A major value driver in any business today is the quality of intangible assets.  Webster’s International Dictionary defines intangible as: "Not tangible; incapable of being touched or perceived by touch; impalpable; imperceptible." An asset is a claim to future benefits such as the rent generated by commercial property, interest payments derived from bonds, or cash generated from the sale of inventory. An intangible asset is a claim to future benefits that do not have physical or financial (a stock or a bond) embodiment. A patent, brand, copyright, trademark, technological process or a unique organizational structure (e.g., an Internet-based supply chain) that generate cost savings are intangible assets.

Wealth and growth in today’s economy are primarily driven by intangible or intellectual assets. Physical and financial assets are rapidly becoming commodities, yielding an average return on investment. Above normal profits, dominant competitive positions and sometimes even temporary monopolies are achieved by the sound deployment of intangibles along with other types of assets.
Intangibles can be classified into three major categories that relate to their generation of value: innovation and technology, systems and processes, and knowledge capital. The software developed by Microsoft is an example of an intangible asset, which was created by innovation and technology, as well as sound systems and processes and a dominant employee base. In contrast, Dell’s major value drivers are related to a unique organizational design, implemented through direct customer marketing of built-to-order computers via telephone and the Internet. Zimmer Holdings, Inc. a manufacturer of orthopedic products and medical devices is an example of relentless innovation and strong management working together.

Brands, particularly in consumer products, are often created by a combination of innovation and organizational structure such as Avon (consumer discretionary), Pepsi (food/beverage) and Google, Yahoo, and Amazon (Internet companies). Pepsi's highly valuable brand is the result of a proprietary formula and exceptional marketing savvy. The unique products created and developed by Yahoo during the 1990’s and its massive marketing effort is responsible for its brand.

The third category of intangibles (those related to human resources) are generally created by unique personnel and compensation policies such as investment in training, incentive-based compensation, and collaborations with universities and research centers. Such human resource practices enable employers to reduce employee turnover, provide positive incentives to the workforce, and facilitate the recruitment of highly qualified employees (e.g., scientists). Specific organizational designs that enhance the value of human resource-related intangibles by increasing employee productivity fall into this category. Thus, while it is convenient to classify intangibles by their major generator—innovation, organizational design, or human resource practices—the assets are often created by a combination of these sources.

In smaller companies, the intangible asset can be more difficult to identify.  The business owner typically does not put the necessary time and capital in truly developing brand and corporate identity.  The intangible asset is a major value driver in any company.  It must possess certain characteristics before that value will ever be realized.  The following characteristics should be inherent:

·      It must have a specific identification or description.
·      It should have a legal existence.
·      It should possess rights of ownership and have ease of transfer.
·      It must generate an economic benefit.
·      The economic benefit must be able to be valued based on a stream of income.
·      It must enhance the value of other assets with which it is associated.

Intangibles are frequently embedded in physical assets (e.g., new technology and knowledge contained in computers) and in labor (tacit knowledge of employees), leading to considerable interaction between tangible and intangible assets in the creation of value. These interactions pose serious challenges to the measurement and valuation of intangibles. When such interactions are intense, the valuation of intangibles on a stand-alone basis becomes very difficult.  Therefore, it is imperative that the business owner clearly defines the intangibles in the business as well as providing the necessary evidence and valuation of those assets on a frequent basis.

In summary, intangible assets are non-physical sources of value (claims to future benefits), generated by innovation (discovery), unique organizational designs, or human resource practices. Intangibles often interact with tangible and financial assets to create corporate value and economic growth.