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JIC
10,2 Intellectual capital measurement:
a critical approach
John C. Dumay
190 Faculty of Economics and Business, The University of Sydney,
Sydney, Australia

Abstract
Purpose – The purpose of this paper is to investigate intellectual capital (IC) measurement critically
so that the dynamics of intangible value creation can be better understood and to provide insights into
how IC is constructed rather than what IC is.
Design/methodology/approach – This paper presents a case study on how a division of a large
Australian financial institution utilised an approach based on complexity theory to investigate IC in
practice. The method utilises narrative, numbers and visualisations to make sense of IC at a particular
point in time.
Findings – It is argued that trying to “fit” existing popular frameworks to gather IC measurements
inside organisations has little relevance to understanding the value-creation process. As a result of the
investigation of IC in this paper, it is found that, to date, IC measurement has relied heavily on
“accountingisation” and that alternate methods to understand IC need to be developed. The paper
highlights that academics and practitioners need to develop new skills.
Research limitations/implications – The case study is limited to the use of an alternate method to
investigate IC in a particular organisational and cultural setting. The research opens the possibility of
the benefits of changing thinking about both research into, and the practice of, measuring IC.
Practical implications – Rather than being constrained by the traditional models of measuring
intangibles, by way of contemporary IC reporting frameworks, a more open process is outlined that
could improve the timeliness and use value of the information.
Originality/value – This paper has relevance to both IC academics and practitioners as it critically
examines the contemporary IC frameworks and offers an alternate method for examining IC which has
the potential to add to a discourse which focuses on additional understanding of IC.
Keywords Intellectual capital, Narratives, Complexity theory, Intangible assets, Australia
Paper type Case study

1. Introduction
The concept of intellectual capital (IC) is based on the wide recognition that
organisational knowledge needs to be managed (Mouritsen and Larsen, 2005) and that
technology has allowed for greater dissemination of this knowledge (Meritum
Project, 2002; Unerman et al., 2007). Prior research suggests that the development of IC
resources creates value for organisations, especially since the majority of an
organisation’s assets are intangibles that cannot represented on the balance sheet
(Stewart, 1997). The identification and measurement of an organisation’s IC is
important because these provide insights into the impact that the measurement of IC
may have on management action.
Journal of Intellectual Capital This paper investigates IC from a measurement perspective by presenting a critical
Vol. 10 No. 2, 2009
pp. 190-210 case study. In part, this paper has been inspired by the call for more critical research
q Emerald Group Publishing Limited
1469-1930
into IC in the 2006 special edition of the Journal of Intellectual Capital (Vol. 7 No. 1).
DOI 10.1108/14691930910952614 More specifically, it answers the call for deeper “thinking and real research on the
dynamics of intangible value creation,” an “acceptance of complexity and not Intellectual
knowing” and “more ‘how’ questions?” (O’Donnell et al., 2006, p. 10). Thus, this study capital
attempts to understand how IC can be represented by considering the role of
organisational actors and by questioning the suitability of the tenets of contemporary measurement
IC measurement frameworks.
To do so, this case study utilises research inspired by complexity theory (Snowden
and Boone, 2007, p. 71) to present numerical, statistical, narrative and visual 191
representations of IC. The aim is to make sense of how IC is constructed at a particular
point in time and to provide insights into how IC can be examined, how IC can be
understood and how management interventions into the development of IC to engender
value creation can be informed. Complexity theory has been chosen in an attempt to
understand the complex and fluid nature of IC (Cuganesan, 2005) and how it related to
value creation in the case study organisation. The case study organisation has been
chosen because of its ongoing attempts to understand how it created value at a time
where its outputs were seen as costs.
The examination of how IC is constructed at the case study organisation suggests
that measuring IC does impact organisations and that by taking a critical approach to
examining IC; that insights, critique and transformative redefinitions (change in
praxis) of IC are possible. This in turn suggests that the traditional frameworks used to
manage, measure and report IC need to be transformed and that the one size fits all
approach to IC taken to date is unsatisfactory.
To address IC measurement critically, this paper is presented in a further four
sections. In Section 2, a discussion of the evolution of IC measurement is presented and
a critique of its current status is proffered. Section 3 presents empirical evidence from a
case study, influenced by complexity theory, to exemplify a novel approach to
measuring IC. Section 4 discusses the findings of the paper and Section 5 presents the
conclusion.

2. Intellectual capital measurement

There can be little argument that the world’s economy has shifted, and is continuing to
shift, from an economy driven by the use of tangible assets such as plant, equipment and
real-estate to an economy driven by the use of intangible resources such as knowledge,
technology, core competencies and innovation (Meritum Project, 2002). An example of
this shift is that National Association of Securities Dealers Automated Quotations listed
companies, such as Microsoft, Cisco, Amazon, and Yahoo, who are representative of the
knowledge-based economy, have become permanent members of the Standard & Poor’s
(S&P) 500 index. Towards the end of 2002, knowledge-based economy companies
represented 11.9 percent of the S&P’s market value (Burgman and Roos, 2004). While
the definition of the knowledge-based economy is ambiguous, several structural
changes have been identified (Meritum Project, 2002) as central to the concept:
.
Knowledge is being recognised as a commodity and is being utilised in
transactions.
.
The connectivity between knowledge agents has increased remarkably.
.
Information and communications technology (ICT) has allowed for greater
creation and diffusion of knowledge and thus the network of knowledge agents
has expanded globally.
JIC The increasing relevance of intangible assets can be seen in the valuation of companies
10,2 over the last few decades, where the ratio of the market value to balance sheet or book
value of a company has been constantly growing, especially since the 1990s. The
difference in the market-to-book ratios shows that the current financial accounting
systems in practice are not adequate definers of economic value or resources. The
Meritum Project (2002) theorised that this may result in the inefficient allocation of
192 resources, both human and financial. Stewart (1997) espouses the view that this
difference between the tangible accounting assets base of a firm and the market value
of a firm is considered to be “IC” from which value emanates. While the market to book
ratio is a simplistic way of conceptualising IC, Brennan and Connell (2000) identify that
it has three weaknesses. First, IC does not comprise the entire difference between
market and book values. Second, the continual fluctuation of share prices distorts the
value of IC. Last, it is a singular measure of the value of IC that does not give a
breakdown of the individual components of IC. Thus, the value of utilising such a
simplistic framework to view IC is questionable.
In addition, a plethora of frameworks for the measurement of IC have been
developed. Sveiby (2007) identifies 34 different frameworks for the measurement and
reporting of IC, the majority of which attempt to identify the components of IC. One
problem with the plethora of views about measuring the components of IC is that no
one view, other than the concept of intangibility, has consensus among practitioners
and researchers. The closest to any single unifying model of what IC measurement
should encompass seems to be founded in the general acceptance of the tri-partite
representation of IC categories as human, structural and relational capital. Even here
the terminology can differ (Petty and Guthrie, 2000, p. 159), other categories may
be added to the model (Habersam and Piber, 2003, p. 767), or the whole model can be
completely redefined (Leliaert et al., 2003). Thus, the lack of agreement among
academics and practitioners into the “correct” way to represent the components of IC
also brings into question the utility of these contemporary frameworks.
Accordingly, research into developing other types of IC measurement frameworks
based on the existing models but attempting to fit further IC components into familiar
accounting and management reporting frameworks (Edvinsson and Malone, 1997;
Sveiby, 1997; Mouritsen et al., 2003, p. 5; Society for Knowledge Economics, 2005) may
be a fruitless task. This is because, as Andriessen (2004, p. 231) points out,
contemporary IC measurement frameworks have, for the most part, been developed by
practitioners rather than academics, and as a result the validity and motives behind
their development is questioned as well. The development of IC measurement
frameworks based on the self-interest of their developers appears to add to the
confusion about what is the right framework to apply, what is likely to be the effect
of measuring and disclosing IC or even if this is a worthwhile endeavour
(van der Meer-Kooistra and Zijlstra, 2001). Therefore, it seems that any attempt to
once again redefine what IC is would add little, if anything, to the knowledge and
practice of IC measurement.
This is not to say that the measurement of IC is inherently flawed or that it creates
more confusion than it is worth. The message that all the models, frameworks,
discussions and literature appear to be conveying is that IC is interesting (Chatzkel,
2004, p. 337); IC is complex and complicated (Cuganesan, 2005; Bueno et al., 2006);
IC needs to be understood better (Mouritsen, 2006); and IC needs to have a diverse set of
tools for its management and measurement dependent on the purpose of the Intellectual
measurements (Sveiby, 2007). But more importantly, the literature shows that for the
last two decades the concept of IC has become a consideration for all organisations and
capital
that organisations need to be able to assess how IC works within their operational measurement
context. So, the aim of this paper is not to answer the all encompassing question of
“What are the organisation’s measures of IC?” but rather to answer “How is IC
constructed within the organisation?” 193
This questioning is akin to taking a “critical” approach to contemporary thinking on
IC measurement. But what is meant by being “critical” and what does taking a
“critical” approach have to do with IC? The notion of a “critical approach” has
developed in response to similar conditions to those under which the concept of IC has
developed. Alvesson and Deetz (2000, p. 14) consider that a “critical” approach to
management research was developed as a response to changing social conditions as
the result of developments in “science, industrialization and communication/
information technologies.” Similarly, the concept of IC has come into prominence
due to structural changes in the economy as knowledge, communication and the
importance of intangibles have changed the conditions under which organisations now
operate (Meritum Project, 2002). These changing conditions in society and in
organisations have usually been lauded for their positive impacts, especially in western
societies, but the domination of these changes can also have negative impacts
(Alvesson and Deetz, 2000) and this has also been recognised in the IC literature
(Caddy, 2000; Leitner and O’Donnell, 2007).
In this paper, the term “critical” is not used to find fault with current thinking about
IC measurement, but to question its current tenets, thus the focus is on critique[1]
rather than criticism[2] (Alvesson and Deetz, 2000, p. 8). Questioning the tenets of
contemporary IC measurement comes from the recognition that the achievements of
two decades of management practice and academic research surrounding IC has
mainly concentrated on establishing these tenets, that is, the definitions, the measures
and frameworks of IC (Chatzkel, 2004). But currently, the IC paradigm suffers from a
lack of proliferation as evidenced by the relatively few organisations that measure and
disclose their IC (Brennan, 2001; April et al., 2003; Bontis, 2003; Ordóñez de Pablos,
2003; Guthrie et al., 2006; Unerman et al., 2007). Thus, if the tenets of the IC paradigm
were as fruitful as some of its pundits have declared the question is “Why have not
more organisations taken it up?”
One reason proffered for this is that the measurement, management and reporting of
IC is at a crossroads because the creation of these tenets of IC have only gone to raise its
awareness (Marr and Chatzkel, 2004, pp. 224-5). As Chatzkel (2004, p. 337) explains, in
order to move through the crossroads academics and practitioners:
[. . .] must substantially demonstrate the relevance of IC as a working discipline that is useful
to organizations to use to gauge and generate significant value and to effectively navigate to
achieve strategic goals. Otherwise, the notion of IC and all it stands for will be seen as merely
one more set of very interesting ideas that is continuingly elusive to grasp and use.
As a result, there has been interest in the exploration of a more critical stance towards
the research and understanding of IC (O’Donnell et al., 2006). By thinking “critically”
about IC measurement, it is intended to help change the way it is understood and to
break free from the construction of IC that the current dialogue appears not to have
been able to progress. Past critical IC research has concluded that the potential of IC
JIC will not be realised if management continues to force thinking about IC into the
10,2 existing frameworks (Chaharbaghi and Cripps, 2006) based on accounting,
management control and the management of intangibles (Guthrie et al., 2003,
pp. 430-1). This thinking is not only advocated for practitioners, but for academic
researchers as well, so that a deeper understanding of how IC works and how IC is
utilised in organisational change can be developed (Mouritsen, 2006). As O’Donnell
194 et al. (2006, p. 7) explain this way of viewing IC research will not answer the question of
“What is IC?” rather the question asked should be “How is IC?” This is because asking
how is more revealing (O’Donnell et al., 2006, p. 7) as it addresses the praxis of IC as it is
implemented in organisations, rather than re-creating a static representation of IC, as is
represented by contemporary measurement frameworks and their associated theory or
theories.
In considering the how question, this paper builds upon the identification of IC as a
complex phenomenon and the growing need to acknowledge and empirically
investigate the complexity of IC in organisational settings (Cuganesan, 2005; Bueno
et al., 2006; Mouritsen, 2006; O’Donnell et al., 2006, p. 10). From the perspective of
complexity, there is a growing literature that explores complexity from an organisation
theory perspective (Anderson, 1999; Anderson et al., 1999; Lewin, 1999) and in
particular, it focuses on exploring the links between complexity and organisational
strategy (Lewin, 1999; Kurtz and Snowden, 2003). Complexity theory deals with
understanding systems where there is a non-linear relationship in the interactions
between the elements of a system. These systems are characterised by the fact that
small changes to one or two parameters may have significant, emerging and
unexpected effect(s) on the entire system (Anderson, 1999; Browning and Boudès, 2005;
Snowden and Boone, 2007). Thus, if organisations are viewed as complex systems, the
application of complexity theory based methods when researching IC, allows an
opportunity to develop insights into IC which may not be gleaned by utilising
contemporary IC measurement and research frameworks. This may then help make
sense of how the complex interactions between IC resources contribute to value
creation thus reducing their ambiguity, especially when examining an organisation’s
intangible resources (Dierickx and Cool, 1989, pp. 1508-9).
To explore the how question further, the findings of a case study into the attempt to
understand IC in a division of a large Australia financial services company with over
25,000 employees is presented (herein named AusFinCo). The next section discusses
the research at AusFinCo, how a critical view of IC measurement emerged and how the
complexity theory and other tools were applied to develop this view.

3. Measuring IC at AusFinCo
This paper is presented as a case study. The advantage of case studies is that it they
can be used to explore and understand a phenomena in a particular context, they have
flexibility as to the boundaries that the study can be directed, and different methods of
collecting data can be used, including but not limited to, interviews, focus groups,
internal documentation, external documentation, participant observations and direct
observations (Creswell, 1998; Collis and Hussey, 2003; Yin, 2003). The use of multiple
methods of data collection offers researchers a rich source of data from real settings
(Yin, 2003) and in the case of AusFinCo allowed for the use of different data sources to
suit the emergent pattern of research employed.
 What is important to consider here is that the process utilised to research IC Intellectual
measurement was an emergent one. So, unlike a traditional format, where method and capital
data analysis are separated, the development of the method and the data as it emerged
in the research is presented together. Therefore, this section is separated into the measurement
following three sub-sections. First Sub-section 3.1 describes the research site and
project. Second Sub-section 3.2 describes the first stage of the research based on an
audit of the then current performance management reporting systems. As a result of 195
the audit, a “critical” approach to understanding IC measurement was developed and
this is the topic of Sub-section 3.3.

3.1 The research site and project

The business operations (BOP) division of AusFinCo performs the back office
functions for AusFinCo’s products; they manage the overall information technology
(IT) architecture, support and enhance software systems, and manage and implement
major projects. They make available infrastructure support for cash management,
fraud, physical security, business services and records management. In addition, BOP
manages AusFinCo’s property portfolio and outsourcing contracts. BOP employs
16 percent of AusFinCo’s staff representing about 4,000 employees and is responsible
for 45 percent of AusFinCo’s expense base. AusFinCo’s, or more precisely BOP’s,
motivation for commencing this research project was to demonstrate the value that
BOP created for both its partner business divisions, who are the recipients of BOP
services, and end-users of AusFinCo’s products and services.
The problem perceived by BOP management was that the value that BOP creates
for its partner business divisions and end customers is intangible. This problem was
seen to be compounded by AusFinCo’s internal accounting systems which allocate the
cost of the services provided by BOP to the end-users of these services. This has, in
the view of BOP management, led to the perception that BOP is considered a cost to the
other divisions and not a partner in the creation of value. Thus, BOP’s challenge was to
articulate how it creates value for the other divisions and to understand the interaction
of the intangible resources utilised in creating this value. Value here can be defined in
two ways. First, it can be defined in economic terms from the view point of helping to
generate income and reduce costs. Second, value can also be defined from the position
of the worth or importance of the services provided by BOP from the view point of
individuals who are the constituents of the groups that make up BOP, the other
AusFinCo divisions and customers.
To understand how AusFinCo and BOP articulated value creation, the research was
conducted in two parts. The first part consisted of content analysis of relevant strategic
and reporting documentation. This research was completed in October/November
2005. The use of content analysis as a method for collecting empirical data about an
organisation’s IC is well established as it allows for the identification of the types of IC
and the measures of IC utilised by an organisation (Guthrie et al., 2004). The objective
of this research was not only to identify the key types and measures of IC in
AusFinCo’s documentation, but also to establish any link between these and the
challenges that AusFinCo’s management identified towards the value-creation
objectives espoused in the same documents.
The second part of the research took a different path by collecting organisational
narratives about IC from BOP employees in March/April 2006. The particular method
JIC employed here is known as “pre-hypothesis research” (Snowden, 2006) and was
10,2 designed to elicit narratives about IC and value creation as it was constructed at that
particular time. Traditionally, the use of narrative in IC has been seen to offer
reasoning behind an organisation’s management and subsequent disclosure of IC
(Mouritsen et al., 2002, p. 14). But, the espoused use of narrative solely as an
explanation of the reasons behind an organisation’s management of IC it is seen as too
196 narrow. This is because narrative has been identified as not only allowing for
organisations to explain their actions, but it can also be used to “reveal the individual,
human projects within organizations and [. . .] construct and identify emerging
organizational strategies” (Llewellyn, 1999, p. 233). Additionally, narrative can be used
to represent communicative interactions that create social reality offering greater
involvement of organisational actors (Weick and Browning, 1986). This expanded view
of the usefulness of narrative led to its use in this part of the research as a data source
rather than as an output of research. In addition to utilising the “pre-hypothesis”
method, and in keeping with the emergent theme within complexity theory (Snowden
and Boone, 2007, p. 71), other methods of analysis were developed to represent and
thus articulate how the dynamics of IC and value creation were constructed at BOP.

3.2 Identifying IC and value creation themes

For BOP to show that it adds value to the organisation, it has to communicate
information about its performance. Here, in the first stage of the research, the
alignment of BOP’s performance measurement systems with strategic management
objectives was examined through a content analysis of internal and external BOP
performance measurement and reporting documents. In this analysis, the following
documents, as presented in Table I, were used.
From the examination of these documents it was determined that AusFinCo is
following what can be described as a customer service-oriented strategy (Rucci et al.,
1998). The examination of the 2005 BOP Strategic Plan provided the strategic
objectives articulated below, the first and third of which related to the overall
AusFinCo strategy statements. The major BOP strategic objectives were identified as:
(1) enhance the customer experience to be number one in customer service;
(2) significantly improve our operational efficiency at a unit cost level to achieve a
significantly lower expense profile;
(3) build an achievement-based culture focused on customer service and
innovation; and
(4) optimise capital usage by reducing our operating risk and leverage profiles.

Internal documents External documents

Table I. 2004 BOP Strategic Plan 2004 Annual Report

List of internal and 2005 BOP Strategic Plan 2005 Annual Report
external documents May 2005 BOP Performance Report 2004 Social Impact Report
examined July 2005 BOP Performance Report 2005 Social Impact Report
In order to assess whether key performance indicators (KPI’s) contained in the July Intellectual
2005 BOP Performance Report reflected the extent to which they measured the capital
strategic objectives of BOP, an analysis of the KPIs was conducted. In addition,
the measures were categorised in terms of whether they reflected attributes of tangible measurement
resources, being either physical or financial capital; or intangible resources, being
either relational, structural or human capital. The results of the measurement audit are
contained in Table II. 197
The resultant analysis of this examination of KPIs highlighted the following four
issues. First, while the strategic objectives of BOP highlighted the role of IC (in terms of
enhancing customer experiences, culture and innovation), management were
concerned that existing KPIs contained in quarterly BOP performance reports were
insufficient in measuring and reporting the attainment of strategic objectives. Second,
in keeping with BOP being a cost centre, almost half of the measures reported focused
on operational efficiency. Examples of these included departmental expense reporting,
outsourced expenses, IT costs per full-time equivalent employee (FTE) and number of
FTEs. Third, there were limited human capital measures or those that related to the
building of an achievement-based culture. Fourth, no attempts had been made by BOP
management to develop strategic links between measures. Overall, while there were
measures relating to relational, structural and human capital, their strategic
importance and how they demonstrate how BOP creates value was often unclear.
More importantly, from a critical IC perspective, it brings into question the ability of
the current performance measurement framework to represent BOP’s IC. Thus, if the
current framework cannot deliver such an outcome then the ability of BOP to
understand how IC works and how it is utilised in organisational change is
also questioned. But as identified earlier, the traditional approaches and frameworks to
measure IC have also been questioned and it was also the opinion of BOP management
that it did not see the value in creating an additional “IC report.” Thus, it presented an
opportunity to take an alternative approach to understanding IC within the BOP
context and this is outlined next.

3.3 Understanding IC
In the second phase of the research, a critical research method referred to as
“pre-hypothesis” research was utilised (Snowden, 2006). This method utilises
complexity theory by way of the Cynefin (see www.cognitive-edge.com for further
details) framework (Kurtz and Snowden, 2003; Snowden, 2006; Snowden and
Boone, 2007) which was linked to IBM’s “Knowledge and Differentiation Programme”
in Europe in 1997. This framework makes use of both qualitative and quantitative data
to provide context and explanation about IC (and other phenomena) within a particular
organisational setting. This method was also chosen as AusFinCo had already
been using complexity theory in the initial and ongoing development of a strategic
innovation capability within the organisation with the purpose of increasing
“the resilience of the organisation in the face of changing environmental
characteristics” (Kay, 2007, p. 1).
At the heart the “pre-hypothesis” method is what Snowden (2006) refers to as a
sense-making item (SMI). An SMI is defined as “anything that helps people make sense
of the world they live in” (Snowden, 2006, p. 1). The most common SMI form is that of
an anecdote or short fragments of fully formed stories that are seen as part of human
 JIC
10,2

198

Table II.
Content analysis –
measurement results
BOP objectivesa
Enhance the customer Build an achievement-based Optimise capital usage
Resources experience Improve operational efficiency culture (risk/leverage)

Financial/physical Customer satisfaction – Gross expenses

capital various Monthly expenses
ATM cash availability (%) BOP projects financial
performance
Profit performance
Underlying profit
BOP area contribution after tax
Balance sheet information
Project financials
Relational capital Customer satisfaction – Outsource expenses Community days/FTE Risk rating
various BOP non-lending losses;
complaints
Structural capital Customer experience goals met IT expenses, IT as percentage of Projects with green status Risk rating
Channel availability and revenue, IT cost/FTE WIRES incidents and audit
response service levels Operational excellence key value results risk rating
Operational excellence KVDs drivers (KVDs) Compliance breach/incidents
Projects with green status Projects with green status indicators
Projects with green status
Human capital Resignation rate One-day absences/FTE Quarterly staff commitment
FTE and personnel expenses BOP compliance training –
analysis percentage attended
Average annual leave
outstanding days
Note: aSome measures have been classified into more than one category
discourse and are at the heart of how people transfer knowledge to each other Intellectual
(Czarniawska, 1998). The use of SMIs is enabled by prompting respondents to give capital
narrative responses to non-directive questions. The theory is that when a person is
asked a non-directive question that is answered with a narrative from either their point measurement
of view or a third-party perspective, they will more likely give answers based on their
experiences. Allowing these narratives to be told from a third-party perspective also
allows for more open answers, especially when the narrative could be embarrassing or 199
negative from the respondent’s perspective.
In the case of BOP, 208 narratives were gathered from 41 employees who were
selected using a random-sampling process. Each of the employees was asked to
provide five narratives based on open questions about their experiences of work life at
BOP. Each of these narratives were indexed (scored) using a set of filters based on
themes that were developed to elicit understanding about elements of IC that were
identified by BOP management as being relevant to improving organisational
performance. The indexing was based on a 0-10 scale and was only scored if the
respondent felt that the particular index applied to the narrative in question. Table III
identifies the filters used to self-analyse the narratives and the frequency of narratives
scored by each of the filters.
Examining Table III provides both a confirmation and more detail on the IC
components that are relevant to the conduct of business activities that impact IC, as
envisaged by BOP employees. In examining relational and structural capital, there is a
strong emphasis on knowledge, communication, the use of technology and the right
mix of human intervention and automation. The role of technology in creating value
was confirmed with three of the top five structural capital indexes being about the
impact on processes and customers. Importantly, the role of human intervention should
not be overlooked with communication and people helping customers being seen as
strong themes of work at BOP and AusFinCo. Finally, examining human capital
components in Table III indicates the importance of attracting, engaging and retaining
employees. Also confirmed was the importance of knowledge workers, with employees
emphasising the need to learn through training and from knowledge sharing with
other staff.
Given the complexities of IC, it was necessary to consider how each of the IC
components influenced each other and the overall pattern of interaction. Thus, in
addition to investigating the perceived importance of each IC component, the
interaction between them was also analysed. This is where the research departed from
the “pre-hypothesis method” as outlined above, yet still remained coherent with the
emergent theme from within complexity theory as it attempted to further make sense
of IC within the BOP context. This innovation emerged from the author’s desire to
achieve two ends. First was to explore the complex web of inter-relationships between
the IC components. Second was to make sense of how these complex interactions
could reduce the ambiguity between the organisation’s IC resources and value creation.
The following describes the author’s analytical innovation by way of the development
of visual maps which display the interaction pattern of IC at BOP. These are shown in
Tables IV and V.
The basis of these maps is a pair wise correlation analysis of the ranking scores
provided by the employees for each of the IC components. According to probability
theory and statistics, pair-wise correlation, also called correlation coefficients, indicates
JIC
IC component Frequency of self-indexing
10,2
Relational capital
Creates value for AusFinCo 187
Beating the competition 148
Creates value for customer 146
200 Requires a knowledge worker 145
Positive customer experience 140
Technology helping customers 117
Requires a process worker 109
Sharing knowledge externally 98
I can see the customer 94
Structural capital
Effective lines of communication 159
Technology supports processes 135
People helping customers 131
Easy to use technology 126
Technology supports customers 117
Performance is product-based 107
Innovative products 99
Product focused 87
Human capital
An attractive place to work 172
Trained and competent staff 159
Learning from others 146
The work is engaging 145
Long term career 134
Table III. Set in their ways 108
Ranking of IC The new generation 92
components Looking to retire 75

the strength and direction of a linear relationship between two random variables
(Kenkel, 1989, pp. 649-58). The identification of strong relationships between IC
elements should be taken as a method for establishing retrospective coherence about
what has happened in the past rather than as a basis for future predictions, although
they can be used to influence future interventions (Snowden and Boone, 2007, p. 71).
These relationships are represented in the figures at the intersection of the elements
and are shaded to represent the strength of the potential interaction between them.
Black denotes very strong interactions; grey denotes a strong interaction and white
denotes little or no interaction.
While Table IV shows the overall pattern of relationships, the desire of the research
was to reduce the ambiguity between resources and value creation. Thus, in order to
achieve this end and to simplify the analysis, the relational capital components
considered to most identify with customer and shareholder value were selected as the
“value dimensions,” and again the relationships between the IC components and these
dimensions have been shown in Table V This analysis thus provides insights into
reducing the ambiguity as to how IC works within BOP and the complexities of the
IC-value creation nexus.
From this perspective, three points were identified that reduced this ambiguity.
First, there are strong inter-relationships between the four value dimensions,
 IC elements Relational capital Structural capital Human capital

Filters

IC elements
Positive customer experience
Creates value for the AusFinCo
I can see the customer
Sharing knowledge externally
Requires a knowledge worker
Beating the competition
Creates value for customer
Requires a process worker
Technology helping customers
Product focused
Innovative products
Performance is product based
Easy to use technology
People helping customers
Effective lines of communication
Technology supports customers
Technology supports processes
The work is engaging
Trained and competent staff
Learning from others
Long term career
Set in their ways
An attractive place to work
The new generation
Looking to retire

Positive customer experience

Creates value for the AusFinCo
I can see the customer
Sharing knowledge externally
Requires a knowledge worker
Beating the competition
Creates value for customer

Relational capital
Requires a process worker
Technology helping customers
Product focussed
Innovative products
Performance is product based
Easy to use technology
People helping customers
Effective lines of communication
Technology supports customers

Structural capital
Technology supports processes
The work is engaging
Trained and competent staff
Learning from others
Long term career
Set in their ways
An attractive place to work

Human capital
The new generation
Looking to retire

Map of inter-relationships
capital
Intellectual

measurement

of IC
201

Table IV.
JIC Value dimension

IC elements
10,2

for AusFinCo
Creates value

Creates value
for customer
competition
Beating the
experience
customer
Positive
IC components

202 Positive customer experience

Creates value for AusFinCo
Relational capital

I can see the customer

Sharing knowledge externally
Requires a knowledge worker
Beating the competition
Creates value for customer
Requires a process worker
Technology helping customers
Product focused
Innovative products
Structural capital

Performance is product based

Easy to use technology
People helping customers
Effective lines of communication
Technology supports customers
Technology supports processes
The work is engaging
Trained and competent staff
Human capital

Learning from others

Long term career
Table V. Set in their ways
Value dimensions and An attractive place to work
interactions between IC The new generation
components
Looking to retire

indicating “value bundling” across customer and shareholder value dimensions.

Employees perceive that delivering customer value will in turn translate into value
creation for AusFinCo in a competitive context and for its shareholders. Second, the
importance of managing knowledge flows and knowledge workers is emphasised, with
strong relationships not only between the requirement for knowledge workers and
people helping customers and the four value dimensions as has been noted earlier, but
also for the need to share knowledge externally and innovation in terms of products,
both of which have strong and very strong relationships with the four value
dimensions. Last, it confirms in more comprehensive fashion the role of technology.
While technology helping customers was not within the top five indices relevant to
work life at AusFinCo as indicated in Table III, it is an important enabler of customer
and shareholder value, having very strong relationships with all four value
dimensions.
 Overall, a relationship between elements of human, structural capital, and Intellectual
improvements in relational capital at AusFinCo is indicated from the perspective of capital
BOP employees. The analysis indicates that people in BOP believe there is a
relationship between a work environment that is seen to be attractive and engaging, measurement
develops competencies and offers employees a career that is both enabled by and
allows the application of ICT and the flow of knowledge. It is the view of BOP
employees that the interaction of these intangible resources creates value for AusFinCo 203
and its customers. Thus, from a value creation perspective, managerial interventions
into the organisation that, for example, develops the work environment, develops
career paths and ICT resources are seen to be beneficial and focused. This is seen to
offer a potential advantage over contemporary IC frameworks which are capable of
identifying the important components of IC but are still plagued by continued
ambiguity over the combination of intangible resources that create value.
Thus, it is demonstrated above that it is possible to take a snapshot of an
organisation at a desired point in time and report, by way of organisational narratives,
a visual display, supported by the analysis of IC interactions, of how an organisation’s
IC is constructed. While this has the potential to disseminate information about the
state of the interactions between the elements of the organisation’s IC, what can add
further value to the organisation is that it is also possible to take another snap shot of
the organisation after informed interventions take place to see if the pattern of
interaction of IC elements changes. The benefit of taking a snapshot beforehand
allows for the development and implementation of organisational interventions or
probes that have the potential to influence the development of patterns of interactions
that are desirable for the organisation. The subsequent post-intervention snapshot
analysis will help the organisation understand what interventions were successful and
those that were not. Additionally, should the results of a specific intervention become
reliably predictable it may be possible to move the intervention from the complex to
the known domain (Kurtz and Snowden, 2003; Snowden and Boone, 2007).

4. Discussion from a “critical” stance

The purpose of this section is to use the “critical” approach to management
research and link it to the empirical evidence. According to Alvesson and Deetz (2000,
pp. 17-20) there are three tasks to be undertaken in a “critical” approach to research.
These are “insight,” “critique” and “transformative redefinitions.” Thus, this paper’s
contribution to the literature on IC measurement is offered from these perspectives.
Each of these elements of the critical framework will now be presented in the following
sub-sections.

4.1 Insight
According to Alvesson and Deetz (2000, p. 17), the task of insight is to demonstrate
“our commitment to the hermeneutic, interpretive and ethnographic goals of local
understandings closely connected to and appreciative of the lives of real people in real
situations.” So, insight from a critical IC measurement perspective deals with trying to
understand the impact of IC practices on both the people and the organisations they
belong to. Thus, when viewing IC in this way the answer to O’Donnell et al.’s (2006, p. 7)
question of “How is IC?” can be addressed.
JIC The current research addresses such a question as it provides an example of how
10,2 the traditional frameworks of IC can be utilised to develop a view from within an
organisation rather than trying to “fit” an existing framework to gather measurements
that may have no relevance to the value-creation process. Thus, the insight that was
developed to understand IC and value creation at BOP was achieved using a critical
research method, being Snowden’s “pre-hypothesis” method in conjunction with the
204 author’s development of a visual representation of IC interactions. The application of
these methods to examine IC measurement questions not only the contemporary IC
measurement frameworks but also the manner in which this could be accomplished.
This is evidenced by the ability of the analysis to reduce some of the ambiguity
surrounding the combination of intangible resources that create value as shown in
Table V. As Alvesson and Deetz (2000, pp. 148-9) explain, the development of critical
insight is all about the art of interpretation so that in the end new meanings and
unexpected light is shed on the subject. In this case, the visual representation of IC and
value dimensions develops this new meaning and provides for greater understanding
of IC within the BOP context.

4.2 Critique
The objective of critique “is to counteract the dominance of taken-for-granted goals,
ideas, ideologies and discourses which put their imprints on management and
organization phenomena” (Alvesson and Deetz, 2000, p. 18). By “critiquing” the
applicability of contemporary IC measurement frameworks it opens the possibility of
examining IC differently. This is important because, as was earlier argued, one of the
problems of the current view of IC measurement is that many of the ideas and
terminology of IC that have been developed are the result of past management thinking
and that as a “new” concept IC is heavily influenced by “old” ideals. The most
prominent of these relates to the term “IC” in that the terminology itself is the source of
misunderstandings of its very nature. The word “capital” implies that knowledge is
some form of material wealth that can be managed in the same way as physical assets
and that investing in these assets leads to the creation and possession of knowledge
resulting in more wealth, both of which are empirically unproven (Newman as quoted
in Chaharbaghi and Cripps, 2006, p. 42).
One only has to look at the proliferation of the original frameworks which
attempted to ascribe a dollar value to IC or the balance sheets of IC in the format of
“scorecards” as ample evidence of this thinking (Sveiby, 2007; Ricceri and Guthrie,
2009). The subsequent unwillingness of the practitioner and academic communities
to universally adopt any of these frameworks coupled with the fact that many of the
new frameworks do not offer a radically different view of valuing or measuring IC
continues to bind the IC paradigm to old accounting and performance management
ideals. Additionally, the continued dominance of old managerial ideals has led to the
misuse of the IC measurement frameworks. Sveiby (2007) outlines examples of IC
measurement as being used as either a management control tool or for enhancing an
organisation’s public relations and how this has had negative consequences for
organisations.
The investigation of IC measurement in this paper offers critique in that it
exemplifies the ability to break free from the current frameworks of IC measurement
that have been identified as being constructed by management practitioners and
academics with the “accounting” of intangibles in mind. The view offered in this Intellectual
paper is that these contemporary IC measurement frameworks are reifying IC in the capital
same manner in which tangible assets are portrayed within accounting, which is akin
to attempting to make the intangible tangible. This is what the author defines as an measurement
“accountingisation” of IC. This practice of the “accountingisation” of IC has at best
brought attention to the concept of IC and not its praxis, thus the ability of
contemporary IC frameworks to generate “understanding” is questioned. The 205
converse to contemporary IC measurement is demonstrated in this case by the
production of the correlations between IC elements and the resulting patterns, which
by their very nature remain intangible. These measurements of IC interactions are
remarkably different from the contemporary IC measures found in BOP’s
performance management reports.

4.3 Transformative redefinition

The last task of critical research “is the development of critical, managerially relevant
knowledge and practical understandings that enable change and provide skills for new
ways of operating” (Alvesson and Deetz, 2000, p. 19). This last task is especially
important to measuring an organisation’s IC as there are inherent contradictions
between the espoused benefits of IC and the reality of organisational practices.
For example, as Mouritsen (2006, pp. 835-6) points out, organisations are more likely to
invest in human capital when they are “in the black” and to reduce the number of
employees when they are “in the red.” This contradicts the espoused benefits of human
capital which, by the logic and argument of the IC paradigm, advocate the need to
invest in employees as investments in human capital, and other forms of IC, are
required for the long-term financial success of the organisation. These and other
contradictions will continue to evolve from the ongoing research into IC but should be
taken as opportunities to develop insights that encourage more progressive
management practices (Alvesson and Deetz, 2000, p. 20).
Previous thinking about IC that has forced the analysis, understanding and
management practice of IC into entrenched management and accounting paradigms
has resulted in a co-optation of IC into management practice. This can in part be to
blame for the lack of take up of IC identified earlier and as evidenced by a number of
organisations that have adopted IC management practices, lauded the benefits and
then quietly withdrawn, especially when the going gets tough or they lose interest in
the concept. Thus, IC is not a concept that translates automatically into beneficial
organisational outcomes. The changes and benefits that accrue from managing IC are
more likely to be developed “in an ongoing struggle including much practice and
frequent false starts” (Alvesson and Deetz, 2000, p. 20).
In order to progress the critical agenda on IC, managers will need to learn new skills
(Alvesson and Deetz, 2000, p. 20) that will enable them to better understand the
evolving insights and critiques of IC. By utilising these new skills and understandings,
better decisions about how IC can be utilised in a particular organisational setting can
be made rather than attempting to “fit” a particular organisation’s IC into one of the
contemporary IC measurement frameworks (Mouritsen, 2006, pp. 829-32). This paper
offers an example of such skills. The ability to apply alternative modes of investigating
IC by utilising complexity, narrative, numerical, statistical and visual techniques
outlines the types of skills that practitioners and researchers may need to acquire and
JIC develop in order to break free from the constraints of the current domination of
10,2 contemporary accounting based frameworks of IC measurement.
One objective of the “critical” approach is not to direct what needs to be done, but
rather to build upon critique to offer “a more positive future or more cautiously,
alternative routes towards engagement with the world” (Alvesson and Deetz, 2000,
p. 152). In this light, it is emphasised that retaining the “accountingisation” of IC
206 measurement will only stifle the future of IC; utilising other approaches is not only
possible but is likely to bear fruit, such as reducing the ambiguity in relation to
intangible resources and value creation. Thus, a specific set of recommendations is not
made, nor is advice offered on what exactly the management of BOP should do next
other than offering the opportunity to utilise a different way of measuring IC. In reality,
all that has been done is to open the door to a possible productive way of
understanding IC and the complexities of value creation within the specific
organisational context of BOP.

5. Conclusion
The insight offered in this paper is that the traditional frameworks used to manage,
measure and report IC need to be transformed and the one size fits all approach to IC is
unlikely to provide any more answers than it already has. This is because of the
inability of contemporary measures of IC to reduce the ambiguity between the
interaction of intangible resources and value creation at a specific point in time. What
has been demonstrated in this paper is the ability to view both the research and
application of IC measurement differently by examining how IC is constructed in an
organisation so that there is the potential to reduce the ambiguity between the
intangible resources of an organisation and the ability to create value. Thus, trying to
“fit” contemporary frameworks to gather IC measurements to specific settings within
organisations may have no relevance to understanding their value creation process. It
is this paper’s argument that it is appropriate for a more critical view of IC
measurement to be taken in both research and practice.
As a result of the investigation of IC measurement in this paper, the ability to break
free from an “accountingisation” of IC that to date only seems to have raised the
awareness of IC and not the praxis of IC is explored. The measurements of IC
interactions outlined here are remarkably different from the IC measures found in
contemporary performance management reports and IC measurement frameworks.
By learning and utilising new skills and understandings, managers can make better
decisions about how IC can be utilised, this is in opposition to attempting to “fit” a
specific IC context into one of the contemporary IC measurement frameworks. Thus,
the ability to apply alternative modes of investigating IC by utilising other techniques
shows that practitioners and researchers need to acquire and develop new skills in
order to break free from the constraints of the current domination of contemporary
accounting based frameworks of IC measurement.
The main limitation of this case study is that the use of an alternate method to
investigate IC in a particular organisational setting. So, while the process outlined suits
this particular organisation, it does however open up the general understanding of the
benefits of changing our thinking about both research into, and the practice of,
measuring IC. Thus, rather than being constrained by the traditional models of
measuring intangibles, by way of contemporary IC reporting frameworks, a more open Intellectual
process is outlined that could improve the timeliness and use value of the information. capital
A further limitation of this case study is its cultural setting. From this perspective,
the case study is based on an organisation that operates in both an Australian and measurement
western business context. Even though globalisation may be seen to be reducing the
gap between cultural contexts, the applicability of this case study to understand how
IC is constructed in say Eastern European and Asian contexts may be limited. This is 207
because, as identified earlier in the paper, the acceptance of changes brought about by
technology and the greater dissemination of knowledge are mainly lauded by western
societies. This then presents a further opportunity to research how IC is constructed in
organisations operating in other national and international contexts from a critical
research perspective.

Notes
1. Critique is to discuss or comment on something such as a creative work, giving an
assessment of its good and bad qualities (MSN, 2007).
2. Criticism is a spoken or written opinion or judgment of what is wrong or bad about
somebody or something (MSN, 2007).

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210 Corresponding author

John C. Dumay can be contacted at: [email protected]

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