Measuring your company's intellectual performance

• Published in: Long range planning 1997, Vol.30 (3), p.325,413-325,426
• Main Authors: Roos, Göram, Roos, Johan
• Format: Article
• Language: English
• ISSN: 0024-6301; 1873-1872; 1873-1872
• DOI: 10.1016/S0024-6301(97)00022-8

It is individuals who own and control the knowledge of organizational members, the chief source of competitive advantage. Intangible assets often tell one more about the future earnings of the company than today's conventional measures. Until 1980, competitive advantage was based on understanding the competitive environment. Then came the "resource-based" perspective. It became apparent that knowledge was a, if not the, key to sustainable competitive advantage. This touched on invisible assets and core competencies. Strategic management has now in fact shifted from looking externally to the realization that "internal" resources are the tools which need to be exploited. Kaplan and Norton introduced the "Balanced Scorecard" techniques which Skandia used as the foundation for its measurement of intellectual capital. The issues that are involved include treating intellectual capital as the sum of the company's hidden assets which are the most important source of competitive advantage and visualizing intellectual capital systematically. The findings of a research study showed a welcome for the explicit recognition of what intellectual capital was all about as well as a categorization of intellectual capital as human, customer relationship, business processes, organizational and intellectual. Models were developed which resulted in a number of conclusions. Maturity, clear goals and explicit commitment are essential. The intellectual capital (IC) system should focus on long-term earning capability and must be based in corporate culture. A set of indicators needs to be provided for each IC category. The balance sheet approach to IC does not provide information on the move from one category to another ; it is only a snapshot. There appear to be three methods of deriving indicators. One is to develop those which are firmly based on the driving forces behind the vision. Second, they need to be grounded in the selected intellectual capital categories and third, they need to reflect the intercapital flows. There are many difficulties in dealing with indicators, such as selecting the right ones, prioritizing them and making sure they are precise. An IC model needs to be able to be applied to small and large firms, parts as well as the whole. To be viable, an IC system has to be aligned with existing managerial processes. The conclusions from this research need to be tested with a larger sample. This will allow the development of a dimension-free process model for managi