Introduction
For 50 years or more, researchers from various disciplines have reflected on the role that plays individual knowledge in business. They have published great books and articles about the phenomena from
interdisciplinary angels discovering tacit and invisible elements and some of these elements have been ordered in the scientific domain Intellectual Capital, IC, among other things comprising constructs from economy, accounting and knowledge management (Edvinsson & Sullivan, 1996; Nonaka & Takeuchi, 1995; Penrose, 1995; Penrose, 1995; Polanyi, 1974; Saint-Onge, 1996; Stewart, 1997; Sveiby, 1997).
The word “capital” connotes to assets and financial expectations of monetary values. Many scientific efforts have been assigned to the exploration of assumed IC assets and to the development of
management models for the capital, but they have not enjoyed much dissemination in practice. The idea of an IC still exists in science and the capital still has no shared measurement unit or standard with which to operate and document IC values in companies (Zambon, 2016). The financial capital has numbers representing monetary units in currencies reporting globally about values, but IC hasn’t. This thesis will work out an attempt to eliminate this drawback by offering a conceptual proposal of an intangible currency.
The thesis submits a “currency” to visualize and value individual knowledge in operations. “Human Capital”, HC, often occurs as an element in IC. The currency representing the value of individual knowledge is proposed to get distributed in non-financial accounting systems and shows how HC value representations in digits are proposed to translate the world into generic numbers about individual knowledge and competence in operations.
To find ways to manage the hidden intellectual power is important, because the intellectual concepts that structure control systems through the economic thinking, financial mechanisms and practices undergoes serious crises causing troubles and creating instabilities in the world (Ariely, 2009; McCloskey, 2005;
Winston & Teichgraeber, 2005). Economic crises are object of many reflections and influence the agendas in for instance global institutions like the Global Economic Forum to mention a recurrent global event, which explores potential causes and effects of actual societal developments and tries to identify and overview occurrences and attitudes threatening global stability (Hanouz & Samans, 2017).
The thesis proposes to add another paradigm of control to the paradigm of economic control in operations in order to find ways to stabilize control by operating the hidden intellectual power. It is envisaged to systematically control the use and development of individual knowledge in operations. The speed of processes has been accelerated through technologies to a point where too many failures are being committed3. The failures do not stay local anymore, but are distributed and repeated through technology, so they arrive fast, are pervasive and often get “too big to fail” (Sorkin, 2010). Assuming they are avoidable, the thesis tends to develop mechanisms able to identify the need for individual knowledge in processes ex ante and provide the needed knowledge promptly, efficiently and generically.
Under condition that some failures are due to the lack of the right knowledge and competence at the right time and place, the thesis proposes a technology, which is designed to find and let leadership add the right individual knowledge and competence to collaborating processes across company boundaries in and between firms and networks. Systematic management of IC, by some researchers considered to be
3 http://www3.weforum.org/docs/GRR17_Report_web.pdf, January 2017
28
predictive (Abhayawansa & Guthrie, 2010; Brooking, Board, & Jones, 1998) may stabilize the quality of financial control through forward-looking results widening the horizons for planning.
In addition to this, the speed of development of knowledge it-self has become exponential (Bontis, 2001), but knowledge and especially the new knowledge does not get distributed very fast. Reports and research point out difficulties for companies and collaborating networks to find the right knowledge in the right time. Establishing efficient collaborations across disciplinary, geographical and cultural borders are described as costly and difficult (Harvard Business Review Press, 2011; Maznevski & Chudoba, 2000) Tasks like “climate change mitigation and adoption”, “regional or global governance”, “urban planning”,
“inequality” and “unemployment” are identified, footnote 1, as failed global tasks and their solutions are characterized by their interdisciplinary, dispersed conditions illustrating some aspects of weak global practices4.
It is the concern of the thesis to propose calculative mechanisms designed to make such failures
avoidable through systems of knowledge control rendering individual knowledge globally accessible ex ante in trustworthy value representations within and between companies, but also to account for the practical use of individual knowledge and its contribution to projects ex post.
The economic methodology translating values into numbers and digits does not include the translation of the values of individual knowledge (Kaplan & Norton, 1995). Despite the relatively considerable cost of manpower in companies, this resource remains as an input partly uncontrolled; within the legal/economic framing of companies costs are reduced by lay-offs or enhanced when staffing, but the kind of
knowledge considered to add most value to operations now and in the future often remains uncontrolled.
Both theory and practice refer to knowledge as the most valuable resource in companies (Bontis, 2001;
Stewart, 1997) or in networks, but still, such values stays invisible and more or less unmanaged. No other valuable resources remain unmanaged, but are visualized in various financial systems of control,
Enterprise Resource Planning, ERP systems, Customer Management Systems etc. Several theories assign the notion of knowledge with positive expectations to enhance economic growth (Saint-Onge, 1999; Stewart, 1997; Sveiby, 1997)and to fuel innovation and development(D. J. Teece, 2007;
Thompson, 1965; Tushman, Smith, Wood, Westerman, & O'Reilly, 2010), but individual knowledge control systems using standards for measurement of individual knowledge or generic performance measurement systems controlling input and output of individual knowledge resources using causal logics explaining the knowledge-based operations between the two, are still to be designed. This adds to the relevance of the thesis.
IC researchers have explored how values are created in firms constructing a field language with elements that slowly have been ordered in relation to each other in shared understandings, still with some
discrepancies being a young domain (Guthrie, Ricceri, & Dumay, 2012; Petty & Guthrie, 2000). IC research uses both quantitative and qualitative methods influenced by inherent ontological premises interpreted to conserve the research in ostensive approaches (Dumay, 2013). The literature arranges these steps of development in “stages” or “waves” identifying consciousness and raising activities striving to communicate the importance of IC for adding value to companies as the first wave (Petty & Guthrie, 2000). The second wave added consolidation to the domain as a legitimate research field by gathering evidence for its further development (Guthrie et al., 2012) and the third wave strengthened IC practices inside organizations by case based studies of IC practices in operations (Dumay & Chiucchi, 2013).
4 See footnote no 1
29
Literature shows, how individual knowledge as a theoretical notion did not enjoy much attention in the IC domain focusing often at organizational knowledge (Dumay, 2013; Guthrie et al., 2012; Hong, 2012;
Mabey & Nicholds, 2015; Wieland, Handfield, & Durach, 2016). Some researcher have however focused on individual knowledge mentioning knowledge roles (Davenport & Prusak, 1998; Davenport, 2013) and defining knowledge as individual capabilities, “Individual knowledge can be characterized by personal intellectual abilities5 (Davenport and Prusak, 1998; Zhang, 2009)”. If some knowledge is more relevant for solving one task than other knowledge, and if the media offering relevant knowledge in
organizational processes is individuals within and between companies, then individual knowledge qualifies as an object of research as well as the carrier or the owner of this knowledge.
To manage individual practices of knowledge, knowledge requires mechanisms of shared control entailing an accounting view as viable for the visualization and distribution of values of knowledge.
1.0 Research Question
Globalized Internet technologies generates new conditions for knowledge-based decisions taking the context of management of knowledge, KM, from systems within firms to systems in and between firms (merged) adding complexity to an envisaged paradigm of control of individual knowledge through distances of time, space and cultures. These contextual elements differ from most contexts in existing IC research by 2 factors; the change of focus from organizational to individual knowledge and the change from the company specific to a generic perspective. The IC domain, which generally defines knowledge as assets in operations, institutes a search for theoretical development toward an operating orientation by calling for a 4th wave (Dumay, 2013; Guthrie et al., 2012). Dumay, however, maintains the company orientation and the situated mean outputs: “Thus, an “account” of IC practices can be delivered rather than IC measures. It is practice that helps researchers and practitioners to internalize what works (and what does not) inside a specific organization rather than research that can be generalized to all organizations” (Dumay & Garanina, 2013, p. 21). In contrast, this thesis intends to quit the company-based time and space limitations and considers design of the input of individual knowledge more helpful, because internalizations of yesterday’s complex solutions in ever changing contexts are not supposed to fit the to-morrows and adjustments take competitive time (McGrath, 2013). This poses the question about how managers are enabled to take fact-based decisions and exert direct management of remote, individual knowledge ex-ante.
Individual knowledge owned by employees and collaborators is considered as valuable input to
operations inconsequential of who owns the knowledge where, i.e. whether the knowledge is owned by an individual inside or between companies, thus “free agents” too. The context illustrates short-comings in the economic translation of the world, because this input, its assets and its values are invisible in financially based systems of control and furthermore underline values in external potential assets, which are out of control. The research context connects the level of analysis to knowledge per se and to individual owners of knowledge inside and between firms in contrast to focusing on to processes within the single firm (Dumay & Garanina, 2013; Dumay, 2013) or to complex values of knowledge like the IC elements Customer or Structural capital (Edvinsson & Sullivan, 1996; K. Kreiner & Mouritsen, 2003).
5”(..)the intangibles that add value to most products and services are knowledge-based: technical know-how, product design, marketing presentation, understanding the customer, personal creativity, and innovation. The powers of knowledge that we have described -- speed, complexity, a sense of history and context, judgment, and flexibility -- are precisely those needed in a rapidly changing, increasingly competitive global economy” Reprinted by permission of Harvard Business School Press. Excerpt of Working Knowledge: How Organizations Manage What They Know by Thomas H. Davenport and Lawrence Prusak. Copyright 2000 by the President and Fellows of Harvard College; All Rights Reserved
30
In practice an interest for individual capability has been displayed for many years in annual surveys6 concurrently conducted by a consulting firm with extended representations in the world, Price Waterhouse Cooper, PWC. Global leaders tick off global recruitment and availability of the adequate knowledge or HC in IC as the most important concerns. For several years these surveys between global CEOs have labeled and ranked their most important concerns as issues of risks within the IC.
So, taking both theoretical and practice oriented views in consideration an interest for management of individual knowledge seems to be generally present and viewed as important.
The different views have led to a heartfelt interest to explore the following question
How can individual knowledge become operable in dispersed, global contexts to support knowledge-based management decisions at a distance?
The question did not get framed by specific functions in or between firms, but comprises decisions relying on the idea of accounting like representations of HC stocks and flows in the capital. Decisions addressing processes of recruitment, allocations for (innovative) projects or strategic development of the capital represent decisions supposedly taken on basis of knowledge about the demand for knowledge in the processes. Supporting the position of the financial paradigm as inept for visualization and valuing of human capital, HC, in the intellectual capital (Kaplan & Norton, 1995), the thesis does not follow the notion of stocks in the approach, where “stock is concerned with calculating a dollar value of intangibles (Guthrie and Ricceri, 2002, pp. 5-9)” (Boedker, Guthrie, & Cuganesan, 2005), but tends to define HC stocks within the non-financial paradigm. However, being aligned to the notion of flow: “The second approach, the flow approach (Guthrie and Ricceri, 2002, pp. 9-13) views IC as being concerned with identifying the knowledge resources that drive value creation, rather than assigning a specific $-value to the resources. It is based on the notion that future financial performance is better predicted by non-financial than by non-financial indicators” (Boedker et al., 2005, p. 515), knowledge allocations are
considered part of operations and allocation of resources part of the team settings representing HC flows.
Allocation of resources focuses on individual knowledge. The theme from operations management, OM,
“allocation/team setting” is chosen as the explanatory focus and level of analysis for the development of the non-financial accounting concept, because both theoretical stock and flow consideration are
represented: For the manager to decide the most satisfying assignment of knowledge to tasks an ostensive overview of the offered knowledge supply in stocks is needed. Knowledge representations must be updated to serve practice. Managers – or self-managers – will decide which individual
knowledge optimally fuels business processes in order to generate the most satisfying results. This choice is considered the crucial managerial choice. Forward-looking knowledge-based ex ante decisions (i.e.
allocations) may rest on an overview over reliable, fast, updated and accessible information about the values in available knowledge. Backward-looking knowledge-based decisions may happen on the basis of metrics showing how allocated knowledge and competence in teams has performed. The best
decisions create the best matches between supply and demand. The question is which properties remotely are able to constitute reliable, satisfying, updated and accessible information about available knowledge for decision making and which (managers’) decisions create the highest added financial values.
Seeking to identify these knowledge resources, stocks are consequently understood as the total amount of available, individual knowledge (K. Kreiner & Mouritsen, 2003). Decision makers allocating knowledge
6https://www.pwc.nl/nl/assets/documents/pwc-annual-report-2013-2014.pdf , http://www.pwc.com/gx/en/about-pwc/global-annual-review-2015/campaign-site/pwc-global-annual-review-2015.pdf
31
resources to tasks are perceived to constitute flows. The total amount of knowledge-based decisions represents the total flow.
This is the ideas for the thesis’ conducted in design science research, DSR, to conceptualize HC calculability for allocations by concretizing, visualizing and valuing elements of individual knowledge and competence in an accounting logic for global operations. “Allocations” were above identified as the
“Class of Problems” in the DSR terminology, which is defined in the following quote:
“..as the organization of a set of problems, either practical or theoretical that contain useful artifacts for action in organizations.()..considering the reality of the area of operations
management in particular. The definition of the concept of Class of Problems offers the possibility for the treatment of theoretical problems because a problem can also correspond to ways of testing a theory in organizational practice. It also offers the possibility of formalizing artifacts present in the practice of a given organization that must be evaluated in other environments. This feature also allows for the use of traditional research methods (Case Study, Action Research, Modeling, Survey) to formalize existing artifacts, i.e., these research methods can be conducted based on the logic and premises of Design Science.” (Dresch, Lacerda, & Antunes, 2015, p. 104).
The main contributions tend to propose systematically and objectively valued, intangible objects (HC elements in IC; individual knowledge and competence) designed as calculative devices in a non-financial accounting paradigm, which strives for auditability. That the nascent main contribution leaves the financial paradigm for valuing is assumed to be a critical new proposition for exchange of values in the world. The proposed IC measurement unit designed to be free of context and thus independent of time and space is believed to represent values of individual knowledge and competence generically. It is applied as a valuing element in a non-financial accounting system, which through managers’ decisions and actions constructs non-financial value representations of individual or accrued knowledge values ex ante/ex post in operations. Through practices of allocation the IC accounting system is designed to offer generic additional tools for management of companies and network and consequently, to communicate and circulate auditable IC values as disclosures to markets.
The thesis is arranged in three parts as follows: The concept-centric {{709 Webster, J. 2002; 711 Wee, B.
V. 2016}} IC literature review in the first part identifies directions to pursue in order to visualize and value individual knowledge in global, dispersed contexts. The gap between IC literature and potential answers to the research question is defined and sought addressed through DSR methodologies and the identification of the class of problems. The conceptual design of a non-financial measurement unit and its accounting system finishes Part I.
In the second part the two chapters describe the testing of the concepts of the measurement unit and the non-financial accounting system in an interventional case-based context. Each chapter is initiated by the presentation of the theory and methods used for the validations. The non-financial measurement unit is exposed to co-development in GCC and it is separately tested for its ability to work. It is explored, if the properties in the proposed device are satisfyingly attractive to keep the non-financial control system together and working. Furthermore, processes of conceptual and technological adjustments and
customizing of the measurement unit and the accounting system are conducted in the company. The ANT analysis of the system-deployment in a pilot-project is carried out in parallel in longitudinal inductive processes in the GCC.
The third part discusses the findings and their assumed potential for management to exert knowledge-based, satisfying operations having access to dynamic and objectively valued HC representations ex ante
32
and ex post. Finally, the proposals are resumed and reflections over limitations and future research finish the thesis.