Structural Capital Management by Andrew Miroshnichenko. Part 3

Fixation mechanism of flow chart of value creation chains

From the previous part of the article it has become more or less clear how the use of assets looks. However, many of you will be interested in how the system will manage complex assets. Or, how does it link the assets belonging to various owners for obtaining from them a new production chain with set parameters?

The point is, there are many prototypes of such mechanism type. If the utility of these or those functions is described by a limited number of functional and quantitative attributes, then it won’t be hard to make best forms of their interaction by means of linear programming.

The entire issue, as usual, concerns the definition of this limited number of attributes and further learning how to use them while identifying functions.

Will this platform function create and reconstruct businesses itself? How the owners of assets will be able to maintain control over their prime and complex assets?

Imagine the next situation.

You own assets, and they’re already incorporated into value creation chain. The project is finishing and your asset is being released. In your portfolio of projects there are some variants of implementation of this project based on the system recommendations. In all these variants all the data necessary for making a decision is given: a possibility of launching a project, all risks, perspectives to develop an asset and so on. Based on this data you decide, how you will use an asset.  

In any case, the owner of an asset can both fully trust the asset management to the system and use the system as a recommendatory function.

How to capitalize on intellectual assets?

Now let’s talk about the way how to earn on the development of new smart contracts. Wherein, this is about them as an instrument of the formation of new structures of the interaction between prime assets within complex ones.

We’ll start from the estimation of intellectual asset value. There are few approaches for that. But all of them are based on the premise we described above.

There is a set of assets, the use of which guarantees cash flow. Meanwhile, cash flow consists of the difference between revenue and all the costs. All ways for the assessment of the value of assets, as a rule, are based on the assessment of future cash flows.

Furthermore, various types of intellectual assets (according to the classification of Sveiby K.E., it’s the capital of external structure, the capital of internal structure and human capital) influence different components of this cash flow.

For example, certain assets of some large clients (the capital of external structure) guarantee stable incoming cash flow and by that will define its value. Other assets (for example, a process of attracting new large clients fixed in a smart contract is the capital of internal structure) will influence, in its turn, not the keeping of stable cash flow, but its increase. And that will define its high cost regarding a simple set of constant clients.

Let’s call the first type of assets, which provide stable support of sustained flow of orders, the asset of functioning.

We’ll call another type, which is aimed at continuous cash flow growth, the asset of development.

Which one is more valuable?

The thing is, that the first one, generally, implies already existing cash flow, the second one relates to an indefinite future. However, there is not enough functioning of resources in the ever-changing market conditions. Competition is increasing, and the amount of proposals to your potential client and thus similar to yours is growing with every hour. In order to keep a niche in a hyper-competitive environment, i.e. in the situation of permanent depletion of cash flow in a market niche, there is a constant need for the development. For example, you need to build up use value of a good or a service, to lower cost and so on.

In that case, any variable specifying the intellectual asset (the amount and marginal utility of clients, staff competence) must grow, while cost of production functions must fall.

Then, how to calculate the value of intellectual assets?

It’s quite easy.

So, we have incoming cash flow X, which we serve at cost Y. Then, the value of our assets providing profit of X – Y will be a starting point in a period of time. Assume it’s 1. So, if we find the interaction structure of these assets, when costs are lower than 1, then the value will be defined by this difference. That is, we will have to evaluate a new structure with regard to that new cash flow, which this structure will additionally generate. That means, that while “buying” this structure we need to proceed from how much money this structure will bring to me in future. If I calculate that my efforts, costs and risks for getting similar results in some structure developed from the ground are significantly higher, than acquisition cost of this new structure, then it’s obvious that I’ll choose the second option.

Then, you can choose an approach for the estimation of the asset value. On one hand, it must be lower than costs of innovation of something with similar results, and on the other hand, it should be lower than cash flow generated by the asset. And what will be the concrete mechanism of defining of the value of assets depends on how participants of deals for the acquisition of the intellectual capital agree on that.

Already, however, we can talk about possible mechanisms of earning on intellectual assets of Rocket DAO platform participants:

1.    A one-time rental of a structural asset without the right to reuse (it’s tracked through the structure of further smart contracts).

2.    The purchase of a structural asset with all the rights without the opportunity to use it by other users.

3.    The rental of a structural asset in all the projects, where it’s required to repeat its functionality with the same results and with the rental payment for every use.

4.    The rental of a structural asset in all the projects, where it’s required to repeat its functionality with the payment of interest from the saved effect while using a new structural asset in comparison with an old asset.

5.    A structural asset buyout without the right to use it by anyone except a new owner and the author of the asset.

6.    It’s possible to sell the asset rental before the release of a better asset, and then it’s possible to buy a time-use rental (for a year, before the release of a new structural asset and so forth).

7.    It’s possible to pay interest from the saved effect for all next time of the asset use or per every concrete case of the asset use in future.

8.    Just a payment of a fixed sum for the actual use of a structural asset.

9.    Payment of interest for the actual saved money during the actual use of a structural asset in projects.

Other variants are possible as well which are supported by main participants of a deal and professional community. One thing becomes obvious: the creation of new structural assets will allow both the authors and those, who will use author’s intellectual assets, to earn money.

However, these variants of earning money on the intellectual asset are much more understandable, than most methods of the estimation of the shareholder value of a capital and of direct receipts from the speculation in stocks.

Nevertheless, a multitude of questions can appear while using structural capital as with all intellectual assets. First of all, it concerns transformations of already using structures. The main question consists in whether it is possible to create a new structural asset through minimal changes of an old one. It means, to conduct an elementary manipulation. What to do in this case?

It’s simple. If the use of a new structural asset is objectively more effective, than of an old one, what can be proved by concrete results of its use recorded in a smart contract, then it’s possible to consider it as a substitution of this old one. Meanwhile, the appearance of a new asset can influence both the value of an old one and its use.

After all, nobody obligates the author of a new structural asset to share it. He can “bury” it and not sell anything to anyone.

What will the objectivity and transparency of the use of a structural asset give?

The core problem of the whole management concept of intellectual assets is that existing mechanisms don’t allow assessing the effectiveness of the implementation of intellectual assets in a new context. Many factors influence the impact of the use of a well-shown asset. That’s why, it’s quite hard to predict how effective this use of a new production asset will be. The same relates to the situation when the use of an old asset in a new context or in a new situation doesn’t produce the expected result.

However, a concrete productivity of a function will be evaluated in the mechanism which will be realized on the platform, no matter how performance of a separate function influences the efficiency of the whole complex asset in general. It means, that we evaluate the efficiency of the function use according to concrete quantity parameters included in a smart contract. A smart contract can be tighten to the concrete sources of the performance verification of the function work including both sensors and users’ responses.

What will this give?

Firstly, a possibility of transparent estimation of the influence of a new asset on cash flow in general will appear. If a new asset within the production function works way better than an old one, but the final result remains the same, then it’s obvious that the problem is not about an asset. It will allow lowering down the error in calculations and forecasting of cash flow with the relevant estimation of the value of a business or a firm, where an asset is used.

Secondly, having objective information about stability and working capacity of a production function it’s possible to project with high level of accuracy a new systemic set of assets in new complex assets with the appropriate effectiveness. It will allow conducting the investment related analysis of new complex business-projects quickly and easily.

Thirdly, having accurate data of the asset performance it’s possible to take measures to increase the range of the situations of its effective use and general effectiveness of the business process, where it’s used.

To cut a long story short, as a minimum it means that we get the infrastructure of the unstoppable growth of the effectiveness of business processes, procedures, competence and technological processes realised on the platform by creating a market of intellectual assets and structural capital on the platform.

Entrepreneurship or rentier?

Now let’s look on what we have.

You’re the owner of assets and you allow the platform to use your assets in new configurations with other assets, what pays you the rent. It’s understandable, that if you collect complex assets and experiment with them at your own risk, you can likely get profit higher, than you get while the system uses your assets separately. But, if a mechanism on structuring assets on the platform works better than you, at least, because it owns much fullier information, then how are you going to compete with it, and, above all, how to earn money? After all, a prime asset, commodity, is always easily to be replaced or even optimized. There will always appear a young and bold entrepreneur ready to sell its typical asset cheaper than you sell your old one.

How to remain competitive, and where will sources of income for an entrepreneur appear?

1.    Don’t forget, that all projects fulfilled on the platform will work with external shareholders, for example, with investors and clients. And nobody will take away the function of attracting investors and clients from the entrepreneur. This function, certainly, can be treated as a separate production function. And there are many ways to reward for this function: by bonus of getting clients, by the priority in the load of entrepreneur's assets and so on. If there is not a common template of relations between an entrepreneur bringing orders and performers, then a space for entrepreneurial activity appears.

2.    A large space for entrepreneurial activity is concentrated in the development of innovative potential of value creation chains on the platform. If to simplify the function of creating production chains from those, which are concentrated on the platform, it will be possible to focus on the design and the promotion of goods and services. The creation of innovations essentially means the creation of new markets with maximum profit from caused demand wave on new goods and services.

3.    You shouldn’t forget about cost reduction of production function performance. If you profit from the rental of your production assets, then the only way to increase income from it will be the reduction of costs of this function work. It’s clear, that it’s simpler to do in a complex asset rather than in a prime one, so then a clever entrepreneur will strive to complicate the set of his asset, to acquire new ones and so forth.

4.    One more important function of an entrepreneur, the owner of assets, on the platform is also related to the work with innovations. It’s about the search of anomaly. Often the work of these or those assets and of their sets provide an unintended result, unprognosed anomaly, unexpected effect and so forth, which show sudden technology aspects. This effect can be used in future both for the optimization of production functions and for the generation of innovations. By the way, the search of technological anomaly is not only an engineering task, as it may seem from our used terminology. As long as people with their competence can perform the production function, the development dynamic of their competence can serve as a basis for technological innovations, than any kind of machines can. This is a space for creating of new teams, new ideas and innovations as well.

In a word, the automation of functions of the management of the interaction between assets does not necessarily close the prospect of making money and entrepreneurial initiative, but do transfer it in a more creative sphere.

The Capitalization of the Rocket DAO platform

In conclusion, it’s necessary to say a couple of words about the capitalization of the Rocket DAO platform itself. In fact, this question is premature at this stage of the platform development. But it’s obvious, that if our token Rock provides an access to the development and to the use of the structural capital, to the capitalization of intellectual asset, to direct and clear ways of making money off the structural capital, then it must grow in value in proportion to the frequency growth of structural capital use by participants.

Though, the talk about the platform capitalization, which gives an opportunity to manage the structural capital, is a matter for a separate talk.

Translated by Alena Palchenko