Dealing with the knowledge economy: intellectual capital versus balanced scorecard
| Pages | 8-27 |
| Date | 01 March 2005 |
| Published date | 01 March 2005 |
| DOI | https://doi.org/10.1108/14691930510574636 |
| Author | J. Mouritsen,H. Thorsgaard Larsen,P.N. Bukh |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Dealing with the knowledge
economy: intellectual capital
versus balanced scorecard
J. Mouritsen
Department of Operations Management, Copenhagen Business School,
Frederiksberg, Denmark
H. Thorsgaard Larsen
Ementor, Ballerup, Denmark, and
P.N. Bukh
Department of Accounting, Finance and Logistics, Aarhus School of Business,
A
˚rhus V, Denmark
Abstract
Purpose – This paper compares balanced scorecard and intellectual capital and finds important
differences between their theoretical underpinnings, which suggest that the breath of indicators will
work differently in organisations.
Design/methodology/approach – Analysing texts about balanced scorecard and intellectual
capital, the paper discusses not the obvious similarities – that they are both integrated performance
management systems – but four more aspects: strategy, organisation, management, and indicators.
Comparing these four dimensions the paper discusses the differences arising from the very different
theories of strategy that they presuppose: competitive advantage versus competency strategy.
Findings – The paper suggests that the very different notions of strategy that underpin the balanced
scorecard and the intellectual capital approach make such comprehensive performance management
systems behave in very different ways – the difference between a tightly coupled and a loosely
coupled system accounts for this.
Research limitations/implications – The main limitation is that the paper is primarily a literature
study and therefore it is not certain that in practical situations companies will necessarily adopt the
theoretical perspectives mobilised behind balance scorecard and intellectual capital.
Practical implications – The usefulness of that paper is that practitioners may understand the
breath of implications of a shift in strategic focus and realise the various organisational conditions that
can help mobilise the use of indicators in different ways.
Originality/value – The paper’s analysis shows how the two models assume how indicators work in
an organisational systems and concludes that the differences are significant and that therefore there
are considerable differences in how a system of indicators may work in the context of balanced
scorecard compared with the context of intellectual capital.
Keywords Balanced scorecard,Intellectual capital, Knowledgemanagement,
Performancemeasurement (quality), Performancemanagement
Paper type Research paper
The meagre relationship between accounting cues (earnings and/or book values) and
market values provides a dramatic justification not only for the current interest in
intellectual capital (Stewart, 1997; Sveiby 1997, Sullivan, 1998), but also for the recent
version of balanced scorecard (Kaplan and Norton 2001). Sveiby (1997, p. 8) sugg ests as
follows:
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1469-1930.htm
JIC
6,1
8
Journal of Intellectual Capital
Vol. 6 No. 1, 2005
pp. 8-27
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930510574636
When the market price is higher than the book value ...there must be something among the
company’s assets that will yield higher than bank interest in the future. These assets are
invisible because they are not accounted for. They are intangible because they are neither
brick nor mortar nor money.
And Kaplan and Norton (2001, p. 2) follow suit:
[R]ecent studies (by Baruch Lev, added) estimated that ...the book value of assets accounted
for only 10 to 15 percent of companies’ market values. Clearly, opportunities for creating
value are shifting from managing tangible assets to managing knowledge-based strategies
that deploy an organization’s intangible assets.
At least until the downfall of technology shares, the growing difference between firms’
market value on the stock exchanges and their book values is said to rev eal intellectual
capital or intangible assets. After all, the argument goes, since the balance sheet
accounts for all physical capital, the difference between market values and book values
expresses intellectual capital. This difference is rarely, if ever, really “filled out”,
however, but it is used to extend issues of reporting beyond the financial balance sheet.
Edvinsson (1997) divides intellectual capital three ways into “human capital”,
“organisational capital” and “customer capital”, which identify the areas where the
conventional financial statements do not go. And Kaplan and Norton’s (1996a, 2001)
balanced scorecard complements the “financial” perspective with “customer”, “internal
business process”, and “learning and growth” perspectives.
Both models illustrate that an addition to the conventional financial reporting is
possible and interesting. They allow “non-financial” indicators to be part of a firm’s
reporting system, and it has been suggested that they are almost the same thing – or,
more precisely, thatbalanced scorecard may be one of the techniques to help bringforth
intellectual capital (e.g. Bontis et al., 1999; Johansen et al., 1998, 2001; Olve et al.,1999,
Petty and Guthrie, 2000). Intuitively, there are similarities between balanced scorecards
and intellectualcapital statements. They organise financial and non-financial indicators,
which are coupled to the firm’s strategy. They differ from the financial accounting
system’s logic of double entry bookkeeping and they go beyond the closed system of
revenues, costs, profits, assets and liabilities. In contrast, they both referto strategy that
lies outside the measurement system itself as the object of the indicators.
They look similar – but are they similar? And if they are different, is this important for
the management of intellectual capital? These questions are addressed in this paper. It
argues that an appreciation of the differences is useful since it will allow a detailed
discussion of how to attach indicators to strategy. This will direct attention to “small”
differences that may have huge impact for the strategy proposition and for the reading of
indicators. This conclusion is based on an analysis of texts about balanced scorecard and
intellectual capital respectively. It may be, obviously, that some firms will experiment
with them both and accommodate them together in their arsenal of technologies of
managing. This is an empirical issue to be sorted out in a different context. In this paper
we merely try to take the texts about balanced scorecard and intellectual capital seriously
and analyse them specifically in terms of their presentation of the two sets of ideas.
Our comparison has four dimensions each of which is a distinct way to sum up their
differences – and similarities and complementarities. The first dimension is strategy, the
second is organisation, the third concerns management, and the fourth is about indicators.
This analytical breakdown of issues is used to analyse texts about the balanced scorecard
IC versus
balanced
scorecard
9
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