Nowadays knowledge and competencies are the key productive factors, and the organizational capability for continuous learning, development and renewal has become the main driver of competitiveness. In this chapter the authors explore how organizational measurement should change in order to remain relevant in the face of the recent increase in the knowledge-intensiveness of work, organizing and value creation. First they argue that, while traditionally measurement has mostly been used for control purposes, recent changes in the nature of work have brought on new challenges which can no longer be met with old mindsets and measures. Then they focus on two novel approaches, intellectual capital and competence development, and examine the current state of the art. Finally, the authors construct foundations for a knowledge-based approach to organizational measurement and set some future directions in which measures should be developed in order to portray and enable knowledge work and knowledge-based value creation.
It is widely agreed that nowadays knowledge and competencies are the key productive factors, and the organizational capability for continuous learning, development and renewal has become the main driver of competitiveness (Drucker, 1988; Prahalad & Hamel, 1990; Kogut & Zander, 1992; Grant, 1996b; Teece et al., 1997). Thus, organizations are increasingly interested in assessing, managing and developing what they know and can do. This chapter explores how organizational measurement should change in order to remain relevant in the face of the recent increase in the knowledge-intensiveness of work, organizing and value creation. Traditionally measurement has mostly been used for hierarchical control purposes with regard to material and financial stocks and flows, but we argue that recent changes in the nature of work have brought on new challenges which can no longer be met with old mindsets and measures.
“You can only manage what you can measure.” Undoubtedly one of the oldest clichés of management science, it embodies an assumption that once something can be measured, it can also be managed. This type of an assumption is based on the idea that optimal performance can be totally standardized. It is also connected with the view that the expertise about the nature of optimal performance is located at the top of the organizational hierarchy. Thus, management is reduced to giving orders and enforcing control, and the role of employees is that of obedient implementers.
Even though this may have been a justified view in the Fordist era of mass production, current changes in the nature of work have created new challenges. Knowledge work implies different performance criteria and a different type of management than other types of work (e.g., Blackler, 1995; Davenport, 2001; Snowden, 2002). This entails changes for measurement on two levels. First, the actual measures themselves have to change. For example, knowledge worker productivity is more related to the quality than the quantity of output (Drucker, 1999), which makes most traditional performance measures inadequate. Second, the whole goal of measurement has to be seen differently: not as to control but to foster continuous learning and renewal of the whole organization.
In this chapter, we first examine the nature of knowledge work and knowledge-based organizing in the light of recent management science literature. We argue that as organizations have changed, so should the measures used in them. Performance measurement was developed for the needs of organizations in the pre-knowledge era and cannot adequately capture the essential characteristics of knowledge work and knowledge-based value creation.
We also shed light on the novel approaches brought about by scholars working in the fields of intellectual capital (e.g., Edvinsson & Malone, 1997; Sveiby, 1997; Roos et al., 1998; Stewart, 1997; Bontis, 1999) and competence development (e.g. Snow & Hrebiniak, 1980; Henderson & Cockburn, 1994; McGrath et al., 1995; Riiter et al., 2002), and examine the current state of the art. These two modern schools of thought are mindful of the special qualities of knowledge as opposed to other types of resources. Interestingly, in these postulations there is also a different kind of twist when compared to the traditional measures: traditionally measurement was mostly aimed at controlling, whereas these new approaches are, more or less explicitly, aiming to measure learning. So, rather than control the intangible resources and competencies, the novel metrics are meant to foster development and learning.
Even though these new branches of management have set to expand the scope of measurement to knowledge-related issues, there is however still room for improvement in the measurement frameworks as well as the specific indicators. Finally, based on the knowledge-based view of work and organizing, we propose criteria for more adequate measurement of knowledge and competence. We set some future directions in which measures should be developed in order to better reflect the change towards knowledge work and knowledge-based value creation in organizations.
Key Terms in this Chapter
Competence Development: Competence is more like an asset, while competence development is a more practical or at least action-oriented approach which aims to develop these assets or competences. Competence development has set out to expand organizational measurement from command and control purposes towards enabling learning and self-renewal.
Competence Matrix: The competence matrix is sometimes also called competence mapping or competence analysis. It is the most common tool used in work organizations for competence measurement and development of individual skills, knowledge and competences including technical or professional skills, human competence (e.g., interpersonal communication skills) and business know-how.
Measurement: In traditional management, the role of measurement is to provide the management with information about whether the set goals are being met and the standardized operating methods being followed, and thereby to enable timely and just monitoring of execution. The measurement objects are tangible, namely, financial or material resources and liabilities of the organization. In contrast, from the knowledge-based view, the role of organizational measurement is to enable knowledge workers to develop their own working methods and conditions, and to inform the management of how to support employees better in creating, sharing and integrating knowledge for productive ends. The focus of measurement shifts from material or tangible resources to knowledge.
Knowledge Workers: Knowledge workers are highly educated employees who apply theoretical and analytical knowledge to developing new products, services, processes and procedures. As knowledge workers by definition are the experts of their own jobs, much of the decision-making and job design has to be relocated where the expertise lies.
Competence: Competence can be either individual one that focuses on the personal and cognitive traits of so-called competent managers or employees in relation to their job performance, or organizational one that focuses on corporation wide strategic competence and collective practices. It can also be a comprehensive one that integrates both individual and organizational strategic competences together.
Intellectual Capital: Intellectual capital is a set of knowledge-based resources and processes that contribute to the sustained competitive advantage of the firm. The most commonly shared view is that intellectual capital consists of three basic elements: human capital (skills and know-how of the people in the organization), structural capital (organizational infrastructures and processes) and relational capital (relationships with clients, suppliers and other significant stakeholders, image, brand).
Knowledge-Based View: According to the knowledge-based view, organizations are communities of knowledge and innovation that constantly create, transfer and transform knowledge into sustainable competitive advantage, and performance differences between firms derive from their differing stocks of knowledge and capabilities in using and developing knowledge.