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Trend Report – January 15, 2006

Juergen Daum’s Best Practice service

©2006 Juergen Daum. All rights reserved.



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


by Juergen H. Daum1


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:

Aims of the Symposium
Summaries of presentations held
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.


Aims of the Symposium


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



Name:                           Link               Organization:                               Country:

                                     to pres.


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


(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):




·         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”).
- ‘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:


project managers




Value creation
(understand value creation)









(has to create the context)





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:, Web site:


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Additional Resources:

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

J.D.’s Best Practice Channel – Finance

J.D.’s Trend Reports



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Report from the First PMA Intellectual Capital Research Symposium held in Cranfield, UK, 1-2 October 2003

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More about Enterprise Management Best Practice and related topics will be continued in Juergen Daum’ Trend Reports. To subscribe for Juergen Daum’s free-of-charge e-mail newsletter (a regular summary of the recent reports) click here





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