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Intangible Resources Are Important

2976 words (12 pages) Essay in Marketing

25/04/17 Marketing Reference this

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Tangible and Intangible resources are important for the company as it provides the company with the opportunity that includes focus on future and gives meaning to a company (Deprez and Haak 2000). Tangible resources include equipment’s, buildings, etc, whereas intangible resources include skills and knowledge about the product. Tangible assets can be bought and changed from the Market however intangible resources cannot be purchased as they are acquired from training and days of hard work. The effective management uses resources as a strong indicator for the financial success of the company. A company that uses both of its resources such as tangible and intangible resources generates more profit compared to companies that lacks resources. All organization have both types of tangible and intangible properties that are integrated into on system or process for the accomplishment of one common goal. Both tangible and intangible resources are important for the company’s growth and overall value of the company as they are the main backbone if the company (Hamel and Prahlad 2008). However in my opinion intangible resources have an upper hand compared to tangible resources which is explained later in the project.

Tangible resources are assets that can be observed and quantified, such as production equipment, manufacturing plants and formal reporting structures (Hoskisson 2008). As tangible resources, a firm’s borrowing capacity and the status of its physical facilities are visible (Hitt et al. 2008). Tangible resources refer to the physical assets that an organization possesses and can be categorized as financial resources, physical resources and organizational resources (Henry 2008).

Financial resources: Includes company’s cash balances, gearing (debt-to-equity ratio) and debtors and creditors (Henry 2008).

Physical resources includes such things as the current state of buildings, machinery, materials and productive capacity (Henry 2008).

Organizational resources: The firm’s formal reporting structure and its formal planning, controlling, and coordinating systems (Hoskisson 2008).

Examples of Tangible Resources:

Apple has liquidity worth $98 billion and market capitalization of over $622 billion (highest market capitalization ever touched by publicly traded company.

Apple Inc. corporate headquarters are located in Cupertino, California. The campus has total area of 850,000 square feet and six buildings. Apple also has more than 364 retail stores in thirteen countries.

Apple has 60,400 permanent full-time employees and 2,900 temporary full-time employees worldwide.

Intangible Resources

Intangible resources comprise intellectual, technological resources and reputation. Technological resources include an organization’s ability to innovate and the speed with which innovation occurs. Intellectual resources include patents and copyrights which themselves may derive from the organization’s technological resources (Henry 2008). Intangible resources are assets that are rooted deeply in the firm’s history and have accumulated over time. Because they are embedded in unique patterns of routines, intangible resources are relatively difficult for competitors to analyze and imitate (Hitt et al. 2008).

The reputation or goodwill of an organization is increasingly recognized as a valuable intangible asset which can easily be damaged by ill-thought-out strategies and marketing campaigns. Knowledge, trust between managers and employees, managerial capabilities, organizational routines, scientific capabilities, the capacity for innovation, brand name and the firm’s reputation for its goods or services and how it interacts with employees, customers and suppliers are intangible resources (Hitt et al. 2008).

Examples of Intangible resources:

Patents- Apple has the maximum number of patents followed by Microsoft, Google and yahoo.

Copyrights- It is registered with the United States copyright office as a service provider under the copyrights act of 17 USC 512

Trademarks- Mac and Mac OS. Only apple and the authorized reseller and licensees can use the apple’s logo in advertising, promotional and sales material.

Goodwill- It is simply the difference between price paid for a company during an acquisition and net assets of the acquired company. Apple carries $5.5 billion of goodwill on its balance sheet.

Organizations with valuable tacit knowledge built up through their cultures, processes and employees possess an intangible resource which cannot readily be transferred.

Human Resource: Practices and policies such as compensation system, on the job training programs and employee incentive enhances labor productivity and reduces employee turnover thus creating intangible assets.

Customer Relation: Customer related intangibles are present when the loyalty of customers to a product or a company allows business enterprise to secure a large market share compared to its competitors.

Fast Paced Technology Markets

In today’s world organizational environment is different from that of past. Competition in the markets, advancement of technologies, quality of service and diversity are forcing all the companies to think about their strategies again. In today’s time the fast paced technology markets are driven by innovation and demand for change in the business environment (luthans, 1995). For instance OEM appliance and software developers are looking for ways to outsource the manufacturing to contract manufacture partners because the leaders in this area have trained and professional employees.

Following are few ways by which a company can stabilize itself in the fast paced technology market:

Keeping up with Industry changes- The company that stays updated with new technologies and innovation, new application and changing market are and will be far better than those companies taking their work lightly and will be able to fill the gaps in their products and services in an efficient manner (Carey and Gross 2012).

Admitting mistakes- In this fast paced technology markets, companies are aggressive and need to prosecute new strategies and initiatives. The key to this is by admitting once mistake and not repeating it, however it can be done by having a detailed planning and diligent research of products and strategies (Carey and Gross 2012).

Reward and challenge Employees- For a company to achieve maximum growth in the market among its competitors many things are to be kept in mind such as strategies, resources but most importantly they should keep in mind their employee’s hard work as they are the most valuable asset to the company. The company should compensate them via salary, promotion, benefits, etc to ensure high degree of employee retention rather than changing software after every 3 months before the launch of a new product (Gross 2012).

Exploring funding options- A company should be sponsored by state, federal or regional agencies so as to secure their risk capital and they can get all the funds from them only by having a good connection with them and by giving them some benefits (Carey 2012).

Role of Tangible and Intangible Resources

Both the tangible and intangible resources play an important part in the company’s growth as tangible assets can be liquidated and turned into cash so for the high risking companies such as Apple it will be easy to take risk keeping the tangible assets secured whereas for Intangible assets it gives company an identity and also helps in the growth of the company. Both of these resources add value to the company as it reduces the risk of the company. For instance maintaining of product machinery (tangible asset) helps to save a lot of time and reduces man power problems and protection of brand or trade secrets of the company (intangible assets) helps to protect the company from competitors.

Tangible resources of a company are classified in to four categories namely:

Financial Resources: Increases the firms borrowing capacity and also helps the company to generate funds.

Organizational Resources: Helps in controlling and coordinating of a company’s structure and to formulate a plan.

Physical Resources: Helps the company to maintain its raw materials.

Technological Resources: Keeps the stock of all the technologies such as machinery, equipment, etc.

Intangible assets are really unique because of the following reasons:

Partial excludability- The owner of the company enjoy the full benefit of its intangible assets however its only for a limited time as patents expire after 20 years or the competitors try to acquire it. Same is for a brand name because there is a hard competition out in the market and also due to rapid change in the consumer’s taste. For e.g. Brands like Polaroid, Xerox, etc are going bankrupt.

Nonmarketability- The intangible resources like copyrights, trademarks, patents, etc are not transparent and hence not traded in markets because of the difference in knowledge between buyer and seller (Lev 2005).

Allocation of Resources: It is a process of finding out the best way to utilize the resources in a company for the completion of the project. Companies usually allocate resources to minimize cost and on the same hand to maximize profits by establishing guidelines and implementing policies and procedures that helps the business to attain its goals (Mangold 2009). It involves using of materials, equipment’s and labor to achieve the goal. It mainly focuses on tangible and intangible resources to achieve success on the project.

The allocation of resources often helps the company to focus on future. For e.g. a business puts together a plan that allows distribution of resources in the event if one or more products of a company experience a decrease in sales (Keller 2000). A company that has multiple chains often design a contingency plan to reallocate resources in case of any type of disaster because it prepares the business to continue providing goods and services to customers with minimum disturbance which results in minimum losses and keeps profits high as much as possible.

Being said the above both tangibles and intangibles are an important resource to the company as both of them benefit the company in one way or the other. Both of them provide a company with the competencies.

Competencies of Company’s surviving in fast pace technology markets: It is very important for a company like Apple, Samsung, Nokia, etc to have competency in it so as they have the basic product knowledge so as to compete effectively with their competitors.

To survive in this fast paced technology market the company are supposed to think out of the box and create products that customers could never dream of and later are attracted towards it when it is launched (Prahlad 2009).

Following are few ways by which a company can survive in fast faced technology markets-:

Focus- Main way to compete in such markets is to never leave your focus and to serve around weak sectors so that the competitors does not take advantage of the weak section.

Differentiation- Providing original products and services and not imitating things such as brand image, distribution networks, etc helps to increase the momentum of the company.

Successful companies usually takes into account different sets of opportunities and constraints and are also liberalized by making their company structure more managers exposed and flexible. The companies should understand the value of their assets and should also evaluate and change their strategies with time. Successful companies like Apple, IBM, Dell, etc have already captured their share in the market making it tough for new companies to emerge.

Example: Siri an automated intelligent invention by Apple could do a lot and tell about almost everything including weather, nearby shopping centers, etc to iPhone owners and also attracted lots of other people to buy iPhone.

Along with apple other companies that have achieved competencies are Dell, Toyota a Japanese car company, Benetton clothing, etc as all these companies have configured their value chains to compete more successfully with their competitors in the market.

Both tangibles and intangibles resources act as a glue to bind the business together of a company to survive and challenge others in the fast paced technology market (Hamel 2009).

Furthermore:

Intangible assets are important as it provides competitive advantage, communication skills and decision making process. Intangible assets of company helps in providing managers ability to deliver its strategy thoroughly, customer relationship, etc.

The key value drivers for any company establishes and uses inputs into the modeling process, it includes the following

• Trading history that includes margin and sales trends,

• Role within the value chain,

• Existing market footprint.

INTANGIBLE OVER TANGIBLES

Intangible assets are the main elements of a company because they increase the earning power of the enterprise along with the tangible assets (Smith and Parr 1994).

In my view the intangible resources of Apple such as patents, copyrights, etc, are way more important than the tangible aspects of Apple such as liquidity, capitalization, etc.

Intangible assets help the firm to be more sustainable and not easily copied by the competitors.

E.g. Apple sued Samsung for copyrights and Samsung had to pay $1 billion in return.

A key concern for companies in recognizing their intangible assets is their impact on financial statements (Hughes 2006). One should look over few steps and key considerations of intangible assets/ resources to know the importance on intangible assets and their value as shown below:

Identification of Intangible Assets- Requires a thorough understanding of business and recognition of the criteria to ensure the correct identification of all intangible assets and avoiding all sorts of risk.

Valuation Methodology- Selecting the correct valuation approach requires an understanding of the business, information available and value drivers of the specific asset.

Valuation Analysis- Though we know that incorrect assumptions can lead to an over/under statement in the fair value of intangibles therefore a correct valuation of resources is required before the startup of the business.

Reconciliation of Results- Return on intangible assets should be considered relative to the risk of the other assets in the business (Stanley 2012).

Value of Intangibles: The value of Intangibles are really is very important and challenging. For e.g.: Microsoft value its brand name and consistently makes lot of profits and have a high market share of jointly determined by highly effective technology with trained employees and effective sales and promotion effort (GU and lev 2002).

Intangible assets as collateral- Due to high failure in the company, small percentage of intangible resources are also given as collateral for loans depending on the lender’s willingness (King and Henry, 2002).

Market Approach reflects the price on the assets purchased in transaction under similar circumstances, whereas income approach is based on the future value an asset will generate over its remaining useful life and cost approach estimates the value of the asset by reference to the cost that would be incurred to replace the asset if and when needed (IFRS 2009).

Furthermore in giving intangible resources an upper hand on tangible resources is by evaluating it on regular basis and tracking it overtime. Due to the intangible resources, Apple has been the NO.1 brand all over the world, patents has more enduring results. Also patent citations can be used as proxy for quality and market values premium for firms with the highest citation per patents.

Also the success of a company lies more in the system capabilities (intangible resources) than in the physical assets (tangible resources). In the past few years due to rapid change in the technology, intangible resources have become more important and the ratio has increased from 37% to 63% whereas for tangible assets it has decreased from 67% to 34% (Kendrick 2010).

Marketing also plays a very important role because marketing intangibles such as customer perspective, brand and equity, customer relationships, etc. as they are not easy to duplicate because they are closely related to the company and its environment so it contributes to market value and competitive advantage (Reinartz and Kumar 2000). Without a doubt marketing is a major source of company’s relationship with its stakeholders. This is because only through marketing company gets closer to its markets, customer and all stakeholders (Stead et al 2004).

All this happened because intangible assets/resources are not visible and are difficult to imitate or purchase by the competitors as the more invisible a resource is the more sustainable the company is likely to be.

Conclusion

In the above paragraph it is clearly mentioned that a company needs to have a set of tangibles and intangibles resources for its merger in the market and to grow big it is supposed to have knowledge, skills, trained employees, etc for its survival. It is not easy for a new company to survive in today’s fast paced technology markets but this can be overcome if a company knows its strengths, weaknesses, opportunities and threats. Though with all this tangible and intangible resources plays an important role for its growth and survival because both of these resources adds value to the company as tangible resources can be converted into cash and in intangible resources gives identity to the company, provides competitive advantage, communication skills and decision making process. Intangible assets of company helps in providing managers ability to deliver its strategy thoroughly, customer relationship, etc, without which the company is nothing. Also methods such as focus on the company mainly on its weakness, differentiation of products so as to avoid conflicts from the competitor companies, marketing and liberalization makes the company structure more strong and flexible allowing managers to be exposed of what’s happening around the world and their views are also considered.

However in my view intangible resources are bit more important for the company because intangible assets/resources are not visible and are difficult to imitate or purchase by the competitors as the more invisible a resource is the more sustainable the company is likely to be.

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