Where measurement frameworks have been successful there have not only been clear links between the strategy and the measures but between the stocks and flows of intellectual components. The measurement tools mentioned above have been the most successful as they inter-relate each of the components to help a business show how each of the individual components singularly and collectively affect the creation of financial capital.
Benefits of measurement
The number of measurement frameworks is continuously growing as researchers attempt to standardise metrics across industries, improve measures for disclosure and look for better ways of predicting future performance. But why are companies measuring their intellectual stocks and flows, what real benefits does this give them? Recent research carried out for at the Centre for Business Performance at Cranfield University has shown that most companies use intellectual asset measures for strategic reasons or for influencing the behaviour of their managers and employees.
A good quality business performance measurement system should be guided by strategy and should be used to assess and challenge the assumptions underpinning the current strategic direction. In addition the verification or rejection of strategic assumptions may potentially impact the intellectual resource allocation within organisations. The intellectual resources that a company needs, and that they therefore measure, depend on the strategic direction and competitive landscape that the company faces. It was found that because intellectual asset measures are guided by strategy a different set of measures was used by each of the companies.
In terms of managerial control it has been suggested for some time now that financial performance measures should be supplemented or replaced by non-financial measures, which are more informative of employees’ actions and can improve contracting. In terms of behaviour most organisations have realised that relying purely on financial measurement can encourage short-term thinking especially if those financial measures are linked to compensation systems. A justification for the use of non-financial performance measures in compensation plans is the higher level of information these measures provide about managerial effort and actions desired by the firm. Although it is generally recognised that measures should affect managerial behaviour and actions in order for the strategy to be realised and that a performance measurement system should evaluate the impact of practices on the journey towards achieving those strategic goals, Jonathan Low demonstrated, through an audience response system at a Forbes conference, that 70% of CEOs admit that there is a big gap between what gets measured and rewarded and what actually drives performance. However, our recent research has shown that non financial measures are mainly being used by companies for managerial control and for the basis of compensation.
