Key Intangible Performance Indicators (KIPs) for Organisational Success: The Literature Review

Introduction

This paper investigates the significant impact of Key Intangible Performance indicators (KIPs) on organisational success. It is a fact that both Key Performance Indicators (KPIs) and Key Intangible Performance Indicators (KIPs) measures play pivotal roles in making organisation a success.

The main difference between KPIs and KIPs lies in the definition of tangible performance drivers for the former and intangible performance measures for the latter. This is in line with definition made by Lönnqvist (2002) who categorises critical success factors into financial and non-financial and tangible and intangible and depicts them into four quadrants as shown in Figure 1.

Figure 1.

Classification of common success factors (adapted from Lönnqvist, 2002)

In fact, KPIs are more widespread even though organisation’s intangible assets may easily represent more than 75 percent of its values (Kaplan & Norton, 2004). Spitzer (2007a) highlights that while intangible assets account for as much as 80 percent of some companies’ market value, almost no intangibles ever appear in a company’s financial reports—at least not as anything other than an expense. Therefore, it is crucial for organisations to unlock the value of these assets to enhance its competitive advantage. At present, there is now a shift from measuring tangible to intangible assets (Boundoufr, 2003). Indeed, more companies are realising that knowledge assets, rather than physical assets, are the indicators that should be measured and included for a successful and profitable future (Margareta, 1999; Tony, 2001). Investors will be best served if all assets – both tangible and intangible - are measured and reported, even if the value of some intangibles can only be communicated through indicators (Litan, 2000). Therefore, this study intends to fill this gap on intangible measurement indicators and work toward the development and application of the KIPs in the public or private sectors.

Background

KPIs are defined as the measures of non financial and tangible achievement that can be attributed to an individual, team, or department. KPIs are constructed using the SMART (Specific, Measurable, Attainable, Reliable, and Time -based) principles of objective setting, and are developed as part of a performance management system (Arash & Mahbod, 2007).

In the public sector, the Government of Malaysia, through Performance Management and Delivery Unit (2010) under the Prime Minister department have launched the Government Transformation Programme (GTP) with six National Key Result Areas (NKRA) and Economics Transformation Programme (ETP) with 12 Sectors of National Key Economic Areas (NKEA) in 2010. This is in accordance with the principles of 1Malaysia, People First and Performance Now. The objectives are to transform Malaysia into a high-income nation by 2020 where economic growth is driven by creativity and innovation, and drive Malaysia into the first world status. Clearly, all measures are related to KPIs, the buzzword that receives so much publicity and attention in the media.

In the private sector, Multinational Corporations (MNC) have deployed Balanced Scorecard’s KPIs to improve efficiency and effectiveness in organisations. However, there is lack of consensus as to what Balanced Scorecard’s KPIs are and many organisations develop a Balanced Scorecard without first developing a strategy map. Indeed, in spite of the wide usage of Balance Scorecard, it has shown to be inadequate in various circumstances and across differing firm types (Maltz, Shenhar, & Reilly, 2003).

In developing specific KPIs, organisations deployed the ‘one-size-fits-all’ approach. And this resulted in problem as every organisation is unique with different level of competencies and there is no single way to design a performance management system (Jones, 1997).