A frustrating implementation sheds new light on the value of personnel.

So what exactly is intellectual property?

Talking with an accountant is seldom a fun conversation, but I must admit that when our auditor stopped in for his periodic “kick the tires and see how things are going” meeting, the conversation did open my eyes. What started as a simple “have you invested in any assets this quarter?” morphed into a discussion about what really is value vs. just an asset.

The short answer to his question was, “Yes, we did indeed purchase some capital equipment.” My mistake was trying to anticipate his next question, which I presumed was going to be, “Then why have you not started depreciating it?” My cut-him-off-at-the-pass response was because we were going through a much-longer-than-anticipated learning-curve with the machine and had not put it online yet.

My experience with some accountants has been that they are sharp finding missing numbers but not always quick on the uptake when discussing process issues, such as either R&D or putting in new pieces of equipment. After all, adding a machine on the shop floor can be a bit more involved than updating an accounting software package, especially when the operator, who claims to be computer illiterate, must learn how to operate the machine via software rather than an on/off switch. In this case, however, the observations and questions presented a new look at an old dilemma.

While I described the various challenges we identified and the painful transition from “manual” to “automagic” which, combined, had led to the long and frustrating learning curve, my accountant quietly listened. When I finished, he just smiled and said, “Sorry it is taking longer than you had hoped, but now you know what your intellectual property is.”   

I gave him that what-are-you-smoking look and muttered something about the only thing I know is some of my employees are not too sharp. He laughed and repeated, “No, you now see the intellectual property that is most valuable are the skills your staff has that no machine can just be plopped down and replace.”

An interesting thought. Is it so?

When most people think of IP, what first comes to mind are patents and trademarks. What company does not value the hard work and collective knowledge that results in a patent award that differentiates their product or concept from the competitions’? Ditto for the trademarks that can transform a basic “product” into a must-have “brand.” The definition of IP, however, can be more – far more.

The knowledge and ability to effectively discern and harvest the list of prospective customers, or implement best practices to hire and retain top-performing staff to manage the image and reputation of a business, are examples of IP. In most cases, however, that type of IP, while important and distinctive, is not necessarily considered of extraordinary value.  While such attributes may reflect positively on the business team, they do not differentiate the company or its products. But there can be similar types of IP that do indeed differentiate a company where it counts: the product it delivers to its customers.

But what about the knowledge base that impacts product? Is that the type of IP that produces extraordinary value and should be valued, protected and rewarded? If one follows my auditor’s thinking, yes!

In our case, the long learning curve was caused by all the various special, unique and nonstandard steps we take to make our product different, and developing alternative methods on the new equipment to deliver a better end-product. The tribal knowledge various operators had long incorporated in producing various end-products needed to be harmonized with the new equipment. That practice, a process in itself, took longer than anticipated, as we wanted to ensure all the benefits we believe differentiate us were fully incorporated when using this new, higher-tech piece of equipment. From an auditor’s view, that is the IP that has true value as it, like a patent, is a discernable differentiator in the eyes of customers.

Over my decades in the industry, I do not believe I have ever been in a fabrication facility that did not have a few unique processes, developed in-house, that resulted in a product that could be differentiated from others. Possibly the only result was lower cost or shorter lead time, but those are as important differentiators as processes that enable unique capability or higher first-pass yield. Yet, sometimes we are too willing to ignore the value of our ingenuity and too willing to underestimate the true value that those differentiators provide our customers. Equally, maybe some competitors would pay dearly to know the “secret” any one of us has developed over time, in-house, and with little perceived value.

I do not think there is a printed circuit board fabricator – or for that matter, any manufacturer – that should not be proud of all the IP they have developed, accumulated and harnessed over their years in business. Equally, perhaps if more companies touted their IP to customers, it would help set one apart from the otherwise blurry competitive market.

I am looking at my company differently now. Yes, the glittery new equipment certainly does add to the “asset” base of my company. And yes, spending those renegade dollars on capital equipment will continue. But the true value may really be in the unique and too often overlooked proprietary processes that, over the years, have become part of the company’s DNA. That is what provides true value, and that’s what IP really is.

Peter Bigelow is president and CEO of IMI (imipcb.com); pbigelow@imipcb.com. His column appears monthly.