CrossTalk "Wow!" invites guest speakers from Japan's leading companies to discuss a wide range of fresh and practical topics on what they are doing to innovate their companies and Japanese society, This is an interactive and passionate talk event hosted by our company.
Our goal is to help promote the growth of each other's companies by sharing ideas and values that will move, excite, and surprise participants and make them say, "Wow!

　At the first CrossTalk "Wow!" held in March 2023, Mr. Abe, General Manager of Marketing Division of Yokogawa Electric Corporation, spoke about corporate value and transformation shifting from tangible to intangible assets. This article introduces Mr. Abe's session, followed by a discussion with Mr. Hata, CEO of Yokogawa Electric Corporation, and other guests who attended the event.

■Summary of presentation:
Theme: "Even if you can't see it, it's there! -Intangible Asset Value and Transformation

Speaker: Mr. Takeshi Abe, Managing Executive Officer, General Manager of Marketing Division, Yokogawa Electric Corporation

Biography of Mr. Abe
Managing Executive Officer, General Manager of Marketing Division, Yokogawa Electric Corporation Dr. CMO (Technology Management)
Director, Amnimo Corporation
Director, Yokogawa Bio Frontier Corporation

Mr. Abe joined Intel Corporation in 1985, now Intel Corporation. He served as General Manager of Intel Architecture Technology Division, General Manager of Marketing Division, and General Manager of Technology Development and Manufacturing Technology Division Since 2009, he has served as Director, Executive Vice President, Director and Executive Vice President In 2016, he joined Yokogawa Electric Corporation, where he developed R&D, M&A, intellectual property and new business, In April 2023, Yokogawa Electric Corporation received the "Commissioner of Japan Patent Office Award (Open Innovation Promotion Company)" from the Japan Patent Office, Ministry of Economy, Trade and Industry, in the 2023 Intellectual Property Merit Award.
In April 2023, Yokogawa Electric Corporation received the "Commissioner of Japan Patent Office Award (Open Innovation Promotion Company)" from the Japan Patent Office, Ministry of Economy, Trade and Industry, in the 2023 Intellectual Property Merit Award.

Intangible Asset Disclosure Measures Japanese Companies Must Take

First, let me touch on the background of IP and intangible asset governance. If we look at the ratio of information sources in investment decisions on companies, or in other words, which part of a company institutional investors look at and evaluate, we can say that according to overseas surveys, intangible assets such as non-financial information are becoming higher than the so-called tangible assets financial reports.

In the past, companies were evaluated based on whether or not they could generate profits in the short term, but due to the recent SDGs trend, companies are now looking at how they can contribute to society in the long term. Although the situation in Japan is still far from perfect compared to Europe and the U.S., in order for companies to gain widespread investment in the future, they need to take firm measures to deal with intangible assets.

Intangible assets include the four categories of intellectual property (know-how, data, networks, and R&D), as well as human resources and brands. In Japan, as these intangible assets, including intellectual property, are the source of competitiveness, the 2021 revision of the Corporate Governance Code (CDC) issued by the Financial Services Agency and the Tokyo Stock Exchange incorporates a "description of investment in intellectual property," and information on investment in intellectual property, which had been recommended for disclosure, is now obligatory. The CDC has been changed from a recommended disclosure to a mandatory one. This is expected to increase corporate value, attract further investment, and secure funding.

In addition, in January 2022, the "IP/Intangible Assets Governance Guidelines Ver. 1.0" were formulated, and the government is gradually getting ready to implement these guidelines. (*Ver. 2.0 will be released on March 27, 2023.) I believe that listed companies are becoming increasingly impatient with the need to disclose in accordance with these guidelines.

Let me talk about the four properties that make intangible assets so highly valued: First is scalability. The second is SUNK, a term often used to describe the difficulty of recovering costs, but I think the reverse is true: it is difficult to be copied. In the age of digitalization, anything, including superior technologies and business models, can be easily copied, so companies need to think about what is the one and only thing that is difficult to be copied. Next is spillover, or the ease of propagation. Finally, synergy. It is said that corporate managers must be aware of these four factors in their management.

The guidelines define five principles and seven actions under these principles to indicate efforts to disclose strategies for investment and utilization of intellectual property and intangible assets and to build governance. Companies are expected to follow these guidelines to some extent and engage in dialogue with investors and financial institutions. Investors are now looking for more than just information on assets; they want to know what kind of cash flow they can be expected to generate and how they will contribute to society. We, too, have formulated an intangible asset strategy based on our own breakdown of the guidelines, and have begun to consider how to utilize it in the future.

Three Pillars of Intangible Assets that Companies Should Address

There are three main pillars of intangible assets: the first pillar is brand (goodwill), the second is intellectual property, and the third is human assets. First of all, touching on human assets, there is an old saying in Japan that "people are the stone wall," and the global standard for human capital management is ISO 30414, a guideline released in 2018 by the International Organization for Standardization (ISO). In line with the ISO guidelines, we have divided our human assets into 11 areas and are in the process of quantifying them.

Among non-financial capital, intellectual capital, or IP, is expected to be the next most important to disclose after human capital. It is not good if the topic of intellectual property has never been brought up at a management meeting or board meeting. At our company, there used to be a distance between management and IP strategy, but the distance has been shortened by analyzing patents and strengthening the IP organization, and now IP topics are included in meetings attended by such management. It will take about two years to reach the state of intellectual property management known as an IP landscape, but we will continue to follow the plan. As a side note, intellectual property is like a bonsai tree: if you leave it alone, it will not be valuable. It is important how we can maintain and nurture them to increase their value toward appropriate IP information disclosure.

What you can't see, intangible assets are important

And finally, there is brand strategy. The reason why BtoB companies in Japan, in particular, are not very sensitive to brands can be attributed to the fact that brands are invisible and therefore difficult to express quantitatively. Recently, Interbrand has developed a method for visualizing and quantifying brands, and we have started to use this method to quantitatively measure the value of our own brands. We feel that there is a strong correlation between brand value and stock price.

Interbrand publishes an annual ranking of the world's Top 100 companies with the highest brand value, and the key drivers common to the top five companies are orientation, agility, and co-creation. The key drivers common to the top five companies were orientation, agility, and co-creativity. In Japan's Top 100, it was trustworthiness, and in the global Top 5, agility and co-creation. In our branding activities, we do not address all of these key drivers, but rather have selected three of the " 10 Elements of Brand Strength Evaluation Model " to improve, and for the next five years we will select three new elements, "empathy," "uniqueness," and "presence," to effectively address them. We are trying to do this.

Some Japanese corporate executives may have a hard time paying attention to intangible assets, which are invisible to the naked eye.

(Dialogue) Showing the Unseen with Qualitative Stories

Qin:
I listened to your story with a "Wow!" the whole time. Do you have any specific examples of how you are successfully visualizing things that are invisible from an investor's perspective?

Mr. Abe:
For example, there are tools to visualize patents, but while using them as evidence, it is necessary to create a story of what kind of cash flow will be generated.

Q: You are trying to convince investors by showing them something they cannot see with a qualitative rather than a more quantitative story.
It seems to me that a short-term oriented company would be better off investing in advertising to stimulate demand for its products and services rather than investing in branding activities to quantify and visualize a return that is not known when it will be. Do you have any examples of branding investments that have been justified?

Mr. Abe:
That is exactly the company I used to work for. At the time I was just an engineer, but after witnessing such branding activities, I realized how interesting marketing is and how branding can change people's behavior, and I changed my career to marketing.

Hata:
You mentioned during the session that brand value as a percentage of corporate value for Japanese companies is low. Do you simply mean that there is little investment in branding?

Mr. Abe:
In Japan, there are many companies that have sales promotion in their organization but no marketing department itself, or there is no strategy rather than investment.

Hata:
In your earlier discussion of Interbrand's ranking, I see a big difference in the way that foreign countries look to the future in terms of "orientation power," while Japan emphasizes past performance in terms of "credibility. As Japan focuses on branding in the future, it seems to suggest that unless we change our corporate culture and organizational mindset, we will not be able to compete globally.

Mr. Abe: The management of successful companies in the U.S. and Europe excels at "growth," but in Japan, I think "survival" is the most important thing and "growth" tends to come second. Survival" is a necessary condition, while "growth" is a sufficient condition, and the indicators we look at are different. There are many other factors, so I think it would be a good idea for each company to select and strengthen the ones that best fit their needs.

(Dialogue) How data can bring about change depends on the skill of management

Qin:
It seems quite difficult to visualize and see quantitatively, but can the concept of DX (Digital Transformation) be applied there?

Mr. Abe:
DX, as the name suggests, must be transformed. Data is like an ingredient in a dish. Even with good data, it is up to management to decide how to bring about change. Conversely, as long as the data is well maintained, all that is left is to use it.

Qin: We are now trying to achieve an input-less world within our company. We want to reduce the burden of having to input some kind of data each time by automating the process. To achieve this, I think we need to ensure the quality of input to some extent.

Mr. Abe:
It is OK to have a mixture of usable and unusable information data at first, but I think AI can be used to sort and linkage the data.

Qin:
Since we are here, please ask questions from the participants.

Participant A:
Could you tell us why you chose "empathy," "uniqueness," and "presence" as the first three from the "10 Elements of Brand Evaluation Model"?

Mr. Abe:
The most challenging of these is "presence. We have been building our brand as a follower in the past, but recently, what our customers are looking for has changed considerably. Instead of simply being a follower who receives instructions, we must become a leader who is asked to consult, "What should I do about DX?" but rather a leader who is asked to provide consulting services. Also, in new fields of business, "empathy" is also necessary to maintain long-lasting relationships with new customers.

Participant A:
What are the specific actions to enhance it?

Mr. Abe:
One is digital marketing and digital sales. Until now, salespeople had to find customers, but in the future, customers will have to find us. Now, most customers themselves search for information on the Internet, and they talk to salespeople for the first time after having looked at specifications, etc., so purchasing behavior has changed from the past.

(Dialogue) Just on Time or Customers Will No Longer Say "Wow!

Participant B:
As AI and other technologies come in more and more from the search phase, I think the methods for providing presence will change, but what should we do to get them to recommend us?

Mr. Abe:
I think it is a considerable asset for a company not to keep customers waiting. That kind of agility also increases user loyalty. If you don't respond quickly, not "Just in Time" but "Just on Time," customers will no longer say "Wow! I think that is how strong the "Time is Money" mentality has become.

Qin:
As the digital world becomes more important, for example, the accuracy of AI, it is hard to know which is correct and which to believe in the digital world, how should we view it?

Mr. Abe:
It is up to the person to believe or not. We believe that we need to use sense-making theory to foster a sense of gut feeling about the accuracy of AI. In the past, IT literacy meant whether or not one could use a PC, but now I think it has come to mean how one can correctly view information.

Qin:
If we are going to be in a world where we don't know what is correct, we need to trace information and evaluate what is correct.

Mr. Abe:
Yes, that's right. Perhaps a service that determines whether such information is correct or not may be required in the future. I have heard that top executives of European and U.S. companies have recently been going to art museums and practicing what is called "Visual Thinking Strategy" (interactive appreciation method), in which they train themselves to look at paintings and fantasize about them. This is also because we live in an age where we have to judge for ourselves what is right or wrong. *This article is current as of March 2023.

This article is current as of March 2023.

About "WorksWay 2023" where Mr. Abe is scheduled to speak

Mr. Abe will be speaking at the WAP-sponsored business forum, "WorksWay 2023: Defend, Break, and Release - Accelerating the Reinforcement of Management Foundations through Pioneering Wisdom," during the two-day event.

Name: WorksWay 2023 Mamoru, Haku, Ri - From the wisdom of the pioneers, two days to accelerate the strengthening of management foundations -
Dates: Wednesday, July 19, 2023 - Thursday, July 20, 2023
Venue: Held online
Target: Corporate management, corporate planning departments, information system departments, accounting and finance departments, purchasing departments, etc.
Participation fee: Free
How to participate: You can register for the event on the special event website. (Pre-registration required)

About Works Applications

Works Applications, Inc. Work Applications was founded in 1996 as the first ERP package vendor in Japan. With innovative solutions such as no-customization and free version upgrades, we have been supporting the growth of our customers, especially major Japanese companies. Believing in the potential of each individual, we aim to be a "growth engine" that maximizes the value of both the company and the individual, and we will continue our pursuit of turning "work" into "creation" and making "work" fun.

*Company names, product names, and service names are trademarks or registered trademarks of their respective owners.
*The information in this release is current as of the date of publication, and is subject to change or withdrawal without notice. Please be aware that any forecasts or forward-looking statements in this release are based on uncertainties and may differ from actual results.