Is there a disciplinary field called “intangibles and intellectual capital”?

Citation

Zambon, S. (2006), "Is there a disciplinary field called “intangibles and intellectual capital”?", Journal of Intellectual Capital, Vol. 7 No. 4. https://doi.org/10.1108/jic.2006.25007daa.001

Is there a disciplinary field called “intangibles and intellectual capital”?

Is there a disciplinary field called “intangibles and intellectual capital”? An introduction to some key issues emerging from the 1st EIASM-University of Ferrara Workshop

The substantial foundation of the industrial corporation is its immaterial assets (Veblen, 1904).

On 18-20 October 2005, the 1st European Institute for Advanced Studies in Management (EIASM) Workshop on “Visualising, Measuring, and Managing Intangibles and Intellectual Capital” took place in Ferrara, Italy. This primarily academic event was co-organised by the Faculty of Economics, the Department of Economics, and the International Research Centre on Public Administrations (CIRAMAP) of the University of Ferrara. It was held under the auspices of the Italian Academy of Economia Aziendale (AIDEA), and was sponsored by PricewaterhouseCoopers. The Chair was Professor Stefano Zambon (University of Ferrara), whilst Professor Philip Vergauwen (University of Maastricht) was the Co-Chair[1].

The workshop was attended by 135 delegates, and 80 papers that were selected from the ca. 120 submitted were presented in the four streams of parallel sessions. There were also two plenary sessions. In the first of them, Professor Baruch Lev (Stern School of Business, New York University) was the invited keynote speaker, and in the latter, chaired by Professor Philip Vergauwen, eight distinctive scholars[2] delivered their views on “Intangibles and IC: new directions for theory and practice”.

An award for the “Best Junior Contribution to the Development of Intangibles and IC Theory and Practice”, sponsored by PricewaterhouseCoopers, was conferred on Per Flöstrand (Uppsala University, Sweden), whose paper is present in this collection[3].

In consideration of the relevance of, and the wide interest raised by, the event, it was decided that some of the most interesting and innovative papers were to be selected by the Guest Editors to produce a Special Issue of the journal aimed at highlighting some of the intriguing and promising research avenues of the area, with special reference to the measurement and reporting of intellectual capital (IC) for managerial purposes and performance evaluation.

The papers by Adele Del Bello and by Paloma Sánchez and Susana Elena address an important and rapidly emerging area of investigation on IC, i.e. that of the role played by this resource in the performance of public sector and, more generally, non-profit organisations. In particular, Del Bello examines the potential significance of an IC statement for local governments vis-à-vis another form of reporting often adopted by such bodies today – the Local Agenda 21 – directed at showing the sustainability over time in social, environmental and economic terms of a local government’s action and territory. On the grounds of a significant case study, the paper demonstrates that there are quite vast areas of information overlapping between a Local Agenda 21 report and a possible IC statement of a public-sector organisation. The work also makes the case for the development of an IC report for this type of body on the basis of its clearer and more focused usefulness in relation to the managerial decision-making and processes taking place in local government. This new report could derive from a reasoned integration between more specifically oriented IC information and the currently produced sustainability-related data.

The work by Sánchez and Elena probes into the application of an IC report to universities and research centres. Drawing on the model proposed by the Observatory of European Universities, and on a Spanish case study (the Autonomous University of Madrid), it is argued that also in regard to this specific category of non-profit/public sector organisations, IC statements are not only relevant, but essential to improve and evaluate research management and performance, and to contribute to comparative analysis of universities. An adaptation of the framework designed by the Observatory of European Universities is also argued so to make it more consistent with the IC approach and terminology.

The role of public-sector bodies as to intangibles and IC, though, also resides in promoting company awareness and management of these crucial resources, as documented by the work of Jane Watters, Fiona Jackson and Iain Russell, who describe the activities implemented in this field by the Intellectual Assets Centre. This is an agency funded principally by the devolved government of Scotland, which operates as a catalytic and evangelising body that is setting out to develop a high profile as a centre of excellence in intellectual assets (IA) relating to business and the economic development of that region. In the paper, an interesting exercise carried out by the Center is illustrated. This exercise was aiming at devising useful aids to facilitate improved learning and understanding of IA management issues, especially in small and medium enterprises, and consisted of the development and piloting of an IA capturing tool, the feasibility of a novel IA benchmarking tool, and a toolkit to assist know-how capture. The outcomes of this first effort appear to be quite successful and promising for the future.

Another important contribution in this field by governmental authorities is that of setting authoritative standards and guidelines for the production and disclosure of information on company IC aiming at economic growth. In the paper by Ulf Johanson, Chitoshi Koga, Matti Skoog and Johan Henningsson the Guideline for Intellectual Property Information Disclosure (GIPID), released in October 2004 by the Japanese Government, is described and examined from a capital market communication perspective and from a management control perspective with reference to 12 cases of early-adopting firms which published IP reports as a part of, or as an appendix to, their annual report. The analysis is also conducted in comparison with previous similar efforts (Danish Guidelines and MERITUM Guidelines). It is noteworthy that the GIPID is not only targeting companies and different lines of industry, but also universities, individuals, and government bodies. The challenges of uniqueness versus comparability and confidentiality versus accountability are deepened as major tradeoffs for the development of IP and IC statements. The work closes off by delineating a number of central themes for the future research agenda arising from the Japanese Government’s document.

The subtle fil rouge connecting information, management, innovation, and company growth is also at the heart of the two contributions by, respectively, Artie Ng and by Christian Riegler and Christian Höllerschmid. Both works move from the state of unsatisfactory disclosure on IC components in today’s financial accounts. In particular, using statistical techniques Ng shows the significance of the inter-relationship between IC and business growth performance among six selected cases of wireless technology companies in Canada. More expressly, the results demonstrate the plausibility of the linkage between resources utilised in specific components of IC and increase in revenue generation Accordingly, the author suggests an “add-on” disclosure of intellectual capital flow that would be able to enhance usefulness and predictability of firm performance, whilst maintaining harmony with current financial reporting practice.

Christian Riegler and Christian Höllerschmid address their attention to the well known issue of the under-reported research and development (R&D) activity and outcomes in annual accounts, especially in regard to self-generated intangible assets. In fact, only intangible investments meeting both the conceptual and the specific recognition criteria are shown in financial statements as assets. Therefore, the authors aim to develop an information model for R&D based only on the conceptual recognition criteria adapted to consider the features of R&D-related intangibles. To this purpose, indicators from IC reports reveal themselves quite valuable. Based on the findings of a case study, and on IC-based conceptual recognition criteria, a voluntary R&D reporting model, building on and consistent with international accounting principles (IAS/IFRS), is developed in the paper. Operationally, this is done by adopting “add-ons” to the balance sheet and the income statement which themselves are not affected by the voluntary reporting model. This approach therefore allows for the voluntary presentation of information on R&D following the language of financial accounting without arguing for a change in the mandatory rules of this field. Hence, by means of this model the two dichotomous reporting formats that fundamentally substantiate corporate disclosure are brought together more closely.

Located at the end of the information supply chain of IC information there are the market actors, and in particular the financial analysts, who have the primary aim of converting all the different types of data into performance evaluation and company value. In the study by Per Flöstrand, the concrete use of information on IC as leading indicators of future performance by sell-side financial analysts is examined, and based on the findings, conclusions are drawn on the perceived usefulness of different categories of these indicators. The paper carries out a content analysis of 250 sell-side financial analyst reports written on a randomly selected sample from US S&P 500 companies. The results of the study evidence the frequent utilisation of IC indicators in analyst reports, even though industry is a contextual factor impinging significantly on the number of indicators employed. Moreover, a majority of the IC indicators used by sell-side financial analysts appear to refer to relational capital, whereas indicators on human and structural capital are less frequent.

The vast and rich array of topics, perspectives and methodologies emerging from the selected papers, as well as from the other works presented at the workshop, may induce a reflection on today’s scientific and practical identity and status of that subject area generally known as “intangibles and intellectual capital”, whose development this journal has provided a relevant contribution over the years.

It is easy to observe that intangibles and IC have always been at the centre of the attention of several scholars belonging to very different disciplinary areas (economics, accounting, organisation behaviour). As an example, one could recall the contributions by Simon (1947), Penrose (1959), Becker (1964) and Flamholtz (1974). Indeed, many of the most successful approaches in management studies and company practice in the last 15 years did and do deal directly or indirectly with intangibles. Leadership and human resource management, knowledge management, resource-based view of the firm, quality, management of innovation, networks and alliances, branding, customer relationship management and corporate image, management and financial accounting systems, IPR management, and corporate social responsibility are a few examples of well known and widely adopted approaches and methodologies that cope essentially with specific issues linked to the broader area of management, measurement, and reporting of intangibles and IC.

Actually, this appears to be so true that one could wonder whether in many respects it is the subject area of intangibles and IC that is infusing these strains of literature and thought, or whether instead the latter are enriching the IC topics and approaches. In other words, it seems that one could rightfully pose the question of what the boundaries are of the disciplinary area today called “intangibles and IC”. Does such an area exist or it is just a distinct perspective from which to observe various management issues, address certain organisational matters, and face particular measurement and reporting problems? To what extent can we argue that a disciplinary field devoted to intangibles and IC has a separate and autonomous life from other more affirmed areas, such as management, accounting, organisation behaviour, economics, finance, public sector administration, and so on? Drawing for instance on the papers presented here, can we support the soundness of a “disciplinary territorial claim” vis-à-vis intangibles and IC? Or are the latter “just” an object which can be investigated from a variety of established and recognised disciplines? Shifting to a more educational perspective, to what extent does it make sense in theoretical and practical terms to graduate in “intangibles and IC” in the same way a student today can graduate in management, accounting, marketing or finance?

Clearly, the answers to the above questions are not irrelevant for the future of this area in terms of scientific inquiry as well as of operational and institutional acknowledgment and acceptability. In this sense, there are encouraging signs that a disciplinary field might be on its way to affirming itself, such as the setting up of academic chairs in IC or ad hoc individual university courses, or the quite rapid proliferation of studies and experimentation, or the steep rise in institutional attention devoted to these topics by governments and international bodies in the last ten years or so (European Commission, OECD, Japanese, Danish, Korean and Taiwanese Governments, etc.) (e.g. Zambon, 2003).

However, in order to configure a fully fledged disciplinary area, it seems necessary to have four fundamental constitutive elements:

1. 1.

   an object and/or a shared set of problems;

2. 2.

   a quite distinctive and defined language;

3. 3.

   specialised outlets and publications; and

4. 4.

   academic, professional and institutional interest and recognition.

As to the first element, it can hardly be questioned that intangibles and IC identify both an object and a set of issues, but these are evidently at the crossroads of many disciplinary fields. This implies that the same intangible object, e.g. a brand name, can be investigated from a variety of perspectives (legal, managerial, financial, accounting, marketing, and so on). In this respect, the study of intangibles seems to call for an interdisciplinary approach, or at least an interdisciplinary awareness, since it represents an area at the intersection of several fields. Therefore, the argued subject appears to have a complex object, prone to many “disciplinary incursions”. A key-question therefore surfaces: can this area successfully self-sustain over time such an articulated and interdisciplinary object?

As to the language, notwithstanding some convergence (cf. the almost generally shared usage of expressions such as “human capital”, “organisational capital”, and “relational capital”), it appears that much remains to do in this perspective. For example, the very concept of “intellectual capital”, which is at the heart of the subject area, continues to be ambiguous, not so rigorously defined, and even not universally accepted. Borrowing on de Saussure’s classic linguistic analysis, IC is indeed a signifier with at the same time many “signifieds” (an object per se, a subject area for investigation, a perspective of analysis). In this respect, a generally agreed taxonomy on intangibles and IC seems to be urgently needed to strengthen the area, its reliability, and the research thereon, even though it is not clear what body today would have enough authority and the capacity to carry out such a task effectively at an international level.

As to the third constitutive element, it is easy to observe a certain lack of specialised journals in the area, especially with a more pronounced academic orientation. There are, of course, journals of other disciplines (e.g. knowledge management, accounting, finance, marketing, etc.) that rather often publish papers on intangibles and IC. For the development of the subject area into a mature discipline, there probably would be a need for further ad hoc outlets and publication series.

A final element to be considered when assessing whether we face an autonomous disciplinary field is linked to the interest raised by the topics and issues concerned. Intangibles and IC clearly enjoy a lasting academic consideration, especially in Europe and Asia (e.g. the special issues published in the last 4-5 years by various journals, and the numerous workshops and seminars organised in this area). Also at a professional/consultancy level there seems to exist a relevant attention, nurtured – inter alia – by the quite recent developments in accounting rules (see US SFAS 141 and 142, IAS 38, and IFRS 3). The prolonged interest of some national and international institutions in these topics has already been mentioned. Similar considerations can be made for financial analysts who, especially at the European level, have in the last few years been turning their attention every so often to this subject area.

Also at a business level there appears to be quite a diffused awareness of the importance of the subject area, even though the number of companies concretely applying an IC management and reporting is currently not very high. A question then arises spontaneously: if intangibles and IC are so important for the management and growth of organisations, why have not so many companies thus far taken up the management approach and tools in question? It has to be pointed out, however, that a remarkable number of companies have already implemented balanced scorecard systems, as well as preparing on a regular basis various sorts of “alternative” reporting statements (e.g. social or sustainability reports) which are both largely based on intangibles-related information).

In this sense, it can be said that the interest in intangibles and IC on the part of companies, and, more generally, the business community, seems to be increasing with particular reference to selected geographical regions (Europe and Australasia in primis), yet possibly with different twists or under variegated labels.

In conclusion, the subject area known as “intangibles and IC” does not seem to give rise at the moment to a fully accomplished disciplinary field, and perhaps will never do so. Notwithstanding a good level of identifiability of the object and the connected issues, the area still appears to be lacking a universally accepted language and shared definitions, a sufficient number of outlets and publication sites, and a solid and sufficiently general interest and understanding on the part of various relevant constituencies (managers, accountants, academics, consultants, policy makers, and so on).

Accordingly, in the realm of theory, the area known as “intangibles and IC” seems to be more amenable to the logic of a scientific research programme à la Lakatos (1970) than to an unambiguously identifiable disciplinary field. This research programme, which is reasonably expected to have a progressive nature (i.e. to grow over time through new but correlated theories and approaches) is intended to provide a distinctive and penetrating study perspective/analytical angle from which observing and addressing management, organisational and reporting issues linked to the knowledge economy and its intangibles-rooted dynamics.

On the other hand, despite the uncertain scientific disciplinary identity of this area, the realm of practice has still to face a related major paradox: the more the economic system and firms are based on intangibles and IC, the stronger they are, since these resources are major determinants of growth and value creation. However, at the same time the more the economic system and firms are rich in intangibles, the more vulnerable they become. The day-to-day challenge we all encounter is thus to recognise and to learn how to manage, measure and report in this IC-infused environment.

In this sense, it is hoped that the papers in this Special Issue – thanks to their diversity in the topics, methodologies, and perspectives adopted – will give meaningful input not only to foster a more self-conscious discussion of the distinctive features of the subject area of intangibles and IC, but also to take the field and its players to a new and more advanced level of understanding and awareness on scientific as well as practical grounds.

It is noteworthy that the workshop was followed back to back by the International Policy Conference on “Intellectual assets and innovation: value creation in the knowledge economy”, jointly organized by the University of Ferrara and the Organisation for Economic Cooperation and Development (OECD), which gathers the governments of the 30 most industrialized countries of the world. This event was also held in Ferrara on 20-22 October 2005, and attracted 185 delegates from 30 countries with more than 50 presentations by representatives of governments, international institutions and non-profit organisations, managers, consultants, academics, researchers, and accountants. The Convenor of the Conference was Professor Stefano Zambon. For more information on this second event and, more on the Ferrara “intangibles week” in general, see www.ferraraonintangibles.net

The eight scholars were Professor Jan Mouritsen, Copenhagen Business School; Professor Hanno Roberts, Norwegian School of Management; Professor Jan-Erik Gröjer, Uppsala University; Professor James Guthrie, Sydney University; Professor Paloma Sanchez, Autonomous University of Madrid; Dr Karl-Heinz Leitner, Austrian Research Center Systems, Vienna; Ms Isabel Verlinden, Partner, PricewaterhouseCoopers; and Professor Philip Vergauwen, University of Maastricht.

The 2nd EIASM Workshop on “Visualizing, measuring, and managing intangibles and intellectual capital” will take place at the University of Maastricht on 25-27October 2006 (see www.eiasm.org/frontoffice/event_announcement.asp?event_id=476). The 3rd EIASM Workshop is planned to be held in 2007, in Ferrara.

Stefano ZambonFaculty of Economics, University of Ferrara, Italy