Increasing Intangible Asset Value with Value Management and I-TRIZ

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

2. The Global Business Environment

3. Global Economic Growth1991 – 2001 (Average Annual % Increase in Real GDP) United States – 3.3% South Korea – 5.9% Ireland – 7.1% Japan – 1.2% Singapore – 6.9% Mexico – 3.1% China – 9.8% India – 5.4% Source: The Economist, “World in Figures”, 2004

4. Profits Are Being Caught In A Squeeze $

5. Methods to Increase Value

6. Economic Value Added Market Value Added = Present Value of Future EVA™ Market Value Share Price x Shares Outstanding + Debt Market Value Added EVA EVA EVA EVA EVA EVA EVA EVA EVA EVA Capital EVA™ = NOPAT – Capital Charge EVA IS a trademark of Stern Stewart

7. An Alternative View of ValueBaruch Lev’s and Feng Gu’s Model α(Physical Assets) + β(Financial Assets) + δ(Intangible Assets) Economic Performance = Physical Assets Financial Assets Economic Performance Intangible Assets

8. What Drives Stock Performance ? Correlation with Shareholder Return From Intangible Assets Measurement, Drivers, Usefulness; Feng Gu and Baruch Lev; April 2001

9. Companies must focus on Intangible Assets if they are to generate long term value Cost reduction projects alone are a necessary but not sufficient condition for success Any problem solving methodology (Value Management, TRIZ, Six Sigma, etc.) must increase intangible asset value Innovation is the key to success Implications

10. Value Management and Return on Intangible Assets

11. Cornerstone Relationship of Value Management Function Value = Cost Good Value Options 2 3 4 1 Poor Value Options 1 2 3 4 = Caution Source: J. J. Kaufman, Value Management: Creating Competitive Advantage. pp4-6, Crisp Publications 1998

12. The Value Management Process Source: J. J. Kaufman Associates, Inc. (http://www.valuemanagement.com/aboutvm.html) • 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

13. 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 Value Management Strengths

14. Relies on traditional, psychologically based brainstorming techniques Many are drawn to as the preferred option Often accused of preferring cost reduction over function improvement Not well connected to intellectual property Value Management Weaknesses

15. ITRIZ and Return on Intangible Assets

16. Cornerstone Relationship of I-TRIZ Ideality No Innovation Innovation Scale Nearly Ideal Solutions Incremental Improvement

17. Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 [Useful] [Useful] [Useful] [Useful] Factor 1 Factor 1 Factor 1 Factor 1 produces produces produces produces [Useful] [Useful] [Useful] [Useful] Factor 2 Factor 2 Factor 2 Factor 2 [Useful] [Useful] [Useful] [Useful] Factor 1 Factor 1 Factor 1 Factor 1 produces produces produces produces [Harmful] [Harmful] [Harmful] [Harmful] Factor 4 Factor 4 Factor 4 Factor 4 [Useful] [Useful] [Useful] [Useful] Factor 3 Factor 3 Factor 3 Factor 3 counteracts counteracts counteracts counteracts [Useful] [Useful] [Useful] [Useful] Factor 1 Factor 1 Factor 1 Factor 1 [Useful] [Useful] [Useful] [Useful] Factor 3 Factor 3 Factor 3 Factor 3 produces produces produces produces [Harmful] [Harmful] [Harmful] [Harmful] Factor 4 Factor 4 Factor 4 Factor 4 [Harmful] [Harmful] [Harmful] [Harmful] Factor 4 Factor 4 Factor 4 Factor 4 produces produces produces produces [Harmful] [Harmful] [Harmful] [Harmful] Factor 5 Factor 5 Factor 5 Factor 5 The I-TRIZ Process Define the Problem (ISQ) Problem Formulation Prioritize Directions for Innovation Develop Concepts Evaluate Concepts • Artificial Intelligence Engine • Knowledge base of over 3MM patents • Generates potential resolution of contradictions • System of Operators

18. I-TRIZ is System for Innovation Broad knowledge base (3MM patents) Problem Formulator™ relates useful functions to harmful functions Harmful functions not restricted to cost Breakthrough solutions I-TRIZ Strengths

19. Weaker in up front problem definition Weaker in valuation and implementation of solutions May be overkill when incremental solution is desired I-TRIZ Weaknesses

20. Value Management/ITRIZ and Return on Intangible Assets

21. Combined Value Management /I-TRIZ Methodology Value Management Process Pre-Event Collect Infor- mation Identify Alter- Natives Analyze & Screen Prepare Proposal Present Proposal Approval & Funding High Impact Solution Concepts FAST Diagram Add Design Elements Add Harmful Effects Add Cost Elements Develop Direction Develop Concepts I-TRIZ Process

22. 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) Advantages of Combined Value Management / I-TRIZ Process

23. Value Management and I-TRIZ are not competitive methods I-TRIZ can enable the brainstorming step in Value Management FAST diagrams accelerate the I-TRIZ process Synergistic Benefits Produce Enhanced Intangible Asset Value = Increased Shareholder Value Conclusions