Reflections On The Criteria For The Sound Measurement - 2020 - Critical Perspect

Critical Perspectives on Accounting 70 (2020) 102046
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Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa
Reflections on the criteria for the sound measurement of

intellectual capital: A knowledge-based perspective
Aino Kianto ⇑, Paavo Ritala, Mika Vanhala, Henri Hussinki
School of Business and Management, Lappeenranta University of Technology, P.O. Box 20, FI-53851, Finland
a r t i c l e i n f o a b s t r a c t
Article history: As knowledge has become a key factor of competitive advantage for organizations, regions,
Received 6 May 2016 and nations, its measurement has gained tremendous importance. During the last two dec-
Revised 14 May 2018 ades, the intellectual capital school of thought has produced numerous measurement
Accepted 22 May 2018
frameworks and models for capturing the intangible bases of value creation, which cur-
Available online 7 June 2018
rently occupy a well-established position in academia. In this paper, we argue that some-
thing important might have been lost along the way, namely, a thorough understanding of
Keywords:
knowledge as the basis for human and organizational productive behavior. We argue that
Intellectual capital
Critical
in order to remain relevant in the face of the increasing knowledge intensity of work, orga-
Measurement nizing, and value creation, the measurements of intellectual capital (IC) should revisit the
Knowledge foundations of what knowledge is. In order to regain this understanding, this paper draws
on a knowledge-based perspective and proposes four critical themes that should be better
recognized in IC measurement: multi-dimensionality, human agency and action, contextu-
ality, and temporality and dynamics. We discuss the challenges that each theme poses for
IC measurement and construct a set of criteria and applications for a more adequate mea-
surement of IC.
Ó 2018 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY
license (http://creativecommons.org/licenses/by/4.0/).
1. Introduction
It is widely accepted that knowledge and competencies are the key factors of production, and that continuous learning,
development, and renewal have become the main organizational capabilities that drive competitiveness (Drucker, 1988;
Grant, 1996; Kogut & Zander, 1992; Prahalad & Hamel, 1990; Teece, Pisano, & Shuen, 1997). Thus, organizations are becom-
ing more interested in assessing, managing, and developing their intellectual assets. This challenge to both academics and
practitioners has led to the emergence of the intellectual capital (IC) approach (Bontis, 1999; Edvinsson & Malone, 1997;
Mouritsen & Roslender, 2009; Petty & Guthrie, 2000; Roos & Roos, 1997). In an extensive review of IC literature spanning
a decade, Guthrie, Ricceri, and Dumay (2012, p. 68) define IC accounting (ICA) as ‘‘an accounting, reporting and management
technology of relevance to organisations to understand and manage knowledge resources.” Specifically, this approach
attempts to overcome the limitations of conventional financial indicators that are used to explain, measure, and manage
organizational performance and to provide classifications and metrics for intangibles that examine value creation from a
more comprehensive perspective.
Along with the more general ‘‘practice turn” in business disciplines (Corradi, Gheradi, & Verzelloni, 2010; Feldman &
Orlikowski, 2011; Jarzabkowski, 2004; Whittington, 1996), shifting the focus from objectified social structures and systems
⇑ Corresponding author.
E-mail address: [email protected] (A. Kianto).
https://doi.org/10.1016/j.cpa.2018.05.002
1045-2354/Ó 2018 The Authors. Published by Elsevier Ltd.
This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
2 A. Kianto et al. / Critical Perspectives on Accounting 70 (2020) 102046
to arrays of human activity (Schatzki, 2005), ICA scholars have increasingly turned to the lack of a practical implementation
of IC indicators (Demartini & Paoloni, 2013; Dumay, 2012; Dumay & Garanina, 2013; Mouritsen, 2006). Although academics
have proposed several measurement frameworks and models for IC, practitioners have not been very keen on adopting them,
and only a few organizations have jumped on the bandwagon of measuring IC (e.g., Dumay, 2016; Kujansivu, 2008;
Lönnqvist, Sillanpää, & Carlucci, 2009).
As Dumay (2016, p. 172) argues, although ‘‘IC wealth-creation is running out of steam from a reporting perspective, this
does not mean managers are not realizing the benefits of managing their IC internally.” Thus, the problem does not seem to
lie so much in managerial ignorance about the importance of IC but in the lack of tools that they deem suitable, useful, and
executable. For example, in a pioneering study addressing the reasons for the lack of implementation of IC management,
Kujansivu (2008) reports that managers in Finnish companies consider IC management an important issue but feel that they
lack the tools to support it. In fact, the development of appropriate measures was brought up as the most important devel-
opment target. In addition, a recent study by Chiucci and Montemari (2016) identifies the perceived fragility of IC indicators
as the reason for practitioners’ lack of enthusiasm.
What then should change for IC and ICA to become worthwhile for firms? Echoing the Editorial published in the Critical
Perspectives on Accounting (CPA) 2009 Special Issue on Critical Intellectual Capital (Mouritsen & Roslender, 2009), we argue
that part of the problem lies in the lack of useful and workable assessment tools. We thus propose that perhaps organizations
are not applying IC in practice because the metrics available are not really doing what they promise. Given the limited time
and resources practitioners have for adopting new tools and methods, the quality and relevance of the tools are of central
concern.
Since the concept of IC emerged primarily to improve the understanding and management of knowledge-based resources
in creating value (Guthrie, Ricceri, & Dumay, 2012; Mouritsen, Larsen, & Bukh, 2001), at the core of the entire research pro-
gram is the concept of knowledge. Knowledge itself is an extremely complex and problematic concept that has been dis-
cussed in a multitude of disciplines, from philosophy to accounting and from information science to anthropology. A
critical question is whether the current literature on IC has taken an adequate look at knowledge as the basis of human pro-
ductive behavior or whether IC has been oversimplified, as suggested by Gowthorpe (2009). We argue that IC literature has
taken a path of its own, building on the more or less practitioner-based works of the first-generation IC researchers, such as
Edvinsson, Sveiby, Roos, Sullivan, Stewart, and others. In the process, the literature has neglected to address the essentials of
the key topic of scrutiny: knowledge and its utilization for creating value in organizational contexts that are fundamentally
socially constructed, institutionalized, and collective (Blackler, 1995; Brown & Duguid, 2001; Nonaka, 1994; Spender, 1998).
To address these challenges, we examine the characteristics of the optimal metrics for managing and measuring IC. While
other recent studies have focused on the transmission and reception processes of IC indicators, in this paper, we zero in on
the indicators themselves (Chiucci & Montemari, 2016). We argue that the solution is found in a thorough understanding of
the specific qualities of knowledge as the means and the objective of work and organizing. Loosely following the logic of crit-
ical IC research (Alvesson & Deetz, 2000; Dumay, 2009), we begin with a critique of IC measurement. We then provide insight
by examining the nature of knowledge in light of management studies literature. Based on the knowledge-based perspective,
we put forth several challenges to measuring IC. Finally, we propose some criteria for the more adequate measurement of IC
that serve as various options for developing measures that better reflect the change to knowledge-based work and
knowledge-based value creation in organizations.
2. Critical appraisal of IC measurement
The field of ICA is multidisciplinary, and many measurement and reporting frameworks have been created for assessing
and disclosing IC. For example, Andriessen (2004) reviewed 25 IC measurement systems and concluded that they are largely
suited for addressing three distinct purposes—internal management, external disclosure, and statutory reporting. Ricceri and
Guthrie (2009) examined 36 IC frameworks and classified them into two approaches: the stock approach whose aim is to
establish the financial value of intangibles, and the flow approach whose aim is to contextualize knowledge resources. More
recently, Abhayawansa (2014) reviewed 20 frameworks and guidelines for the external reporting of IC (most of which are
also recommended for internal management purposes) and divided them into three categories:
Those that comprehensively explain firm value creation processes and highlight corporate objectives and business strate-
gies, such as MERITUM (2002), the Danish Guideline (Danish Ministry of Science Technology and Innovation, 2003), the
agriculture risk coverage-individual farm coverage (ARC-IC) model (Koch, Leitner, & Bornemann, 2000), the German
guidelines for small- and medium-sized enterprises (SMEs; Alwert, Bornemann, & Kivikas, 2004), InCaS (Fraunhofer
IPK, 2008), the Japanese intellectual asset-based management (IAbM) model (Japan Ministry of Economy, Trade and
Industry, 2005), and the International Integrated Reporting Council (IIRC) Framework (International Integrated
Reporting Council, 2013a,b);
Those that do not particularly explain the firm value creation process but highlight the importance of IC indicators with
reference to corporate objectives and strategy; for example, the IC index (Roos, Roos, Dragonetti, & Edvinsson, 1997), the
IC RatingÒ (Jacobsen, Hofman-Bang, & Nordby, 2005), and the European Federation of Financial Analyst Societies Commis-
sion on Intellectual Capital (EFFAS-CIC, 2008);
A. Kianto et al. / Critical Perspectives on Accounting 70 (2020) 102046 3
Those that recommend the disclosure of IC indicators without linking them to corporate objectives and business strate-
gies, such as the invisible balance sheet (Sveiby, 1989), the Intangible Assets Monitor (Sveiby, 1997), the Skandia Navi-
gator (Edvinsson, 1997), and the Intellectus model (IADE-CIC., 2003).
Our paper continues the discussion laid out in the CPA 2009 Special Issue, which makes several contributions to the
assessment of the positive and negative qualities of ICA as well as the external reporting of IC. Nielsen and Madsen
(2009) demonstrate that too much supplementary IC information may be counterproductive as it increases complexity,
decreases the transparency of the disclosed information, and makes interpreting reports a challenging task for users of IC
reporting. A management-driven perspective that aims to disclose only carefully selected information may increase trans-
parency by decreasing the complexity of the reported IC. However, it may also create a ‘‘tyranny of transparency”
(Strathern, 2000), as managers may choose to disclose IC information that is considered as the most important by them
but not by the actual users of IC reports (Nielsen & Madsen, 2009).
Gowthorpe (2009) adds that ‘‘intellectual capital” is in fact an incomplete term. In financial accounting vocabulary, capital
is calculated by deducting liabilities from assets, whereas IC models to date have regarded only intellectual assets and
ignored the dark side of IC, including associated liabilities and risks. Gowthorpe also argues that due to its underlying knowl-
edge component, it is impossible to measure IC as it exists mainly in intangible and immeasurable forms. She suggests that
perhaps invisible and intangible IC should not even be made visible for managerial control and measurement purposes, as
people do not wish to be measured (Sveiby, 2001) and it could raise ethical issues.
McPhail (2009) adds to Gowthorpe’s concerns about the lack of a discussion on ethics in IC literature. Although IC
research almost completely overlooks the ethics debate, some companies disclose ethics as an intangible capital with pro-
ductive capability. McPhail also challenges researchers and managers to come up with new ways of treating employees gen-
uinely as human beings, valuable in their own right, instead of as mere IC resources. Roslender and Stevenson (2009) believe
that narrative approaches, such as the Danish Guideline (Danish Ministry of Science Technology and Innovation, 2003) and
MERITUM (2002), have led to major development in this area by offering alternative approaches to ‘‘accounting for people”
and highlighting the needs of people rather than simply accounting.
Mårtensson (2009) looks at IC through the lens of political arithmetic, which is marked by the idea of balance, the search
for correlations, and the conception of human nature. She points out that the current approaches for measuring value-
creating capital are imbalanced (e.g., the balanced scorecard; see, Kaplan & Norton, 1996), as financial factors are heavily
overvalued. Managers who understand the importance of intangible value contributors do exist, but they are often held back
by the lack of workable IC measures. The current approaches also pose problems with regard to the search for correlations
between IC and value creation, because several aspects of IC are largely immeasurable (e.g., human capital). Further, if IC
information is measured using a questionnaire, it leads to the risk that the surveyed individuals may not provide truthful
answers. Thus, measurement errors are more than likely to exist.
Searching for correlations without understanding the very basic challenges in the measurement of IC might provide unre-
liable information about the value creation of a company. The conception of human nature also seems to be a controversial
issue in the current IC accounting approaches: The human factor is widely recognized as the most valuable resource in orga-
nizations, but, in accounting terms, it is regarded only as a cost. In addition, following the same line of thought as Gowthorpe
(2009) and McPhail (2009), Mårtensson (2009) voices her concerns about the potential adverse consequences of using
humans as objects of measurement.
Thus, in sum, although many measurement frameworks have been proposed for IC, these approaches have many prob-
lems, stemming from a wide set of issues ranging from data reliability to underlying philosophical considerations and from
ethics to the intra-organizational division of power. With this critique in mind, we revisit knowledge in organizations and
organizing in order to propose new ways forward for IC and ICA research. In particular, inspired by the critique presented
in the CPA 2009 Special Issue, we go a step further and analyze the problems of IC measurement from an explicitly
knowledge-based perspective. In the following section, we identify and discuss four characteristics of knowledge that should
be taken into consideration when measuring IC: the multi-dimensionality of IC, human agency and action, contextuality, and
the temporal and dynamic nature of knowledge.
3. Knowledge-based challenges and implications for IC measurement
In this section, we begin by revisiting the foundations of knowledge in organizations and organizing in order to provide
insight into what implications these tenets of the knowledge-based perspective might have for measuring IC. Following that,
we outline more specific implications for IC measurement and discuss the specific issues that IC assessment and ICA should
consider so as to fully embrace the features and challenges of knowledge. Table 1 summarizes this discussion along with the
measurement challenges, the measurement criteria, and the applications of the different characteristics of knowledge.
3.1. Multi-dimensional nature of knowledge
3.1.1. Challenge for measurement: The epistemology of knowledge as a multi-dimensional asset

A starting point for understanding how knowledge should be measured is the epistemology of knowledge—knowledge and
our perception of it. Existing knowledge-based literature has begun to form a consensus on the nature of knowledge, but
Table 1
Knowledge characteristics and IC measurement.
Characteristics of knowledge Measurement challenges Measurement implications, criteria, and

applications
Multi-dimensionality How to account for different types and Multi-level measurement: Introduce relevant
Single-item IC indicators cannot capture the forms of knowledge individual- and group-level measures, firm-level
multi-level, multi-dimensional nature of How to analyze knowledge at different measures, as well as system-level measures
knowledge levels Stock and flow differentiation: Include asset/stock
How to address knowledge stocks or assets and capability/practice measures in the
as well as knowledge embedded in routines measurement system
and capabilities Recognizing the heterogeneity of IC: Recognize the
How to address the ‘‘dark side” of value, reliability, and political/moral aspects of
knowledge knowledge
Human agency and action How to examine intangibles as embodied in Performative measures: Measure IC performance
Valuable knowledge is acted upon and appears diverse forms of human agency and actions in its actionable context, and complement the
more often in performative than in ostensive How to measure knowledge-in-action or in- measures with narratives and visualization to
form use improve contextuality
Knowledge is dispersed throughout the How to measure IC in a way that is more Tailoring: Develop measures that work for the
organization beneficial for those who are measured benefit of managers and those who are being
Although the knowledge possessed by humans measured
is seen as the most valuable resource of a firm, Self-accounting: Use indicators shaped by the
current IC approaches overlook or needs of people (rather than by accounting or
underestimate its importance management)
Future orientation: Measure IC’s potential, not just
as it currently stands
Contextuality How to address the value and relevance of Look backward: Build and gather collective
Collectively shared tacit knowledge is IC assets in their local and institutional narratives and experiences of IC to understand
strategically the most crucial type of context how it is constructed
knowledge How to address the extent to which Internal collective construction: Develop measures
Valuable knowledge is characterized by different IC assets are dispersed and shared based on collective strategic vision and intent,
complementarity and interdependency across a firm using, for example, cognitive maps, narratives,
Context influences knowledge How to identify complementarities and and visualizations
dependencies between different pieces and
types of knowledge possessed by various
actors
Temporal and dynamic nature of knowledge How to know what knowledge is valuable Repeated measurement: Conduct the
The value and substance of knowledge changes and applicable now and in the future measurement at set intervals to achieve time-
over time How to measure something that is series and panel-data measurements
Knowledge about the present may or may not continuously and inherently changing (the Focus on renewal potential: Assess the ability to
be considered as knowledge about the future dynamic nature of IC) change, not just change itself
Re-assess the measures: Periodically adopt new
measures to suit the changing internal and
external demands
these insights are worth revisiting as they may not be getting utilized to their full potential in current ICA approaches. The
knowledge-based perspective differs from other strategic management approaches by explicitly considering knowledge as
its basis. Within this perspective, scholars have assumed that knowledge is the most important factor in production
(Grant, 1996; Spender, 1996a). Moreover, researchers believe that performance differences between firms exist because
of differences in the firms’ stock of knowledge and capability of using it (Grant, 1996; Nonaka & Takeuchi, 1995; Spender
& Grant, 1996). The raison d’être of firms is providing suitable conditions for the creation and transfer of knowledge ad, ulti-
mately, for transforming knowledge into a competitive advantage (Kogut & Zander, 1992).
A key conceptual challenge for measurement is that knowledge is demonstrated in many forms and types. The best-known
categorization of knowledge is its division into explicit and tacit knowledge; this was originally articulated by Polanyi (1966)
and later popularized by Nonaka (1994) and Nonaka and Takeuchi (1995). This categorization and its implications are par-
ticularly important from the ICA perspective. Explicit knowledge refers to knowledge that can be expressed and codified rel-
atively easily, such as verbal accounts, numbers, formulas, and theoretical models. This type of knowledge is rational, formal,
and systematic, and can be easily transferred from one person to another. It can be stored in libraries, databases, and other
non-human repositories of knowledge. However, most human knowledge is in the tacit form, that is, we know more than we
can ever possibly articulate. Tacit knowledge is personal, context dependent, and based on practice and experience. This kind
of knowledge is very hard to formalize and communicate (Nonaka, 1994; Nonaka & Takeuchi, 1995). Explicit knowledge is
easy to appropriate as it can be quickly communicated and diffused (especially in digital form), while tacit knowledge is not
as easily transferable (Brown & Duguid, 2001; Szulanski, 2003). Thus, in some contexts, tacit knowledge might comprise a
greater portion of an organization’s intellectual asset base. The key challenge in such cases is that tacit knowledge is extre-
mely difficult to measure since it is not explicit or is even immeasurable (e.g., Gowthorpe, 2009).
Knowledge also exists on many analytical levels. For instance, there is knowledge that is held by individuals and knowl-
edge that is held at a social level and shared by many people. For example, Spender (1996a,b) proposed a classification of
knowledge types which combines two dimensions—explicit vs. tacit knowledge and individual vs. social levels—to distin-
guish between four types of knowledge. Conscious knowledge consists of facts, concepts, and frameworks that individuals
can store in their memory and retrieve more or less at will. Automatic knowledge includes perceptions, mental models, val-
ues, behavioral tendencies, and kinesthetic and technical skills that are unconscious or semi-conscious and almost impossi-
ble to access consciously. Objectified knowledge represents the shared body of codified knowledge. Collective knowledge
consists of knowledge that is embedded in various forms of social and organizational practices and resides in the tacit expe-
riences and enactment of the collective.
In a similar vein, Kogut and Zander (1992) present a distinction between knowledge that is ‘‘know-that” and knowl-
edge that is ‘‘know-how.” Know-that refers to information, descriptions, and declarative knowledge, while know-how
refers to procedural knowledge of how something happens or can be done. These knowledge types can be further divided
into individual, group, organizational, and network. In this form of classification, the principles of higher-order organizing
are especially important (Kogut & Zander, 1992). These principles help create the context of thought and action in an
organization and help govern how work and relationships are conducted. In management literature, this type of knowl-
edge is mostly seen as being tacit and collective and is conceptualized as organizational routines and capabilities (Nelson &
Winter, 1982; Teece et al., 1997). In contrast to seeing knowledge as a stock, this perspective implies that knowledge is
embedded in the collective activities of a firm (Kianto, 2007). Therefore, it is important to recognize that knowledge is
also embedded in bundles or routines and composes various types of organizational capabilities, which makes its mea-
surement particularly challenging.
Finally, multi-dimensionality is not only about the various forms and types of knowledge but also about its more or
less beneficial qualities. Something that has been almost entirely overlooked in ICA literature is the dark side of knowl-
edge and IC. Although knowledge is typically seen as something liberating, positive, and progressive, it can also be a
source of inertia, oppressive power relationships, and stagnation. In other words, as Mouritsen and Roslender (2009,
p. 802) put it, ‘‘all knowledge is not good knowledge. . . Managers are as much concerned with barring ideas from
becoming too accepted as with promoting ideas and knowledge.” Further, the same piece of information may be seen
as knowledge, gossip, exaggeration, ‘‘an alternative truth,” or even a lie, depending on the evaluator’s perspective. Alter-
natively, an organization may not be able to convert the potential of its human capital into future revenues. Overall, a
discussion on such intellectual liabilities (Caddy, 2000; Giuliani, 2013; Gowthorpe, 2009) is not strongly represented in
existing discussions on ICA.
3.1.2. Implications for measurement: A more comprehensive framework for IC

Trying to create simple and practical IC measurement tools is a worthwhile endeavor; however, given that knowledge is
multi-dimensional, it is unlikely that single-indicator measures (such as the subtraction of the book value from the market
value or its variants, R&D investments, and the like) can sufficiently portray knowledge. Financially oriented ICA literature
tends to favor such minimalistic, objective, and pecuniary measures. In contrast, in more managerially oriented ICA litera-
ture, there have been notable attempts to develop comprehensive measurement systems (e.g., Danish Ministry of Science
Technology and Innovation, 2003; Fraunhofer IPK, 2008; International Integrated Reporting Council, 2013a; MERITUM,
2002). These frameworks divide the phenomenon into several components (such as human, relational, and structural capital)
and propose a set of indicators for each component.
A comprehensive system of IC measurement would account for the multiple levels (individual, group, organizational, etc.)
at which knowledge exists. Although the analysis at the organizational level seems to be the norm, for some issues (e.g., spe-
cialized skills and individuals’ social capital), analysis at the individual or group level might make more sense. Alternatively,
in some cases, metrics that address the inter-firm network or system level may provide more useful information (see e.g.
Basole, Huhtamäki, Still, & Russell, 2016). Paying attention to and accounting for the different levels of analysis seems to
be neglected in current ICA discussions.
Furthermore, the measurements of IC should view it more comprehensively by analyzing it in the form of assets and
stocks as well as the practices and activities of an organization (see, e.g., Kianto, Hurmelinna-Laukkanen, & Ritala, 2010;
Kianto, Ritala, Spender, & Vanhala, 2014). This approach has sometimes combined the concepts of IC and knowledge man-
agement to establish a multi-dimensional view in which IC represents a more static view of a firm’s resources and knowl-
edge management represents the organizational processes and practices (Hsu & Sabherwal, 2012; Inkinen, Ritala, Vanhala, &
Kianto, 2017; Mouritsen et al., 2001; Seleim & Khalil, 2011).
As previously noted, intangibles not only have benefits but also carry risks—IC can not only create but also destroy value
(Giuliani, 2013). For example, the loss of a firm’s reputation, workplace bullying, or the ineffective protection of intellectual
property rights can lead to serious problems. On the other hand, less graceful human characteristics, such as greed, duplicity,
and cunning, may result in significant gains for a firm, for example, some successful business leaders are known for their
quasi-narcissistic characteristics (Gowthorpe, 2009). Therefore, a more realistic view of IC is recommended by acknowledg-
ing its darker side. Caddy (2000) recommends doing this by examining how issues such as poor strategic planning processes,
dangerous work conditions, and poor corporate reputation may impact an organization’s IC. Giuliani (2013) provides evi-
dence for utilizing causal mapping as a dynamic method for tapping on the value destructing aspects of intellectual
liabilities.
3.2. Human agency and action
3.2.1. Challenge for measurement: Knowledge as a product and vehicle of human agency and action
Another integral characteristic of knowledge is its human nature (e.g., Nonaka & Takeuchi, 1995; Polanyi, 1966; Spender,
1996b). Knowledge does not exist as a universal abstraction floating out there somewhere outside the knowing subject—
rather, it is situated in specific local contexts and distributed across an organization among individual knowledge workers
and communities of practice (Blackler, 1995; Brown & Duguid, 1991; Lave & Wenger, 1991; Tsoukas, 1996). The locus of
expertise is viewed fundamentally differently in knowledge work than in traditional work: In the latter, expertise is located
at the top of the hierarchy, whereas in the former, expertise is in the hands of the knowledge workers themselves and dis-
tributed across an organization.
In other words, knowledge is a fundamentally human issue—it is both the product and the vehicle of human agency and
action, bounded by the limitations of human cognitive and other psychological capacities as well as by the social and cultural
environment of the activity. From this perspective, knowledge is thoroughly pragmatic. In contrast to the classical Socratic/
Platonic definition of knowledge as a ‘‘justified true belief,” the knowledge perspective centralizes usefulness as a criterion
for what can be classified as knowledge. Knowledge is, essentially, a tool used for a specific purpose (Polanyi, 1966). As
Spender (1996b, p. 64) succinctly puts it, ‘‘knowledge is less about truth and reason and more about the practice of inter-
vening knowledgeably and purposefully in the world.”
Tacit knowledge is demonstrated in skilled action and unconscious judgments, and separating tacit knowledge from the
activity as part of which the knowledge is demonstrated is very difficult (Polanyi, 1966). This means that knowledge is essen-
tially connected to action and application—that which is known is demonstrated in knowledgeable activity. Cognition and
action go hand in hand. Knowledge is acquired and demonstrated in action (Crossan, Lane, & White, 1999; Dougherty,
1992; Leonard-Barton, 1995; Orlikowski, 2002; Spender, 1996b). Blackler (1995) even argues that rather than regarding
knowledge as something that people or organizations have or possess, it is far more useful to regard knowing as something
that they do. The most valuable kind of knowledge is that which is demonstrated in knowing and skillful behavior rather
than that in which it is stored, for example, databases and patents. At the organizational level, competitive advantage flows
not from the resources themselves but from the firm’s ability to use those resources for productive purposes (e.g., Grant,
1996; Kogut & Zander, 1992; Penrose, 1959; Spender & Grant, 1996).
Finally, given the embeddedness of knowledge in human agency and action, the measurement of knowledge can also bet-
ter adapt the perspective of those who are measured. Typically, traditional IC measurement and ICA aim to provide information
for stakeholders other than those who possess the knowledge (i.e., employees)—these include managers, owners, and other
high-level stakeholders who are provided information about IC (e.g., Edvinsson, 1997; Jacobsen et al., 2005; Pulic, 2000; Roos
et al., 1997; Stewart, 1997; Sveiby, 1989; Sveiby, 1997). Therefore, we see much potential in approaches that better account
for those who are the subjects of measurement.
3.2.2. Implications for measurement: Focus on the individual

Recognizing that knowledge is inherently rooted in human agency and action has major implications for the sound mea-
surement of IC. Without the actualization of knowledge in terms of skilled action, knowledge remains redundant and, liter-
ally, useless. Kannan and Aulbur (2004) criticize financial metrics for not clarifying where problems exist or the value
contribution of different IC components and, therefore, for not providing clear roadmaps specifying what corrective actions
should be implemented. Other authors such as Eccles and Mavrinac (1995) criticize financial accounting for placing too
much emphasis on tangible resources and for its inability to pay attention to total value generation and the growth potential
of a company. In a controversial paper, Catasús, Ersson, Gröjer, and Wallentin (2007) propose that mobilizing and enacting
should be acknowledged as additional phases in the IC measurement process so as to ensure that measurement information
is transformed into actions. In this regard, we propose four specific measurement implications: a performative measurement
approach, the individual-level fit, a participatory and reflective measurement design, and a future-oriented outlook.
The first implication of the above is that knowledge needs to be measured as a performance or activity rather than as an
object. Mouritsen (2006) establishes that IC can be viewed either from an ostensive (what it is) or performative (what it does)
perspective. These perspectives apply to the measurement of IC as well, while the latter approach is likely to be more valu-
able and equally challenging. Tacit knowledge is demonstrated in skilled action, and it is very difficult to separate this type of
knowledge from the activity as part of which the knowledge is demonstrated (Crossan et al., 1999; Dougherty, 1992;
Orlikowski, 2002; Spender, 1996b). Accordingly, Spender and Marr (2006) argue that performance ‘‘needs to be understood
in the context of it being integrated into, and as a constituting part of, the production function. Hence, performance measure-
ment and human capital must be based on the specific system of practices internal to the firm” (p. 265).
Spender and Marr also offer activity-based accounting as a possible solution, but this strand of research is in its infancy
and does not yet offer developed tools. Thus, because the identification of tacit knowledge is problematic, its measurement
promises to be even more so. Therefore, there is a need to critically assess whether measuring tacit knowledge itself is rel-
evant, or whether the measures should actually target the activities that are enabled with the tacit knowledge held by indi-
viduals within an organization. For example, is it worthwhile to measure human capital per se, or would it be more valuable
to know what an organization has managed to do with the human capital it possesses (the same issues, of course, relate to
other dimensions of IC - structural and relational capital)?
A performative approach to IC could be the answer to the increasing calls for a more ethical and human approach to mea-
suring IC (Gowthorpe, 2009; McPhail, 2009; Sveiby, 2001), as this approach does not treat employees unfairly as mere
objects of managerial control. As stated above, knowledge is more of a performance or activity than an object and should
therefore be assessed as such. According to Mouritsen et al. (2001), IC as a practice is about the activities (e.g., employee
development) undertaken by managers in the name of knowledge. However, such activities cannot be captured completely
only with measurements and, again, pure measurement alone can be complemented with more socially aware approaches
such as narratives, stories, sketches, and visualizations (Mouritsen, 2006; Mouritsen et al., 2001).
Mouritsen et al. (2001, p. 745) define a knowledge narrative as ‘‘a presentation of the firm’s knowledge resources focusing
on how they interact and allow the firm to be capable of doing certain things for external users. It thus both has a proposition
of the firm’s ‘production function’ and of the value proposition supplied to users.” Visualization refers to ‘‘a sketch, which pro-
vides an illustration of the work of intellectual capital” (Mouritsen et al., 2001, p. 745). Overall, narrative and visual
approaches to intellectual capital assessment are helpful in unraveling individuals’ subjective, abstract, and, often, tacit
interpretations of organizations’ intellectual capital.
The second implication is that the measures need to be tailored to fit specific individual contexts. The knowledge-based per-
spective emphasizes the role of autonomous knowledgeable individuals as prime carriers and owners of knowledge. The
knowledge governance theory (Foss, 2007; Foss, Husted, & Michailova, 2010) assumes that organizational conditions lead
to organizational-level performance outcomes through their impact on individual employees and their behaviors. In other
words, organizational outcomes are constructed through individual-level motivations, abilities, opportunities, and actions,
making the micro-foundations of knowledge-based phenomena especially important topics to understand.
If organizational actors are to learn and develop based on IC assessments, then it is important that the analysis is focused
and pinpoints key challenges in different loci of the organization. The challenge to measurement, then, is to include a large
enough sample of employees, managers, as well as different teams, organizational units, and geographic locations. In addi-
tion, one should consider what kind of metrics should be used for people performing different tasks and whether all metrics
apply to all organizational units. In practice, this means (a) collecting data from a sufficient set of variables related to demog-
raphy, background, and job status, allowing for a more granular grouping of the measurement data; (b) potentially con-
structing unique metrics for each relevant group in case it is assumed that, for example, human capital for different types
of employees should differ.
Existing measures take this into account to some extent. For example, IC RatingTM (Jacobsen et al., 2005) examines
managers and employees as separate groups, and the Intangible Assets Monitor (Sveiby, 1997) divides employees into
key personnel who are examined under ‘‘employee competence” and support personnel who are placed in the ‘‘internal
structure” category. Several such internal groupings could be useful for the interpretation and actionability of the mea-
surement results.
The third implication relates to self-accounting. This means that those who are being measured should participate in devel-
oping the measures. As a growing number of professions can be regarded as knowledge work, this approach is becoming the
norm rather than the exception. Therefore, to improve reflexivity and learning, what gets measured and how it is measured
should make sense to those who are meant to be the ones learning. The employees themselves are the best experts and
developers of their work. Thus, instead of only emphasizing the managerial control perspective, ICA should also focus on
accounting for people and assess the needs of the people rather than simply accounting (Roslender & Stevenson, 2009).
At the very least, employees should understand the content of the measures and agree that the measures used are relevant
to them. This idea implies an emic rather than an etic approach to measurement, which should satisfy not only the scrutiny
of an external evaluator or supervisor looking at the system from above and outside but also the contextualized self-
understanding of the local actors themselves. From the perspective of the users of IC reports, measuring and reporting should
be conducted transparently, and the disclosed information should be relevant to the users (Nielsen & Madsen, 2009). Fur-
thermore, such evaluations should be performed with care as people do not like being measured (Sveiby, 2001).
Chiucci (2013) and Chiucci and Dumay (2015) recommend involving managers in designing IC indicators. However, we
suggest going a step further and involving non-managerial employees in the hope that they too will learn during the process
(Roslender & Fincham, 2004). In effect, the key goal here should be boosting the learning and development of non-
managerial employees, as they are the ones likely to do most of the value-creating work in an organization.
Finally, the fourth implication is that in addition to examining existing skills, addressing potential knowledge and competen-
cies of the future are also important. Knowledge is related not only to actions and decisions made today but also to emergent
future possibilities and potential—the not-yet-embodied or the self-transcendent (Scharmer, 2001). Therefore, the measure-
ment of IC requires more future-oriented and transformation-based approaches than what transaction-based and retrospec-
tive traditional accounting can offer (Chatzkel, 2003).
Spender and Marr (2006) stress that understanding what constitutes skilled performance in the context of the prevailing
circumstances is only the first step. What is also required is understanding the potential for skilled performance under cir-
cumstances that have yet to appear. In other words, although it is important to understand what is known at present, it is
also important to understand the ‘‘zone of proximal development” (Engeström, 2001) or, in the space of potential possibil-
ities, what kinds of paths or real options (Kogut & Kulatilaka, 2001) are open to the actor or firm in the (near) future.
Understanding potential capabilities is particularly important as the environment is unpredictable and changes rapidly.
However, if not completely impossible, it is, at the very least, extremely challenging and difficult to measure potential
knowledge or competencies needed in the future. Thus, it is important to recognize how well an organization is prepared
to meet the challenges that might arise from unforeseen events. For this, organizations can employ measures that take into
account renewal capital (i.e., the organization’s ability to renew itself; see, e.g., Kianto, 2008).
3.3. Contextual nature of knowledge
3.3.1. Challenge for measurement: Knowledge as an institutional and collective phenomenon

The institutionalization of knowledge is inbuilt in that effective action always takes place in a particular context. Human
beings are fundamentally social animals, and specific socio-historical contexts set the boundaries for individual understand-
ing and behavior, while individuals regenerate and modify the context by enacting it (Giddens, 1984). Even when we are
alone, our culture and communities influence us in the form of internalized conceptions, mental models, attitudes, and val-
ues. Indeed, individuals neither think nor take action in a vacuum—knowledge is embedded and constructed in shared prac-
tices by interacting individuals who combine their efforts while striving toward common goals (Berger & Luckmann, 1966;
Crossan et al., 1999). In this sense, even when knowledge is held by an individual, it is strongly socially conditioned and con-
structed. Issues that are especially complex require the integration and coordination of knowledge across many individuals
(Grant, 1996). For instance, producing a product or service typically requires the application of many types of knowledge
resources (Grant, 1996; Grant & Baden-Fuller, 2004; Kogut & Zander, 1992).
Thus, although different typologies and taxonomies attempt to measure IC in a universal way, it is good to recognize the
challenge that knowledge is always a contextual phenomenon, with strong local and institutional components. First, all organi-
zational life is a social construction wherein the value of specific resources, skills, and knowledge is collectively assessed.
This means that no knowledge is useful in isolation—its applicability is demonstrated only when other organizational actors
view the knowledge as applicable in value-creating processes. Second, the value and applicability of knowledge are institu-
tional issues. In general, institutions differ across organizational and societal contexts in terms of regulative, normative, and
cultural-cognitive dimensions (Scott, 1991, 1995). Institutions have a major effect on how human agency and decision-
making are valued and framed (Wiseman, Cuevas-Rodríguez, & Gomez-Mejia, 2012), and they thus determine the relative
valuation and applicability of knowledge.
Based on these contextual challenges, Schaper’s (2015, p. 75) contention that ‘‘pushing a general model for measuring IC
might not provide expected results in the involved organizations” seems justified. As a remedy, in the IC literature, there is a
strong conviction that the measures should be derived from a firm’s organizational strategy and be connected to its value-
creation logic (Mouritsen et al., 2001; Stewart, 1997; Sullivan, 1998; Sveiby, 1997). From these perspectives, organizations
are emphasized as strategic, goal-oriented entities rather than free-floating collections of stocks and flows. On the other
hand, the drawback is that IC measurement systems and reports tend to be so idiosyncratic that it is difficult to make
cross-comparisons between organizations and interpret whether a given measurement indicates a positive or negative trend.
A major challenge for the measurement of IC is that relevant knowledge is always dispersed throughout an organization.
Human beings are bound by cognitive limits in terms of how much and what they can know and, therefore, they have to
specialize in certain areas of knowledge (Grant, 1996; Simon, 1990). Thus, no single mind can master all the organizational
knowledge and foresee an organization’s future knowledge needs. Therefore, an organization is by necessity a fundamentally
distributed knowledge system (Tsoukas, 1996; Tsoukas & Mylonopoulos, 2003). For these reasons, each member of an orga-
nization is likely to possess some knowledge that no one else has, and therefore measuring IC with a focus on just a few indi-
viduals is problematic.
Finally, a related challenge for IC measurement is recognizing the complementarities and interdependencies of knowledge
held by different actors. Given the aforementioned specialization of knowledge work, a core function of organizations and
organizing is to manage, integrate, and coordinate employees’ knowledge (Grant, 1996; Kogut & Zander, 1992; Penrose,
1959). Considering the largely tacit nature of knowledge and its dispersal among a variety of individuals and across different
contexts and the multitudinous normative expectations, knowledge cannot be fully managed in the same way as other types
of resources. Instead, knowledge management resembles the creation and cultivation of suitable contexts (Von Krogh, Ichiko,
& Nonaka, 2000). Accounting for interdependencies and complementarities is therefore a critical challenge.
3.3.2. Implications for measurement: Focus on the collective

The problem of measuring knowledge given its contextual and collective nature is twofold. First, it has been well reported
that the social environment significantly influences the extent to which individuals invest their time and effort in achieving
organizational goals. Measures depicting individual propensities convey only what the individual potential is—and even this
is defined narrowly. The measures do not address whether or how widely an individual uses these latent capacities to per-
form a given task. By assessing the socially constructed features of the environment, a valid analysis can help determine how
the situation could be improved to better allow and encourage the enactment of individual skills and competencies. One
option for measuring collective knowledge (i.e., social interaction and knowledge between people) is to use peer assess-
ments. Another approach is to use multiple respondents per organization, as some authors have opted to do (Bollen,
Vergauwen, & Schnieders, 2005). This approach generates an aggregated view of target organization.
Second, collective or shared tacit knowledge is strategically the most important type of knowledge (Spender, 1996b);
therefore, this type of knowledge too should be measured. Collective knowledge consists of knowledge embedded in differ-
ent forms of social and organizational practice, residing in the tacit experiences and enactment of the collective, such as rou-
tines (Nelson & Winter, 1982). Individual actors may be unaware of such knowledge even though it is accessible and
sustained through their interactions (Spender, 1996a,b). Consequently, collective knowledge can be studied by examining
the relational patterns among organizational actors and the principles on the basis of which they collaborate (Grant,
1996; Kogut & Zander, 1992). Shared operating methods are inimitable across firms and, therefore, these methods are a sus-
tained competitive advantage. For example, innovations may be copied by competitors, but the innovativeness embedded in
the organizing principles and patterns of social interaction cannot be copied. However, very few measures have been created
for collective knowledge; it appears to be a very daunting factor to quantify.
One solution is to look at history. Promising methods for including collective views in IC assessment are to use narratives
and organizational participants’ own lived organizational experiences to describe social interactions, knowledge between
people, collective knowledge, and to make sense of the context (Dumay & Roslender, 2013; Mouritsen, 2006; Mouritsen
et al., 2001; Roslender & Finchman, 2001).
For managerial control, the IC measurement system should have an integral link with a firm’s strategy and related mea-
sures (Zack, 1999). According to the resource-based view of strategy (from which the knowledge-based view has emerged),
performance differences between firms are due to differences in intra-firm characteristics rather than market positioning.
Consequently, strategic decision-making requires an evaluation of a firm’s resources and capabilities rather than external
markets. This implies that to allow learning and development, indicators should be chosen based on organizational strategy
and not external demands. Recent views on organizational strategy as collective cognition (Helfat & Peteraf, 2015; Tyler &
Gnyawali, 2009) further support the idea that the focus should be on internal and collective constructions rather than on external
and standardized views.
Indeed, it seems that managers’ greatest interest is in utilizing IC metrics for internal firm development rather than exter-
nal communication (Kujansivu, 2008), evidenced in part by the nearly complete disappearance of public IC reports since the
early 2000s (Dumay, 2016). In such cases, where the focus is on the internal (e.g., internal development) and not external
(e.g., comparison between organizations), softer and more socially constructed assessment methods could be applicable.
These methods include the cognitive mapping of managers’ collective cognition and strategic intent (Tyler & Gnyawali,
2009) as well as previously discussed narrative and visualization techniques (e.g., Mouritsen et al., 2001). As stated by
Mouritsen et al. (2001), IC is more than just about static issues—it is also about the actions and activities of an organization.
Such activities are complex sets of interventions performed by managers, for example, and cannot be captured easily—if at
all—through pure measurement.
3.4. Temporal and dynamic nature of knowledge
3.4.1. Challenge for measurement: Knowledge is an ever-changing, temporal phenomenon

Most ICA approaches attempt to measure, quantify, and concretize knowledge assets. This pragmatic choice—and perhaps
the burden of the accounting tradition, in which the transient nature of knowledge is a problem (Gowthorpe, 2009)—has led
to the treatment of knowledge as a somewhat static and immobile asset. However, this static view does not conform to the
fundamental nature of knowledge. Knowledge is dynamic: It is continuously reinterpreted and modified and is related to
learning and change.
Tsoukas (1996) discusses the ‘‘indeterminacy of practice,” which means that there are no two completely identical situ-
ations, and the uniqueness of every activity’s context requires that individuals continuously make some personal judgments.
No matter how well defined the explicit rules and guidelines are, they still need to be assessed in light of the specific situ-
ation at hand. This brings an element of uncertainty to all instances of knowledge use or ‘‘knowing.”
Due to its subjective and socially constructed nature, knowledge is intimately linked to issues of power, politics, and con-
flict (Foucault, 1991). For example, there is often a struggle between competing conceptions of what constitutes legitimate
knowledge (e.g., when different groups or individuals arrive at incompatible analyses of the same event; Hislop, 2005). In
addition, although seldom explicitly addressed, the following questions may arise: Whose voice is warranted? Whose
knowledge is legitimized? And whose can be dismissed as irrelevant, a misunderstanding, or even heresy? (Gergen, 1994).
Given the political and highly contested nature of knowledge, we argue that knowledge is inherently a temporal phe-
nomenon. In other words, the applicability of knowledge varies over time, and knowledge is bound by the interpretations of what
is valuable now and in the future. For example, what once constituted a firm’s value-creating core competencies may later turn
into harmful rigidities if they are not modified to match the prevailing conditions (Leonard-Barton, 1995). From the perspec-
tive of dynamic capabilities (Eisenhardt & Martin, 2000; Teece et al., 1997), there is a need for the continuous modification of
organizational capabilities to maintain competitiveness under changing conditions.
Knowledge is clearly a volatile asset that can suddenly lose its value due to changes in technology, legislation, or the mar-
ketplace. Therefore, knowledge is bound by the interpretations of what is useful and valuable at present and in the future.
Measuring something that is inherently and continually changing presents a formidable challenge. To meet this challenge,
focus on the flows instead of the stocks (Bontis, 1999; Dumay, 2009; Kianto, 2007) might be more beneficial.
Indeed, crafting a set of performance measures for IC that follow the traditional logic of standardized and objective per-
formance assessment is difficult because for knowledge-based constructs, the tasks are likely to be non-repetitive and can-
not always be standardized. Furthermore, performance criteria are mostly concerned with the quality rather than the
quantity of output (Drucker, 1999). It is commonly known that ‘‘quality” is hard to define in general terms and even harder,
if not impossible, to measure. The usual parameters for evaluating quality are either output (e.g., customer satisfaction and
peer reviews) or intra-organizational (e.g., commitment, employee job satisfaction, and trust within an organization). The
dynamic nature of knowledge makes it even harder to pin down: Because knowledge is altered, reinterpreted, and modified
as it is used, it is impossible to define stable content-based yardsticks for judging the performance of knowledge workers.
However, the existing measures tend to examine IC as static possessions of an organization instead of as activities con-
ducted by the actors or brought about by the act of organizing itself (Blackler, 1995; Kianto, 2007; Orlikowski, 2002; Tsoukas,
1996). Most of the literature on IC conceptualizes it as a static asset or stock (Bontis, 1999) and assumes that it is something
that can be easily identified, located, moved, and traded like a package, albeit an intangible one. Lerro, Iacobone, and Schiuma
(2012) express scorn toward IC models for providing only a snapshot evaluation of an organization’s knowledge and thus
reflecting only its static knowledge stocks without considering the dynamic element represented in the organization’s
knowledge flows. However, the challenge remains: How does one measure the development of IC instead of taking cross-
sectional snapshots?
3.4.2. Implications for measurement: Hitting a moving target

A practical option for capturing the temporal nature of IC is to examine the processes of knowledge work rather than its
outcomes. According to the knowledge-based view of strategy, value creation depends not so much on the knowledge
resources per se but on how they are used (Kogut & Zander, 1992; Penrose, 1959; Spender & Grant, 1996; see also,
Feldman & Pentland, 2003). Therefore, if the rationale behind organizational measurement is to improve a firm’s value cre-
ation capabilities, the measurement should focus on the organizational practices in which resources are used instead of on
the resources or assets per se, no matter how intangible and knowledge-related they may be.
An obvious solution is continuous, repeated measurement, which could be performed several times a year. Dumay
(2009) suggests conducting measurements several times in order to track the changes in IC and the impact of develop-
ment activities: ‘‘The benefit of taking a snapshot beforehand allows for the development and implementation of organ-
isational 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
which interventions were successful and which were not” (p. 203). Such an approach certainly helps in following the
measurement over time and allows the use of various types of measures, including non-standardized ones. Of course,
the challenge then becomes how to organize the measurement so that it does not consume too much of the time or
resources of those being measured.
Alternatively, knowledge can be understood as emerging from ongoing social interactions. The focus then is not on
knowledge resources as static assets or outcomes per se but on the renewal potential of an organization to leverage,
develop, and change its knowledge assets. Some measures address this dynamic dimension as renewal capability or
renewal capital (Kianto, 2008) or in terms of the dynamic practices by which knowledge is managed (Inkinen et al.,
2017; Kianto et al., 2014). However, in order to depict the dynamic nature of capabilities or practices, these measures
should be used more than once. In order to capture this dynamic nature and understand the dynamics of IC, a feasible
solution includes longitudinal measurements and a complementary method for assessing IC (see, e.g., Dumay &
Roslender, 2013).
Finally, as knowledge can swiftly become obsolete and core competencies can turn into core rigidities (Eisenhardt &
Martin, 2000; Leonard-Barton, 1995), it is important that the measurement scheme and its objectives are reassessed periodically.
As groupthink (Janis, 1972) and cognitive inflexibility can limit the ability to question prevailing strategies and methods of
conduct, it may be beneficial to utilize non-routine knowledge sources for ensuring up-to-date understanding. Chiucci
(2013) discusses the possibility of IC measures becoming obsolete because of changes in the business environment. The
needs of the users of the information can also change (Chiucci & Montemari, 2016), and this change may or may not be
related to environmental changes. In any case, making sure that the feedback and development loops work for IC measure-
ments is very important, especially if the organization using them operates in turbulent conditions.
4. Conclusion
In the recent past, the usefulness of existing IC approaches has drawn some criticism, especially with regard to the appli-
cability and utilization of IC measurement (Chiucci & Montemari, 2016; Demartini & Paoloni, 2013; Dumay, 2009, 2012;
Guthrie et al., 2012; Schaper, 2015). In this paper, we suggest that the reason for practitioners’ apparent lack of enthusiasm
for IC may perhaps be the lack of suitable metrics. This does not mean that metrics do not exist (because they do, in vast
numbers), but rather that the existing metrics do not really help managers to manage the knowledge of their organizations
or to understand how value is created from IC. Furthermore, to other internal and external stakeholders, the usefulness of
current information on IC is likely even less. To restore the value of IC measurement, and to mend the theory-practice
gap, we revisited the knowledge-based perspective to develop a set of measurement challenges and criteria that could help
move toward a more sound IC measurement.
Our paper loosely follows the logic of critical IC research as laid down by Dumay (2009), including a critique of existing IC
measurement methods and insights drawn from a close reading of knowledge-related management studies literature. As a
result, we have identified challenges in and proposed suggestions for improving IC measurement, with the aim to provide
what is needed for a transformative redefinition of the field. In the following section, we recap our key propositions and dis-
cuss their wider implications.
4.1. Knowledge-based perspective of IC measurement
Based on the knowledge-based perspective, IC should be understood as multi-dimensional, activity-related, contextual,

and dynamic. Each of these characteristics poses a set of implications for its measurement. Overall, this perspective is not
only more compatible with but also outright demands the managerial rather than financial approach to ICA (Ricceri &
Guthrie, 2009; Sveiby, 2001).
The first characteristic—the multi-dimensionality of knowledge—implies that the parameters used to measure IC should be
tailored at the individual, group, organizational, and system levels. The IC of a team, organization, or system is not just a sum
of its individual-level human capital; each level is influenced by various intra-organizational and extra-organizational con-
tingencies, such as an organization’s structure and networks.
Multi-dimensionality also means that the positive and negative aspects of IC should be measured in order to produce
realistic measurement results. An organization may have, for instance, a large amount of knowledge available through its
network, but a lot of network exposure also makes the company vulnerable to knowledge leaks and its key personnel being
poached, for example. Both sides of the coin are equally important to consider when evaluating the true value of the different
components of IC.
Moreover, knowledge or IC is not valuable as such—its value potential gets realized when it is used in decision-making or
other key organizational processes. Comprehensive IC measurements should cover both stocks and flows—what IC an orga-
nization has access to and how well it utilizes it to create value and competitive advantage.
Human agency and action is the second category to which we wished to draw attention. Human agency refers to the fact
that humans, or employees, form the core of IC and are arguably the most valuable sources of IC in an organization. Action
means that the most valuable knowledge is acted upon and found in different parts of an organization. Employees’ knowl-
edge, and IC in general, is valuable only when it is used in value-creating activities, so it needs to be measured as a perfor-
mance or activity rather than as an object. In other words, one very promising way to improve IC measurement is to focus
more on what organizational goals or outcomes it helps achieve.
Moreover, as IC takes on several valuable forms and is embedded in various agents across and beyond an organization, a
crucial objective of IC measurement is to identify and cover all of the sources of IC. In this regard, narratives and the visu-
alization of knowledge can help put the knowledge in an actionable context in order to illustrate its impact and location.
Employees and managers should be the focus when developing IC measures. IC indicators have been traditionally developed
for accounting or managerial control purposes, overlooking employees who know best how their input and output develop-
ment could be effectively measured. In addition, managers’ needs should be the center of attention as they are the ones who
should use the measurement results for improved decision-making.
Third, the contextuality of knowledge refers to the fact that the most valuable IC is collectively shared knowledge that
resides between organizational actors through relationships and co-operation. Contextuality also refers to a multitude of
contextual and institutional factors that influence the utilization and value of knowledge. In order to expose the most
significant collectively shared knowledge, the measurement of IC should be able to address the IC that is most widely
shared and used within an organization or network. For this purpose, narratives and experiences could be used as mea-
surement approaches as they help to understand how knowledge between organizational actors is constructed. Social
network analysis can also be used to gain an understanding of the knowledge-sharing patterns. All IC is not equally
important to all companies; thus, IC measurement should be tailored to produce relevant measurement results in differ-
ent contexts.
Finally, since knowledge is a temporal and dynamic factor of value creation, its measurement too should be dynamic, and
the measures should be continuously reassessed and retooled. Our first argument regarding the temporal and dynamic nat-
ure of IC is that one-time measurement (e.g., cross-sectional data) does not provide academics or managers with an adequate
understanding of how an organization’s IC is developing and how its development influences the firm’s performance out-
comes. Multiple measurements at different points in time open up opportunities to examine the phenomenon longitudinally
and to understand the true causal relationships between IC and firm performance.
In addition to change itself, as a difference between measurement point A and B, temporality and dynamics refer to the
ability to conduct and manage change. Thus, organizational abilities to renew and replenish IC also form an important mea-
surement object, which is likely to be more relevant to the extent that the organization is operating in rapidly changing envi-
ronments. Finally, IC measures should be periodically reassessed to ensure that they measure the most relevant IC in an ever-
changing world. If the existing ‘‘established” measures are only recycled, as IC research has predominantly done post-2000,
there is a risk of losing the relevance of its research and practice and missing the moving target. Academic authorities and
journals should encourage IC scholars to update the existing IC measures or develop new measures and measurement
innovations.
Overall, we can observe an uneasy tension between the demands of reliability and validity or, in this case, the objectivity
and relevance of IC measures. Although the financial metrics, at least at the outset, are reliable in terms of repeatability and
transparency, their limitations in terms of validity have been well reported in the literature (Ståhle, Ståhle, & Aho, 2011). It
may well be, as Gowthorpe (2009) states, that financial accounting cannot stretch far enough to provide useful IC measure-
ment after all. The more managerially oriented metrics, however, when selected according to a specific company’s needs,
with consideration of the emic understandings of organizational actors and self-evaluations, may pose questions concerning
reliability.
Perhaps the key issue of IC measurement is not the absolute accuracy of representation but instead the development of
pointers that enable dialogue and action or mobilization and enacting, as stated by Catasús et al. (2007). This means that we
should not stop at listening to the voices of only the external stakeholders or managers but also those of the employees who
are after all the key actors involved in the creation of value-based knowledge in an organization (Roslender & Fincham, 2004).
As Nielsen and Madsen (2009) note, the IC debate has focused on the sender’s side of communication and the message
itself, while remaining silent about the recipient’s side or the consumption of IC information and the transparency of ICA.
In addition, according to Roslender and Stevenson (2009), IC has not taken into account the perspectives of those who are
being measured. In this paper, we also briefly address the various audiences of IC measurements and their respective needs.
Examining well-working metrics from the perspectives of various types of internal and external interest groups presents a
worthwhile topic of further inquiry, and our suggestions for different approaches might be useful in this regard.
If IC measurements are intended to produce actionable information, they should make sense to the potential users of that
information. According to Mårtensson (2009), the major reason for the downfall of human resource costing and accounting
was that it became ‘‘more of a control instrument than an active management control system,” its efforts becoming mere
numbers with no content. Fundamentally, it is not the measurement scores themselves that will have an impact—it is
how they are used to generate dialogue and actions that will then produce a beneficial change in the direction sought, what-
ever it may be. In themselves, measurement scores and index numbers are mute and lame.
What we are proposing in this paper is a more complex, multi-sided, multi-voiced approach to ICA; in other words, a
knowledge-based perspective. Naturally, this means that the task of assessing IC cannot be conducted neatly and quickly
but is an effort-intensive process that requires wide participation. However, should intangibles really be the key driver of
competitive advantage and value creation in contemporary organizations, such an effort would be justified.
4.2. Implications for future research and practice: From measurement to assessment
The phrase ‘‘what gets measured gets managed” is famous. However, perhaps in the context of IC, there is more than just
the measurable components or, as Dumay and Roslender (2013) put it, numbers do not make sense on their own. Numbers
can only capture the measurable components of IC, and without a complementary assessment, they provide only limited
meaning (Dumay & Roslender, 2013). As mentioned above, the measurement of IC should move beyond traditional account-
ing to overcome what Dumay (2009) states is the problem of ‘‘accountingisation,” that is, an attempt to force intangibles into
(preferably financial) numbers (see also, Dumay & Roslender, 2013; Mouritsen, 2006; Mouritsen et al., 2001).
To overcome the grave challenges that have cast a shadow over the field of IC measurement, it might be good to move
from pure IC measurement to an overall assessment of IC, including measurement and complementary methods of assess-
ment and disclosure. For example, as discussed earlier, Mouritsen et al. (2001) note that an IC statement should be more than
just a set of numbers and should also include narratives and visualizations, for example. Together, different types of
approaches for assessing IC within organizations, including non-numerical ones, should provide the chance to escape
accountingisation.
This kind of comprehensive assessment allows the use of a quantitative orientation by utilizing numbers to categorize
and depict inter-relationships in IC, while at the same time using narratives and other socially constructed means to make
sense of the context. Such approaches have been called upon by Dumay and Roslender (2013); see also Guthrie et al. (2012)
who suggest that IC research that goes beyond accounting should include more than just the measurement of IC. Adopting a
more assessment-oriented approach does not necessarily mean that everything needs to be assessed and measured.
Mouritsen (2006) suggests that future research should include and focus on ‘‘IC in action” rather than just attempting to
develop new, all-encompassing IC frameworks. Focusing on such actionable measures might benefit from the development
of more tailored, context-aware, and locally useful assessment tools.
In this paper, we adopt a critical approach for pointing out a set of issues that, from a knowledge-based perspective, are
important but are not sufficiently recognized in the current ICA literature. We also provided recommendations for measure-
ment criteria and application. We do acknowledge that although our paper poses many critical and difficult questions, it does
not provide simple and clear-cut answers, for example, in the form of (yet another) set of indicators. However, our objective
was not to provide one more measurement option for IC but to point out the potential problems, complexities, and trade-offs
involved in the assessment of intangible assets along with some potential remedies.
Some of these problems might be insurmountable. However, acknowledging them and making informed decisions based
on this awareness can go a long way toward ensuring that the adopted metrics help those who use IC measurement and
accounting to better understand organizations and their value creation. Perhaps doing so would enable ICA to truly fulfill
the definition assigned to it by Guthrie et al. (2012) as ‘‘an accounting, reporting and management technology of relevance
to organisations to understand and manage knowledge resources.” We believe that the challenges we have identified along
with the measurement criteria and application examples can help academics and practitioners better account for the under-
lying heterogeneous and complex knowledge-based features of IC.
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Reflections On The Criteria For The Sound Measurement - 2020 - Critical Perspect

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Critical Perspectives on Accounting 70 (2020) 102046

Contents lists available at ScienceDirect

Critical Perspectives on Accounting

Reflections on the criteria for the sound measurement of

2. Critical appraisal of IC measurement

3. Knowledge-based challenges and implications for IC measurement

3.1. Multi-dimensional nature of knowledge

3.1.1. Challenge for measurement: The epistemology of knowledge as a multi-dimensional asset

Characteristics of knowledge Measurement challenges Measurement implications, criteria, and

3.1.2. Implications for measurement: A more comprehensive framework for IC

3.2. Human agency and action

3.2.2. Implications for measurement: Focus on the individual

3.3. Contextual nature of knowledge

3.3.1. Challenge for measurement: Knowledge as an institutional and collective phenomenon

3.3.2. Implications for measurement: Focus on the collective

3.4. Temporal and dynamic nature of knowledge

3.4.1. Challenge for measurement: Knowledge is an ever-changing, temporal phenomenon

3.4.2. Implications for measurement: Hitting a moving target

4.1. Knowledge-based perspective of IC measurement

Based on the knowledge-based perspective, IC should be understood as multi-dimensional, activity-related, contextual,

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