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Trend Report – January 15, 2006
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Report
from the Second International PMA Intellectual Capital Symposium held in New York City, USA,
15-16 December 2005
News categories: The
New Economy Economics, Finance and Accounting, Performance Management and
Controlling, Investor and Stakeholder Relations
Following the success of its First Intellectual
Capital Research Symposium
held in October 2003 at the
Cranfield School of Business in Cranfield in the UK, which focused on the
theoretical foundations of research in intellectual capital, the Performance
Management Association (PMA)
held its second Intellectual Capital Symposium on 15-16 December 2005 at the
Stern School of Business/New York University in New York City, USA, under the
title “Management and Measurement of Intangible Assets and Intellectual
Capital: Multidisciplinary Insights”.
Table of content:
Background
Aims of the Symposium
Participants
Agenda
Summaries of presentations held
Summary/Conclusion
Additional Resources
The Symposium was designed to facilitate high level debate and
discussions between a small number of thought leaders active in the field of
managing and measuring intangible assets and intellectual capital. It was
organized on behalf of the PMA by the Centre of Business Performance at
Cranfield School of Management, UK, and it was co-chaired by Bernhard Marr (Centre
of Business Performance in Cranfield) and Baruch Lev, professor at the Stern
School of Business.
Participation in the Symposium was by invitation only and, in order to
ensure serious debate and to promote valuable networking, the total number of
participants was limited. The symposium brought together 25 experts and leading
researchers in the field of IC / Intangible Assets from around the world – most
of them from the academia. The intent of the organizers was to provide a forum
within which issues and common interest could be discussed in far greater
detail than it is traditionally possible at other academic conferences.
Participants had been invited to present a paper at the Symposium.
The IC Symposium complements a series of conferences and symposia that
have been sponsored by the PMA since it’s launch in 1998. To date, the
organization has sponsored four big conferences for the emerging performance
measurement community, attracting several hundred participants each time. In
the intervening years, the PMA has sponsored the debate of a small group of
20-30 academics and practitioners in focused Symposia. The IC PMA Symposia are
part of this series of symposia. The next bigger conference will be held on
25-28 July 2006 in London, UK.
The
aims of the Symposium were to:
·
Provide a forum where leading
researches active in the field of IC performance measurement and management can
present their work to peers and have it discussed.
·
Enable a dialogue about the
multidisciplinary aspects of intangible assets / intellectual capital and
facilitate cross-disciplinary learning and knowledge transfer across
disciplines.
·
To develop interdisciplinary
insights and innovative ideas.
For
the 2005 symposium high quality research papers on the management and
measurement of intangible assets and intellectual capital were invited. The
participants were invited to speak about some of the following topics (however,
these were not meant to be exclusive):
·
Linking intangible assets and
intellectual capital to organizational performance
·
The challenge of managing and
measuring intangibles and intellectual capital
·
Identification of the
critical intangible value drivers
·
The protection of competitive
advantages created by intangible assets and intellectual capital
·
Valuing and disclosing
intangible assets and intellectual capital
Participants:
Name: Link Organization: Country:
to
pres.
summary:
Baruch Lev (co-chair) -> -> Stern School of Business USA
Bernard Marr (co-chair) -> Cranfield
School of Management UK
Jacqueline Brown Cranfield
School of Management UK
Ahmed Bounfour -> University
of Paris France
Per Nikolaj Bukh -> Aarhus
School of Business Denmark
Leandro Canibano -> Autonomous
University of Madrid Spain
Eggert Claessen -> PIP
Iceland
Glen Cook -> Naval
Postgraduate School USA
Juergen H. Daum -> SAP
(EMEA region) Germany
Thomas Housel -> Naval
Postgraduate School USA
Mart Kivikas -> Wissenskapital
E&K GmbH Germany
Rob McLean -> MatrixLinks
International Inc. Canada
Philip McPherson -> City
University London UK
Andy Neely -> -> Advanced
Institute of Management UK
Margaret Peteraf -> Tuck
School of Business USA
Aino Poyhonen -> Lappeenranta
University of Technology Finland
Paloma Sanchez -> Autonomous
University of Madrid
Spain
Gianni Schiuma -> University
of Basilicata
Italy
J. C. Spender -> Cranfield
School of Management USA
Patrick
H. Sullivan
-> ICMG USA
Jose Maria Viedma Marti -> Polytechnic
University of Catalonia Spain
Anne Wu -> National
ChengChi University Taiwan
Stefano Zambon -> University
of Ferrara Italy
Agenda
(klick for agenda (PDF-file))
The symposium was opened by Bernard Marr, Cranfield School of Management, UK,
and Andy Neely, Advanced Institute of Management, UK, and chairman of the
Centre for Business Performance at Cranfield School of Management.
Andy Neely stated that despite the fact that all agree that intangible
assets/intellectual capital have a huge impact on organizational performance,
the whole field of intangible asset/IC management is still in a very early
state of evolution. There is still a lot of diversity in taxonomy and concepts
and we risk so that the message is never heard outside the field. That is what
he defined as the mission of the PMA: creating coherence in the community.
Summaries of presentations held/notes from
Juergen H. Daum (to jump
directly to a specific speaker use link in participants list above):
Introduction
·
What is the state of the art
in intangibles?
Baruch Lev, Stern School of
Business / New York University, USA:
Baruch Lev quoted a study from McKinsey according to which the most
important thing for the CEOs today is: coping with risk. And intangibles are a,
if not the major contributor of risk to companies and a major driver of
volatility of future earnings (3x larger than the physical assets) - a fact
that explains the large discounts investors place on investments in
intangible-intensive companies.
So the mission for the intangibles community shouldn’t be any more to just talk
about intangibles and their importance. We should develop the topic in the
framework of the field of management. And that means, we have to develop the
field in a direction that helps managers to better deal with risks and to
control risks (such as in the R&D process). Public companies sit today on
enormous amounts of cash. The do not invest it, because intangibles are today
in every area present and that increases the riskiness of investments. Baruch Lev
proposed that the following key question should guide our research:
- How are things being done today in
companies (in terms of risk management)?
- What are the consequences of risk and
also of risk management? (risk management comes at a cost)
- What are the consequences of the
riskiness of intangibles?
- What can we learn about risk
management from capital markets? (capital markets is the place where risk is
most efficiently shared today)
- How is risk communicated there?
- What is the role of public institutions?
·
Key Research Insights and
Learning from The 1st EIASM Workshop on “Intangibles and Intellectual Capital”
held in Italy in Oct 2005
Stefano Zambon,
University of Ferrara, Italy
Stefano Zambon talked about the
learnings from two recent conferences on intangibles held in Italy:
In Europe exists a big interest in intangibles, but only few companies have
already adopted the approach. People agree that value today is not created anymore
(like in former times) through scarcity (of resources and products) + labour,
but through what he called “identity creation” (an other expression for
“attraction”) - and intangibles have something to do with identity creation.
This requires a new theory of the firm – beyond the traditional economic theory
of Adam Smith, which is based on division of labour and collaboration and
coordination. The latter (collaboration and coordination) is sometimes
forgotten, but it leads us to where an intangible view can help to create a new
theory of the firm: it is a call for a stakeholder perspective (not just for a
shareholder perspective). It is the starting point for the development of
concepts for the intangibles-based management of an organization. It seems that
the field of intangibles is ‘spontaneously’ converging now with other field
like CSR (Corporate Social Responsibility), where a similar approache like in
the intangibles field is adopted – which leads us to thinking more about the
relationship between intangibles and sustainability. His final key statements
were:
- is there really a disciplinary identity: is ‘Intangibles and Intellectual
Capital’ a new (academic) field?
- we need to enter a new phase of consolidation (of concepts, theories, and
approaches)
- if we are not creating something interesting, the world will forget about us:
the proposal of Woody Allen: “Instead of a positive, do you take two
negatives?” won’t work here.
·
The Supply and Demand for
Intellectual Capital Information: A Case Study of a large Medical Devices Firm
Per Nikolaj Bukh,
Aarhus School of Business, Denmark
Per Nikolaj Bukh approached the ‘selling’ of the intangibles / intellectual
capital story from a different angle. He presented a case study from a midsize
Danish company, which became famous for publishing very early Intellectual
Capital Statements. But financial analysts and investors were not really
interested in the topic and in the reports. But his research revealed that they
were looking for the same information (what management published in the IC
statements) when they e.g. try to value an IPO. His thesis is: the problem is,
that management and capital markets use different words for the same thing. So
we have to approach the issue from the perspective of the ‘market for
information’. The management of this company has merged in the meanwhile the
supplementary IC report (supplementary
to the financial statements) with the sustainability report. This seems to be
‘a name’ that is better accepted by investors/the capital market. But the
problem still is that most (short term) triggers for share price movements
(industry trends, capital market events etc.) are out of the hands of
management. Management’s view is in organic value creation and this is more
long-term and this is where intangibles/IC matters. How will management be able
to communicate this to the capital market?
Theme: The
Measurement Problem – can we really ‘measure’ intangibles?
·
Measuring and Accounting for
IC: Standards and Problems
Philip McPherson, City University London, UK
Philip McPherson, as an engineer, proposed to approach the measurement
problem with the rules of measurement science. It provides
- a primary measurement theory to define exactly what constitutes a valid
measure
- a conjoint measurement theory
- a strict control of the measurement space (-> normalization)
From his point of view intangibles are perfectly measurable. It’s only the
accountants who gave them the name ‘intangibles’, because they have problems in
assigning them a monetary number. He then introduced the differentiation
between ‘performance value’ and ‘monetary value’. Performance value happens in
the ‘real’ world and is usually transferred in the accounting world via a
transaction (i.e. it is priced in the transaction). Unfortunately not all
existing values are already ‘priced’ (that is why accountants call them ‘intangibles’).
He therefore introduced a ‘value measuring’ function for the non-monetary
values, which is then used as a basis for ‘artificial’ transfer to monetary
values via a analysis how this value is affecting sales. And now the monetary
measurement of intangible is possible. The problem and challenge with this
approach is, because it start with IC/ with the single components of IC, that
the different IC-streams do not combine addititively. Finally Philip McPherson
introduced the differentiation between two type of intanbibles:
- intangibles that keep the system going and
- intangibles that create the difference (and therefore the ‘attraction’ that
is driving prices and revenue)
·
New Insights on Intangibles
and Value Measurement
Patrick H. Sullivan,
ICMG Inc., USA
Rob McLean; MatrixLinks International Inc.,
Canada
Patrick H. Sullivan and Rob McLean reported from the ICM gathering – a group
of US companies that meet regularly to discuss and work on the topic: how to
get value out of all the company’s intangibles (it already has). Results so
far:
- the value of intangibles is relative – dependent on the context
- multiple simultaneous value streams exist, creating the need to define the
multiple purposes. But accounting cannot deal with multiple value streams.
This has led to the work of the Value Measurement and Reporting Collaborative
(VMRC) who has reviewed all the initiative of recent years that deal somehow
with the topic of value and performance measurement and reporting. The result
was, that the reporting side is already well developed (crowded with initiatives
like CSR, GRI, OFR, social accounting etc.) but the measurement side is nearly
blank (with a little bit of activities around intellectual capital statements).
The VMRC’s contribution:
- refraining the value measurement issue: measure value without a transaction
(it’s not about intangibles!) -> we have to change the accounting paradigm,
leading to a fair market value
(without a transaction) vs. book value (with transaction
- developing criteria to enable ‘profiling’
To achieve this, the VMRC has introduced 5 dimensions to help to ‘profile’ and
to develop proper measurement depending on the purpose:
1. primary purpose: value, performance, or both?
2. What is the nominal and what is the technical object / property?
3. What is the perspective (stakeholder related: market, enterprise, capital
market, buyer, owner)
4. What is the timeframe? (past, short-term future, mid-term future, long-term
future)
5. What is the unit of measure / scale / measurement standard? (currency at
present value, currency at future value, proprietary rating scheme….)
Theme:
Reporting of Intangibles – where will it take us?
·
Intellectual Capital
Statements in Germany - What is the state of the art?
Mart Kivikas, Wissenskapital
E&K GmbH, Germany
Mart Kivikas presented the evolution and the current status of a project in
Germany, sponsored by the German government, to develop intellectual capital
statement for midsize firms and to use them to communicate about the
performance and the capability of the firm to create value. The difference to
the early versions of IC-statements of companies (mainly in the Scandinavian
countries in Europe) is, that the German approach is more focused on analysing
the role of IC in the value creation process in the company and to make that
transparent (and therefore optimizable), rather than just to report what
components of IC exist and how far they are developed. Because they dealt in
the project with smaller to midsize companies, which do not have the resources
to invest in a large project and to dedicate a lot of time of there people in
developing an IC-reporting and –management framework, the challenge was to
develop an approach that allows to set up IC-statements and to select the right
measures in a very efficient way and fast. Mart Kivikas presented the approach
and explained it by presenting several case examples.
·
Managing and reporting
Intellectual Capital in Small and Medium Firms – Insights from PIP
Eggert Claessen, PIP, Iceland
Eggert Claessen is the founder and president of a software company. His
presentation therefore came from an entrepreneur’ s perspective: the basic
premise / value creation mechanism in an organisation is that you need people,
relations, and processes / structures to make it work. As an entrepreneur you
have to manage the recipe for all three components and the interaction in
between. This is what Intellectual Capital reports would like to communicate.
But if it works, we would not need analysts any more, because everybody who can
read, can understand then how the company works and how well it has developed
it’s value creation capabilities. To make IC concepts work, we have to:
1. define and have indicators
2. apply indicators to understand and measure the own value creation process
What for? Small and midsize enterprises (SME’s) can only survive today in an
environment of global competition and increasing cost of compliance when they
can strengthen organic/entrepreneurial value creation. The entrepreneur knows
best his or her business. He or she doesn’t need an IC report for it. But an IC
reporting and management approach allows the entrepreneur to scale, to
communicate and ‘package’ his knowledge and thus to create the options to grow
the company – by creating structure, common language and transparency. Eggert
Claessen described how 20 SMEs in the IT sector in the five Nordic countries
have systematically worked together on a project to leverage their intellectual
capital to secure a competitive advantage (the ‘PIP project’). It has been a learning journey with
ambitious goals. These goals include
the compilation of a common framework for understanding IC, to harmonize the
indicators used to measure IC and last but not least to improve business
performance as a result of this work.
-> comment from Baruch Lev: “measurement creates a
language”
Theme:
Defining Intangible Elements, Intellectual Capital, Knowledge Assets etc.
·
Intellectual Capital
Generation of and Measurement of Renewal Capability
Aino Poyhonen,
Lappeenranta University of Technology, Finland
Aino Poyhonen introduced two different concepts of knowledge:
1. knowledge as an asset (what the organization owns/has)
2. knowledge as a process (what the organization does)
The focus of the whole IC movement so far was mainly on the first. From her
perspective, in an environment which allows companies to survive and to be
successful only when they constantly innovate and adapt, the key differentiator
for competitive advantage is not so much the knowledge assets available, but
the capability to renew: how well the company is able to create new knowledge
assets from existing knowledge assets. For this we have to understand the
elements of the renewal capability of a company, such as:
- strategic competence
- learning orientation
- …
·
The Impact of Ownership
Structure on Innovation Capital and Organizational Performance
Anne Wu,
National ChengChi University, Taiwan
Anne Wu presented the results of a
research project in Taiwan:
- family owned companies focus on culture and trust – not so much on innovation
- firms with foreign investors place more emphasis on innovation – results:
better performance
…
·
Intangible Asset-Based
Enterprise Management - A practical view
Juergen H. Daum, SAP, Germany
Main message: we have to solve
practical problems managers are confronted with in their day-to-day business.
Otherwise the IC/intangibles movement will not be able to achieve its mission.
The intention of Juergen H. Daum was to show in his presentation and his paper
how an intangible-assets based perspective/approach can help to find new
solutions to very concrete practical managerial problems in today’s
organizations and to lay the foundation for the development of enterprise
management systems that can support managers to run successfully an
organization in today’s ‘knowledge economy’.
Paper abtract: Urgent action is
required to include an intangible asset perspective in enterprise management.
This is shown by many everyday examples of managers, who aren’t able to make
informed decisions without such an approach. The mission of this paper is
twofold: First, to present a practical approach for changing perspectives of
managers and to develop a concepts for a new, enhanced way of enterprise
management. Second, to create the foundation for more informed managerial
decision-making in situations, where the traditional financial control approach
to enterprise management doesn’t provide appropriate support. The paper starts
with a view on some examples of managerial challenges related to intangible
assets. It then presents an approach to enterprise management that integrates
the intangible assets perspective and that can better support managers in
strategy and performance management and in decision making. It concludes with a
brief discussion of the consequences for the leadership and organizational
model.
-> J.H.D’s
presentation held at the symposium (PPT slides as PDF)
-> J.H.D’s
paper (PDF)
-> Interview
with Juergen H. Daum on Intangible Assets and Value Creation
Recap
of Day One
·
Recap and Discussion of Day 1
Baruch Lev, Stern School of
Business / New York University, USA
Baruch Lev quoted Jim Collins (author of
the book “Good to Great”),
who once said at a conference, when he was asked what he thinks about
intangibles: “intangible assets are inert”. What he was meaning with this
statement is that intangible assets per se are of no value and uninteresting.
Baruch Lev continued and said that people are interested in houses and not in
bricks. We have to find the themes people in business are really interested in
and have to related our theories and knowledge about intangibles to these in
order to contribute to the “houses” with our brick “intangibles”. We have to
start to discuss topics like “growth in a highly competitive environment”,
“innovation’” or “how do companies survive”. We have to start with the big
thing and then relate intangibles to it. Then we can bring in our knowledge
about measurement of intangibles and about value creation based on intangibles
to contribute to the bigger purpose. This is how the field of intangibles can
get recognition and can ‘create value”.
Theme: The role of intangibles in public policy – micro vs.
macro perspective
·
An Approach to Valuing
Intellectual Capital in Defence Processes Using the Market Comparables Approach
Thomas
Housel and Glen
Cook, Naval Postgraduate School, USA
A problem arises when leaders in
non-profit governmental organizations, such as the Department of Defense,
attempt to discuss the “value” of an asset in use. This is because there are no
revenue streams in such organizations. The result is non-productive debates
about the relative value produced by assets, especially intellectual capital
assets (e.g., knowledge in people or in information technology). An example is
the US Department of Defense. It ‘invests’ 390 billion Dollars per year in
national defence: what is the ROI? Thomas Housel and Glen Cook presented a
concept they called “Knowledge Value Added (KVA) methodology” to value the
output of an organization. Coupled with the Market Comparables principle it
allows the creation of ‘surrogate revenue streams’ – also for an organization
that has no revenues. The method is based on the premise that outputs are
created by processes that create change in the inputs. These changes create the
value and are ‘caused’ by the application of knowledge. KVA now does one thing:
it is describing outputs in common units by comparing processes of commercial
organizations with similar processes of non-profit organizations by using the
revenues/prices achieved by the processes in the commercial organization as a
proxy to ‘standardize’ outputs in both organizations and breaking down the
total output into the contributions of the various processes. They presented
then a case study in which they applied the concept to value the investments of
the Department of Defense in Information Warfare (IW) and intelligence
collection systems.
·
Can Intellectual Capital
business principles be applied to Universities and Research Institutions?. Some
insights
Leandro
Canibano & M. Paloma Sanchez,
Autonomous University of Madrid, Spain
Leandro Canibano and Paloma Sanchez investigated if the concept of IC
management can be applied also to universities and research institutions.
Answer: definitely yes. It’s even more important here, because the value
universities produce can’t be measures through a revenues stream like in
commercial organizations (see previous presentation). Buts it’s not just
knowledge that counts in universities and research institutions. It’s also –
and that is may be even more important - the strength of alliances and
networks. Palama Sanchez mentioned an example from Australia to illustrate
that: Some years ago Australian universities suffered from a ‘brain drain’
(many researchers were moving to abroad). The universities considered to
motivate them to come back. But then they found out that their former
researchers still maintained strong links to them. And that was even better,
because through the strong link the universities could still participate in the
knowledge and especially in the new knowledge of the researchers, which was
nurtured by their new environment, and could use him or her as an ‘ambassador’
at their new university/research center. So they changed their policy and
didn’t tried to motivate them to come back, but to maintain a strong relation
with their former university. IC reports will be used for universities to
assess the “quality” of the university – not just in classical terms, i.e. how
many researchers they have and what and how much they publish, but also in
terms of the network and alliances it maintains. IC reports for universities
will play in the future a major role in the funding process and in attracting
good teachers and researchers as well as students.
·
The IC macro dimension –
latest developments
Jose M. Viedma,
Polytechnic University of Catalonia, Spain
Jose M. Viedma presented a concept what he is calling “The Region’s
Intellectual Capital Benchmark System” (RICBS). Competitiveness in the
knowledge economy of today is based on the capacity to innovate. Innovation is
something that is dependent on relationships that are usually organised on a
regional level (“region” meaning a region within a country/nation). He
therefore stated that regions are “the appropriate strategy sites for
(political) intervention”. To provide regional policy makers with appropriate
input and information for informed interventions, he proposed a regional
benchmarking (of sector clusters). The RICBS provides the analytical framework
to do that:
- enabling an in-depth diagnosis of the region’s actual knowledge-driven
competitiveness foundations: what are the resources, competencies, traditions,
patterns of behaviour etc., that act as path-dependencies in the region’s way
to growth?
- aiding in the definition of the possible vision, objectives and lines
of action to embrace sustainable economic growth: what is the model of
excellence that we want for the region? What competencies, values and attitudes
should we promote to enable innovation and sustainable growth?
- developing awareness of a region’s potential risks and opportunities:
how does the region cope with change?
In all three points, strategic benchmark plays a fundamental role. The aim is
to assess the regions long-term economic growth potential and to make it
manageable (e.g. by making the microclusters in the regions transparent in
terms of vision, core activities, core competencies and the region’s human
capital base in connection with institutions, societal framework, social
capital and technology.
·
Modelling intangibles under
the Community regime
Ahmed
Bonfour, University of Paris, France
The theme of Ahmed Bonfour’s
presentation was around the role of communities in the knowledge and service
economy. The service paradigm is very
different from the manufacturing paradigm:
- people and human capital are not input or costs but assets
- a ‘dematerialization’ of value creation activities happen leading to the end
of the patriachical model
That leads from object to subject: back to the theory of subject. Value is
created in subjective relationships and perceived from a subjective
perspective. And this is where communities enter the game: “a community is a
set of individuals for whom relationships are governed by different degrees of
recognition”. And communities play an important role in the knowledge-based
process of value creation. As a consequence, we see a shift (crisis) in organizational
implicit order. In the knowledge economy we see a new way of communities:
- in former time the transaction perspective was dominant (“price”)
- today the community perspective is dominant (“value”)
To understand communities, we have to start with the three objects:
- “I” (ego): does the society recognize what I am?
- “We” (alter ego): individuals recognize their boundaries in communities
- “You” (reverse ego): how “others” gauge “others”
Ahmed Bonfour then differentiated between three different types of communities:
-> constraint communities: freelancers (people fired by big companies):
dependent intangible resources
-> quasi-organic communities: Linux: autonomous intangible resources
-> inno-center: example of Elli Lilly: the put a problem on their website
with a price tag they are willing to pay for the solution (50.000
people/”problem solvers” where engaged in the process)
-> Interview
with Ahmed Bonfour on Intellectual Capital metrics of Nations
·
Intellectual Capital Value
Creation: Dynamics within Italian Regions
Giovanni Schiuma,
University of Basilicata, Italy
Giovanni Schiuma started his presentation with a hypothesis: the value und
and the value creation capability of any organization (also of a region) are
the result of its knowledge asset ownership. A knowledge asset is any
organizational resource made of or incorporating knowledge and with the mission
to carry out a process or an activity aimed to create and/or deliver value
(which can be tangible or intangible!). A knowledge assets become, when
specialized, a distinctive ‘core competence’. He then stated that the classical
categories of IC (human capital, structural capital, relationship capital) are
to general to manage the value creation process. In contrast to that he
introduced a IC framework that differentiates between stakeholder knowledgeware
and infrastructural knowledgeware. Stakeholder knowledgeware is subdivided into
‘netware’ (ICnet: network assets, relationships) and ‘wetware’ (ICwet:
individual/uncodified knowledge assets). Infrastructural knowledgeware is
subdivided into ‘hardware’ (IChard: fixed assets etc.) and ‘software’ (ICsoft:
codified knowledge). This framework is now used as the foundation for an
IC-benchmarking of the Italian regions based on the formula: regional IC index
= ICwet + ICnet + ICsoft + IC hard. He and his partner used this formula then
for a regression analysis where they used the changes in the investments of the
regions in these four categories as input. The output was the IC index per
Italian region, which they then compared with the GDP development. Result: a
strong correlation between the calculated IC index and actual development of GDP.
Theme: The Future of research and practice – Where is this
Field heading to?
·
Intangibles, Resource-based
View, and the Balanced Scorecard: What is the score?
Bernard
Marr, Cranfield School of Management, UK
Andy
Neely, Advanced Institute of Management, UK
Bernard Marr talked about the evolution of the Balanced Scorecard concept
and its relations to intangible assets/IC management concepts (also on behalf
of Andy Neely, who had to leave earlier and wasn’t present any more at the time
of the presentation). In 1996, when the first Balanced Scorcard book from
Kaplan and Norton was published, the Balanced Scorecard concept was still based
on a market-based view. In 2004, with the new book, they have changed to a
resource-based view – following the general evolution in strategic and
management thinking. In was the change of the Balanced Scorecard concept from a
performance measurement to a strategic management tool. The aim was now to
establish a relationship between the resources of the organization (including
intangibles) and the strategic outcome it wants to achieve. Bernard Marr is
following the same approach. He therefore proposed to not just talk about
intangibles (which might address only a very small target group in management –
see Baruch Lev’s statements this morning) -, but to talk
about ‘strategic management’ and to put it into that context.
·
Managerial Choice and
internal alignment under regulatory constraints and change
Margaret
Peteraf, Tuck School of Business, USA
Margaret Peteraf was talking about “measuring intangible dynamic managerial
capability”. This is about the capability of management to manage internal fit
over time (resources, processes, structures…). This is important because
competitive advantage comes from good fit. And external and subsequent internal
change, which cannot be avoided by organizations in today’s dynamic economies,
erodes fit. So the key question is: how do we maintain fit over time? And this
is the topic of her paper that she presented (“Managerial Choice and internal
alignment under regulatory constraints and change”).
Approach:
- ‘hypothesis: ‘fit’ affects efficiency
- we look on a deregulated airline industry (analysis of how costs changed
(industry cost function))
-> the production function is socially constructed! (the differences in the
capability to adapt to the changes in the industry where dependent on
differences in business practice and in the culture of the organization
to confront change and its capability to handle change).
·
Management, Rational or
Creative?
JC
Spender, Cranfield School of Management, USA
Instead of a presentation under the announced title, JC Spencer wanted to share
with the audience some thoughts about IC and entrepreneurship/leadership. He
stated that we are starting with ‘intangibles’ from the wrong angle:
‘intangibles’ are something ‘outside’ – something negative. What is the purpose
of an enterprise? It’s the creation and maintenance of context. As it was
stated before: the driver of value and wealth creation today is innovation. And
for the enterprise to be able to change/innovate there must be something that
is not in total ‘fit/coherence’. A dynamic balance is required. In order to
create value (which is always an expectation / something to happen in the
future) some kind of ‘instability’ is required (in contrast to ‘performance’,
which is always stable, because it is historic / something that happened in the
past and that is not changing anymore). The ultimate capability of an
enterprise to innovate and change is based on the competence to manage
situations with the absence of knowledge. And this requires ‘resilience’, which
is based on the creativity of the human being (but it’s important where the
creativity is located: in the individual or on the level of the organization).
Creativity always means ‘instability’. This is leading to the question: how do
you create stability? How can managers create constraints (i.e. create a
context so that creative people care about what’s going on outside themselves)?
How much do you constrain people as a manager? He then introduced a framework
that differentiates between ‘value creation’, ‘measurement’ and ‘management’.
Each of these dimensions need to be seen from the perspective of the different ‘governance’ parties
(entrepreneurs, corporate, investors, governmental:
|
|
Entrepreneurs/ |
Corporate/firm |
Investor |
Governmental |
|
Value creation |
|
|
|
|
|
|
|
|
|
|
|
Management |
|
|
|
|
Benefits of the Balanced Scorecard in that context: it’s an apparatus to
surface the business model (in discussion with senior executives).
The field of IC is not totally new. We learn again what we knew 100 or 200
years ago. We need to rebalance notions of control and notions of creativity.
->
papers and articles of JC
Spender can be found at
his website.
The PMA 2005 IC Symposium
was again a full success. The in-depth discussions between some of the most
experienced experts in the field of intangibles and intellectual capital in the
world provoked a whole bunch of new ideas and learnings for everyone. One of
the American participants stated at the end: “It was the best discussion forum where
I have ever been”.
An interesting aspect that came out during the presentations and discussions was
the difference between the view and approach of the American and European participants.
One of the American participants phrased it like this: Europeans tend to regard IC as assets. In
North America we regard it more as part of the P&L (goal: generating
revenues) than of the balance sheet. The focus of Europeans is more on the
value creation process. The focus of North Americans is more on value
extraction (creating performance from existing assets). As a consequence, the
Europeans are placing much more emphasis on the difference between value, which
they regard as something subjective (use value / subjective value) and between price
(fair value: common basis for paying willingness) than the Americans. Americans
tend to not differentiate between the two and/or try to express everything in
monetary values. JC Spenser (an American) concluded for the development of
management systems: there seems to be a conflict between multifunctional /
-dimensional interest (Europe) and unidimensional interest (US). But in order
to evoluate the field and the development of modern management systems, we have
to abandon unidimensional concepts.
It seems that a lot of
potential exists for developing the field in combining the American and
European approach. The symposium was a first step. And both Americans and
European participants concluded that they each learned a lot from the other
approach.
End of report
1Juergen
H. Daum is management adviser, finance & enterprise management
expert, and Chief Solution Architect of the Business Solutions Architects Group
EMEA at SAP in Walldorf, Germany. For CFOs and controllers of numerous European
companies he acts as a generator of ideas and stimuli for the redesign and
transformation of the finance organization and enterprise management. Together
with his colleagues, he has been running the SAP Finance Best Practice Network
since 2003. This serves as a platform for the CFOs of European SAP customers
and their finance architects to exchange information about “finance best and
next practice” and draw up together the path toward the finance organization of
the future. He regularly publishes articles in journals, speaks at conferences,
and is author of the books “Intangible Assets and Value Creation”
(English edition: John Wiley & Sons 2003, German: Galileo-Press 2002)
and of “Beyond
Budgeting (German edition: Meidenbauer 2005). Before his time at SAP he was
CFO of a German midsize company. E-mail: jhd@juergendaum.com,
Web site: http://www.juergendaum.com/
Interview
with Juergen H. Daum: Intangible Assets and the art to create value
Juergen H. Daum's book on:
Intangible Assets and Value Creation, Wiley 2003
Why a new Management System ? –article by Juergen H. Daum
Interview with Baruch
Lev: Accounting, Reporting and Intangible Assets
Interview with David P.
Norton: "Intangible Assets and the Balanced Scorecard"
Interview with Leif
Edvinsson: Intellectual Capital: the new wealth of corporations
J.D.’s Beyond Budgeting Info Center
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free-of-charge e-mail newsletter (a regular summary of the recent reports) click here.
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