Measures for organizations engaged in a knowledge economy

Abstract

Purpose

The financial reporting practices of modern day organizations operating in a knowledge‐based economy will eventually change as intangible assets increasingly become such organizations' most valuable assets. Financial reports need to be supported by intangible performance metrics, in order to ensure that the reports are rigorously interpreted and applied, and if any issues or problematic practices exist, they may be identified and resolved in a timely fashion. This paper aims to focus on this issue.

Design/methodology/approach

This paper provides support for the use of knowledge value‐added (KVA) metrics to assist firms in better understanding, evaluating, and reporting intangible assets, and to provide them with more transparency in their operations. Currently, the general consensus seems to be that before any real progress can be made in converging intangible performance metrics with traditional financial reports, modern day organizations need to more actively depict their intangible assets.

Findings

A case study demonstrated how KVA measures support financial ratios of a company as well as providing for a better comparison of one industry with another. Further, from this case study the KVA methodology provided an approach for objectively obtaining information about the performance of knowledge assets as well as a means of benchmarking organizations operating in a knowledge economy.

Research limitations/implications

Future research should empirically test whether an organization's performance and operations is better captured by the added value of intangible measures, such as KVA metrics.

Originality/value

The paper shows that implementing intangible asset measures, along with traditional financial measures may provide a better overall platform that is understandable to managers, creditors, investors, and public institutions.

Citation

Rodgers, W. and Housel, T.J. (2009), "Measures for organizations engaged in a knowledge economy", Journal of Intellectual Capital, Vol. 10 No. 3, pp. 341-353. https://doi.org/10.1108/14691930910977770