Intellectual capital and performance measurement systems in Iran
| Published date | 12 March 2018 |
| Date | 12 March 2018 |
| Pages | 294-320 |
| DOI | https://doi.org/10.1108/JIC-11-2016-0125 |
| Author | Kaveh Asiaei,Ruzita Jusoh,Nick Bontis |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Intellectual capital and
performance measurement
systems in Iran
Kaveh Asiaei
Department of Accounting, Faculty of Business & Accountancy,
University of Malaya, Kuala Lumpur, Malaysia
Ruzita Jusoh
Faculty of Business and Accountancy, University of Malaya,
Kuala Lumpur, Malaysia, and
Nick Bontis
DeGroote School of Business, McMaster University, Hamilton, Canada
Abstract
Purpose –The purpose of this paper is to empirically explore how the effect of intellectual capital (IC)
on organizational performance is indirect and mediated through performance measurement (PM) systems.
Design/methodology/approach –Data were collected from a survey of 128 chief financial officers of
Iranian publicly listed companies. Hypotheses were tested using partial least squares regression, a structural
modeling technique which is appropriate for highly complex predictive models.
Findings –Results from the structural model indicate that, in general, companies with a higher level of IC
place a premium on the balanced use of PM systems in a diagnostic and interactive style. Furthermore,
the results provide some evidence that IC is indirectly associated with organizational performance through
the intervening variable of the balanced use of interactive and diagnostic PM systems.
Practical implications –This study sheds light on the issue of how senior management should use PM
systems to take fulladvantage of intellectual assets whichcould lead to improved organizationalperformance.
Originality/value –This is the first study of its kind to synthesize a model which examines IC, PM systems,
and organizational performance. Although the effect of different types of intangible assets on performance
has been substantially examined in the literature, less effort has been devoted to understanding the role of PM
systems in leveraging an organization’s IC.
Keywords Social capital, Performance management, Iran, Intellectual capital,
Performance measurement systems, Management control
Paper type Research paper
1. Introduction
The importance of knowledge resources has increased rapidly in many fields such as
accounting, economics, and strategic management (Davison, 2014). In parallel with the
long-standing recognition of the prominence of intellectual capital (IC) in determining a firm’s
value, there is also a growing debate on the role of management accounting and control
systems within the IC setting (see among others, Tayles et al., 2002; Tayles et al., 2007; Widener,
2006; Cleary, 2009, 2015; Guthrie et al., 2012; Toorchi et al., 2015; Asiaei and Jusoh, 2017;
Novas et al., 2017). This stream of research has enabled a gap in the empirical academic
literature to be filled (Roslender and Fincham, 2001). Researchers require further clarification
on how management control systems are favorably involved in capturing, measuring and
managing organizations’primary competitive knowledge-based assets (Novas et al., 2017).
From a theoretical vantage point, an effective management control system can support
and facilitate IC development to fully realize the potential of intangibles (Mouritsen, 2009).
However, there is increasing concern that incumbent management control systems tend to
be irrelevant as they fail to cater for the distinctive features of knowledge-based companies
(Ghosh and Mondal, 2009; Cleary, 2015). It has been argued that one of the major
Journal of Intellectual Capital
Vol. 19 No. 2, 2018
pp. 294-320
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-11-2016-0125
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
294
JIC
19,2
impediments to organizations’success is attributed to their inability to develop a systematic
and robust management control system (Shields, 2015). This issue becomes more critical in
todays’knowledge era where executives require timely and relevant information to augment
the effectiveness of their decision making for ensuring success (Bose and Thomas, 2007).
A performance measurement (PM) systemas one of the prime dimensions of management
control systems is considered an area which has developed in parallel with the evolution of
knowledge-related resources (Asiaei and Jusoh, 2017). In effect, a successful PM system plays
a predominant role in assisting executives track corporate performance to determine the
extent to which strategic goals have been reached (Koufteros et al., 2014). Given the fact that
IC and its elementsare primary important factors for valuecreation, the design and nature of
PM systems must be innovative enough in order to increase the contributions of those
intangible resources (Tayles et al., 2007). According to Simons et al. (2000), a PM system is
used as a lever to facilitate the management of strategic resources. In this regard, diagnostic
and interactivePM competencies are perceived as an important tool in effectively supporting
the knowledge capability of a company (Lee and Widener, 2016) and for the pursuit of
competitive advantage (Simons, 1995).
Until recently, limited work has been carried out on corporate mechanisms required to
support organizations in properly managing their IC. Hence, more research needs to be
conducted to provide further insight into what integration of organizational systems and
practices can help companies in attaining this strategic goal (Cleary, 2015). Accordingly, this
study seeks to contribute to the current debate in the literature, positioning management
accounting and control systems within the sphere of IC, through exploring whether, and
how, the effect of IC on organizational performance is indirect and mediated through the
balanced interactive and diagnostic use of a PM system. Exploring the confluence and
existence of complemen tarities between IC and mana gement accounting systems
(Novas et al., 2017) could provide insights and implications which are crucial to managers
dealing with the design of relevant PM techniques. This study may also enhance our
understanding of whether the emphasis put on the balanced interactive and diagnostic use
of PM systems (i.e. two contradictory but complementary perspectives of PM system)
“matters”to the organization by examining its relationship with performance.
The remainder of the paper is structured in the following way. The next section presents
the relevant literature and hypotheses development along with the proposed theoretical
model. The research method and results based on partial least squares (PLS) analysis are
discussed afterwards. The final section presents the findings, implications, limitations as
well as potential areas for further research.
2. Theoretical background and hypotheses
2.1 IC
The growing extant literature in the field of IC covers a variety of different knowledge
resources (Serenko and Bontis, 2013). The most common and standard classification appears to
be three-dimensional (i.e. human capital (HIC), structural capital (SIC), and relational capital
(RIC)), which has become a cornerstone for the development and measurement of IC
(Bontis, 1998; Stewart, 1997; Edvinsson and Sullivan, 1996; Wang et al., 2014; Wang et al., 2016).
While human-centered (human) capital represents the employees’characteristics such asskills,
knowledge, capabilities, and education, organization-centered(structural) capital containsall of
the non-human storehouses of knowledge within an organization (Inkinen, 2015; Bontis, 1999).
That is, SIC is the knowledge embedded in information systems and the outcomes and
products of knowledge conversion (i.e. documents, databases, process descriptions, plans)
and the intellectual properties of the firm (Khalique et al., 2015; Bontis, 2001; Edvinsson and
Malone, 1997; Stewart, 1997). On the other hand, the value stemming from an organization’s
external relationships and connections with all related parties such as customers, suppliers,
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capital
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