that was conductedfive years earlier, in 1998, were 28% and 0.20%,
respectively. In an income management, companies
optimize their usage of internal resources, and, under agiven risk environment, they seek maximum profitability. But in an outcome management, the basic
idea for the companies is to systematically comprehend the outcome that is created by intellectual assets.
In other words, they place more weight on the idea that
intellectual assets have positive and negative effects
both externally and internally, and they do not always
return the income to the relevant departments. It is truethat an adoption of a unified management/valuation
system does not necessarily lead directly to outcome
management, but its chances of changing the management style is quite high.
2.2.

Accounting System based on the Lifecy-cle ofIntellectual Assets9
As shown in the following diagram, the lifecycle ofintellectual assets can be divided simply into ten periods. When measuring the value of an intellectual asset,
the relevant periods would be: 1) Early-stage valuation(the initial stage where heavy prior investment can beseen and there is no cash flow); 2) Core stream valuation (the development stage where the various boundaries are modified and improved to accommodate thegrowing outcome); 3) After-seven valuation (thereviewing stage where the value of ownershipchanges); 4) Follow-up valuation (the observation
stage where the total outcome value is determined).
Another category would come from the management’s
viewpoint on human resources, which simplifies theaward/compensation process of service inventions into
the following phases: First assessment, Second assessment, and Third assessment & Supporting valuation.
When looking at the financial planning process, we
can divide the lifecycle into the budget allocation planing stage, the compensation allotment planing stage,
and the follow-up planing stage. Furthermore, please
note that the timing for the intellectual asset’s abortion
process is also shown in this diagram.
The accounting system for intellectual assets should
therefore be streamlined according to the aforemen-tioned lifecycles. The value creating process of intellectual assets, starting way before the defining stagesof patent claims and ending at the disposal of theassets, can be categorized into five accounting brackets: the creation process (CRP) account; the accumulation process (ACP) account; the allocation process(ALP) account; the circulation process (CIP) account;and the disposition process (DIP) account.10 For example, in this value creating process of a core intellectual
asset (code-numbered “x”), the R&D expenses
assigned in the budget allocation planing stage or theinvestment subjected to cost-benefit evaluations will
be posted in the CRP account. The fair compensationof service inventions for the same core intellectual
asset (x) will be posted in the ACP account. Similarly,
the internally utilized asset generating profits will bebooked in the ALP account, the cross-licensed asset
will be recorded in the CIP account, and, finally, theasset placed in the abortion process after an inventory
clearance will be accounted for in the DIP account. It
is necessary to establish a management accounting
scheme based on these multi-staged values.
2.3. Cluster Mapping of Intellectual Assets
In the course of the above-lifecycle, the core intellectual asset (x) will establish a meaningful and technicallinkage with other peripheral intellectual assets at eachvaluation phase. Here, we will call such peripheral
assets “satellite intellectual assets (z),” and, whencombined with the core asset (x), they will create a
new similar product called the “cluster (C).” Each
intellectual asset (x, z) will carry a quantum index (N),excerpt data (M), and an incidence indicator (s)derived from (M). Furthermore, where (e) is a statistical index denoting volatility, the quantum index (N)will consist of valuation (v; e), technical evaluation (t),and rights assessment (r). Putting these intellectual
asset data in the form of a formula would result in thefollowing:
Ci = C{x, zi}
I = CRP, ACP, ALP, CIP, DIP
xi = x{Ni, Mi} = x{vi; ti, ri, ei, si, Mi} xi = x, zi
vi = f (ai, gi) * Ki
In future debates we must discuss how to use the information on intellectual asset clusters to establish optimal managerial indicators, which I believe is an issue
closely related to the deployment of organizational
functions. There are many ways to proceed in solving
this problem; one is to rank the clusters using multipliers (a) and (g) to calculate the statistical threshold (orreference value). Another way is to use the maximum49

J. Kikuchi

Fristassessment

Early-state
valuation
Cash flow

Secondassessment

Core stream
valuation
Abortion process

R―judgement

First period

Forth period

Third assessment
and supporting
valuation

After-sevenvaluation andfollow-up valuation

D―judgement

T―judgement

Seventh period

Budget allocation planing stage

Tenth period

Fllow-up planing stage

Conpensation allotment planing stage

Figure 2.

The Accounting System based on theIntellecual Asset
Lifecycle

likelihood estimation method to determine the contribution degree of risk factors (ti, ri, ei) towards the cluster’s value volatility. It is also possible to chain together the clusters into a virtual cluster unit (U) to estimate
the option price from the unit’s volatility by applying
the asset selection theory. What is important here is tomake a total judgement by taking the various solutions
into account, and not relying solely on one index.

3. Earning Multiplier for Intellectual Assets
Taking a look at the PBR index11 of American companies we find that, during the thirty years from 1950 to1980, the average market value of stocks was only
about two times the book value of the net assets.
However, after 1980, this ratio increased at an accelerated pace and exceeded the sevenfold mark. In general, it is the intangible assets (including intellectual
assets) that mostly contributed in exceeding thetwofold portion. Underlying this idea is the concept of
the “earning multiplier” for intellectual assets. There
are normally two ways to work out the value of a company: estimating the replacement cost for operation
assets or determining the total market value of the stable stocks. The index that is obtained by dividing themarket value by the replacement cost is called the“Tobin’s q.”
Where the earning multiplier of intellectual asset
cluster (Ci) is (qi),12 and the risk factors (ti, ri) are constants, the relation between the outcome multiplier (ai)and the boundary multiplier (gi) is as follows:(qi) = f (ai, gi)
At a certain point of the intellectual asset lifecycle, theearning multiplier of the whole company can be determined by calculating the weighted average of the earning multiplier of each intellectual asset cluster inaccordance with their valuation component ratio. This50

earning multiplier (qi) will help the management maketheir decision when there is a change in the outcome orboundary multipliers that is induced by a purchase ofan outside intellectual asset or an abortion of a bad
intellectual asset.
Here, I would like to limit this paper to the illustration of a few model cases, and leave the discussion of
estimating the outcome and boundary multipliers for a
future time. One model case example is an asset that
incurs interest, in which the outcome multiplier would
be the interest rate with risk (r), where 0 < r < 1, andthe boundary multiplier would be the term of the principal (t), where 1 < t. The earning multiplier denotedas the simple compound interest function: f(a, g) =[1 + r]t.
Similarly, when the company’s material procurement
sets off a production line outside the company, the outcome multiplier would be the ratio of direct expenses(A) that were put in material production, where 0 < A< 1, and the boundary multiplier would be the scope ofindirect ripple effects (n). In general, the boundary
multiplier is infinite, and thereby estimated to spreadout without constraint. So in this case, the earning
multiplier would be the function of the outcome multiplier: f (a, g) = [1 – A]–1.
What then is the model case for intellectual assets?
In one example, in which the outcome multiplier is theratio of R&D expenses (commonly personnel expenses(W), where 0 < W < 1), and the boundary multiplier isthe R&D period (n), the earning multiplier is: f (a, g) =1 + W + W2 + W3 + ··· + Wn. In another model, assuming the growing and declining curve in an intellectual
asset lifecycle, we go on to define the lifecycle function by using the outcome multiplier (a) and theboundary multiplier (g), which would formulate theearning multiplier as: f (a, g) = (1/2) * a * g, (π/2) * a* g. This would be easy to comprehend if one is toimagine a growth curve similar to a triangular or elliptic curve. Furthermore, if one assumes a probability
density function, where: p (g) is the pioneer appearance probability; q (g) is the follower appearance
probability; s (a) is the growth rate for potential outcome; and (k) is the weighted ratio of the followers’
demonstration effects, then the earning multiplierwould be: f (a, g) = (k * q (g) + (1 – k) * p (g)) * s(a).
As shown in the cases above, it is possible to introduce various earning multipliers. For intellectual
assets, the proxy variables of the boundary multiplier
are often the duration of use, the market share, or thetechnology penetration ratio. A definitive theoretical
diagram of the outcome multiplier, on the other hand,Outcome Management of Intellectual Assets

is not yet established. Sometimes it is substituted witha time factor as in the case of the boundary multiplier,but more often the scenarios are written with multipliers that are still unknown. In such scenarios, the probability model (N (µ,σ)) is adopted, and with the use ofpast cases (the performances measured in currency orquantitative units) the faire capturing of the outcome
multiplier is preformed. And it goes without sayingthat if an excess premium (e.g., the use of 3σ standard
deviation) is anticipated, it is theoretically assumed
that additional risks and costs will be incurred.
The organization in most need of such indexes is the
cross-sectional intellectual asset liaison department.
Under the diversified intellectual asset valuations andthe growing importance of the income and outcome
management viewpoints, there is now a greater
demand for personnel with abundant experience andknowledge in intellectual asset management.
Simultaneously, there will also be needs for tools thatwill support the management of these assets. This isespecially so because in outcome management thefaire capturing of the earning multiplier and the strategic skills for its further convergence is indeed quite
necessary.

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References8
1

Visiting Professor (concurrent), Department ofIntellectual Creation System, Graduate School ofKanazawa Institute of Technology. Research Interests:
Intellectual Property Studies (IP Stategy, R&D
Valuation); Industrial Economics (StructualComparative Analysis, Input-Output Analysis). Major
Publications: High-Technology and Economy (coaythored, Iwanami, in Japanese), Valuation ofIntellectual Property and Intanglble Assets (supervised Japanese translation, Chuo-Keisei), Valuation
and Pricing of Early-stage Intellectual Property(supervised Japanese translation, Chuo-Keisei),Society Positions: Chief, IP Accounting & Business
Administation Session, Intellectual Property
Association of Japan; Editorial Director, the Japan
Society for Science Pollcy and Ressarch Management;
Chairman, Steering Committee, Pan-Paclfic
Association of Input-Output Studies. Education;
Ph.D., Graduate School of Economics, Keio
Unlversity.

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Kikuchi, J., “Trend of Intellectual Property
Valuation,” AcTeB Review, No. 3, (2002), RCAST,
University of Tokyo.
Technology and The Economy (1992), OECD.
Goble, F., THE THIRD FORCE: The Psychology of
Abahem Maslow, (1970) Grossman Publishers.
For intellectual assets starting research in 1990–99, theaverage R&D period was 2.6 tears, the leading timefor Implementation was 0.9 years, and the profit pregenerating period was 3.2 years. Whereas, for intellectual assets corresponding for 1980–89, the respective
periods were 3.4, 1.2, and 6.5 years. The above figures
were compiled by the author, based on the lifecycle
chart of intellectual assets listed by product and technology types in the “Assessment for the Effects of
R&D Policy on Economic Growth,” Interim Report of
the National Institute of Science and Technology
Policy (No. 64, 1999. 6).
This family map was modified by the author from theoriginal in the Inter-technology Analysis using theData Mining Method written by Tatsuo Nakamura(Mitsubishi Research Institute, lnc.).
The arguments of G. Hardin (1968) through R.
Eisenberg (2001) are adequately compiled in the “Propatent and Anti-commons” written by lchiro
Nakayama (RIETI 02-J-019, 2002).
For details on the survey and research on this subject,please refer to “The Survey Report on the Patent
Valuation System in the Patent Distribution Market”(March 2003) Chair: Kikuchi, Junichi, Patent
Distribution Promotion Center, Japan Institute ofInvention and Innovation.
Kikuchi, J., “Intellectual Intangible Assets and Their
Valuation,” Japanese Scientific Monthly, Vol. 56 No.
1 (Jan. 2003)
If the valuation is more diverse, considering the organizational structure, the process may be divided into
more than five accounts.
PBR is the ratio used in the Dow Jones Index as themagnification of the book value of assets against the
total market value of stocks. This is the contention frequently debated by Takaaki Nimura, CPA and
Representative parther of Shin Nihon & Co.
Wildasin, David E., “The q theory of Investment with
Many Capital Goods,” American Ecnomic Review(1984).

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