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9

MOBILIZING INTELLECTUAL CAPITAL IN PRACTICE

A story of an Australian financial institution

Vijaya Murthy and James Guthrie

Introduction

Contemporary intellectual capital (IC) research has five stages (Dumay et al., 2017). The first stage was raising awareness and the second stage was theory building and frameworks (Petty and Guthrie, 2000). The third stage was investigating IC in practice from a performative perspective (Guthrie et al., 2012). A fourth stage is an ecosystem approach as outlined by Dumay and Garanina (2013). The fifth stage of IC research is identified as working towards reconciling the worth of IC to different people in different contexts, respecting that there will always be differences, and that one view should not always prevail (Dumay et al., 2017). Our study attempts to explore the third stage.

An important turning point in IC research is the article by Guthrie et al. (2012), which reviews a decade of IC accounting research. They conclude that much of the past research into IC was commentary, and normative policy rather than empirical papers. This opened up the opportunity for more research examining IC practices. As Guthrie et al. (2012, p. 79) emphasize:

We must challenge the status quo, employ innovative methodologies, experiment with the novel and take risks. We encourage you to watch the ICA space in the next decade for more critical field studies which will provide empirical studies of IC in action and help develop broader theoretical research.

Dumay et al. (2017, p. xx) state that to extend IC, researchers need to remove boundaries, and the question they ask needs changing from “what is IC worth to investors, customers, society and the environment?” to “is managing IC a worthwhile endeavour?” Asking the latter question removes the boundaries from IC research to include a much broader understanding of ‘worth’ and recognizes that IC is a substantial part of what impacts everyone on a day-to-day basis.

Different forms of IC value have different worths to different people. Dumay (2016, p. 169) highlights a distinction between IC ‘value creation’ and ‘wealth creation’, where wealth creation is about increasing the stock Demartini of money or something convertible to money. Managing IC is more than this as value creation is central and all activity cannot be measured just in monetary terms. Dumay (2016) defines value creation in four ways: monetary, utility, social, and sustainable value. We adopt this perspective of value creation in our case study, which explores how IC was mobilized and the consequences of this within an organization.

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Motivated by Dumay et al. (2017) this chapter seeks to understand how IC theory translates into practice (e.g. to explore the impact of IC practices on the people and the organization). According to IC theory, the three elements of IC (i.e. human, structural, and relational capital) work together resulting in value creation. In practice, what happens when IC elements work together or independently? Is it true that when IC is managed it results in value creation?

The aim of this chapter is to examine how IC is mobilized in a large organization. We use data collected from an Australian financial institution to construct a narrative (a story with a beginning, middle, and end) to show that when managers mobilized IC elements expecting certain (intended) consequences, there were unintended consequences since elements of IC interacted, entangled, and acted with each other.

We use the narrative approach for the chapter as it endeavours to create an account of the process through stories to provide coherence and continuity to organizational experience (Lieblich et al., 1998). Imposing a narrative structure containing a plot, a sequence, and actors (Bruner, 1990) onto fragmented material collected from various documents and interviews helped us in making sense of what was happening in the organization – the processes, the barriers, and the struggle to manoeuvre IC.

Literature review

Accounting researchers have long argued that there are drawbacks to relying exclusively on financial accounting information (Murthy, 2011) and that traditional accounting models (both financial and management accounting) do not capture the “value creation story” (Dumay et al., 2017). While traditional accounting models have informed company management and other stakeholders about stocks and flows of financial value, IC consists of non-financial value.

In stage one of IC research, several authors argued that IC elements, such as customer loyalty, employee satisfaction, and internal processes, drive financial performance (Nowak and Anderson, 1999). According to Cumby and Conrod (2001), the activities that create shareholder value must be identified and managed, since IC plays a major role in performing this function. The success of this association depends on the way IC elements are used and managed within the organization (Joiner et al., 2009; Reijonen and Komppula, 2007).

Since the early 2000s, IC researchers have been concerned with justifying IC theoretical assumptions through empirical testing (e.g. Marr et al., 2003) and advocated for the research field to adopt empirical testing (Mouritsen, 2006). Andriessen (2004) believed that IC research was undertaken mostly by practitioners rather than academics and, among other concerns, called for research that could clarify how internal management used IC information.

In stage two of IC research, several IC researchers proposed models and guidelines (e.g. Roos, Sveiby, Mouritsen, and Edvinsson) and built a variety of IC toolboxes1 to help organizations manage their knowledge. The common denominator among these toolboxes is that they acknowledge IC as necessary in the value creation process, but they tend to link the IC agenda with a financial agenda (Skoog, 2003).

With developments in the field of IC research, the third stage IC studies provided performative analysis, creating empirical evidence of ‘IC in action’. For instance, Yu and Humphreys (2013) argued that IC components are interrelated and the implementation of IC management strategy was low within the engineering industry. They advocated moving away from a ‘measuring’ focus to a ‘learning’ focus by examining the flow of IC. Chiucchi (2013) undertook interventionist research that showed that actors must complete an experiential learning cycle to mobilize IC. By doing so, companies introducing IC are more likely to become aware of barriers and levers to measuring and mobilizing IC.

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Chiucchi and Dumay (2015) asked if it was possible for an organization to implement ‘lock-in’ IC accounting practices and subsequently ‘un-lock’ IC through a more strategic managerial approach. They concluded that at times a principal focus on accounting for IC is necessary to make sense of IC and manage it. Similarly, such studies were conducted with a performative research agenda to show the use of IC in managing organizations, how IC works, and how people and processes are mobilized (e.g. Cuganesan, 2005; Cuganesan et al., 2007; Dumay and Guthrie, 2007).

IC in action type research has increased and matured in the third stage. However, as Dumay and Garanina (2013) point out, several of these studies seem to be stuck in an ‘evaluatory trap’ whereby they develop top-down ostensive IC research rather than taking a critical bottom-up approach. The critical approach has been labelled the fourth stage of IC research. Our study is an IC in practice study; it is unique in that we bring out the stories from the organization to show the complexities that managers face while trying to mobilize the network of IC resources. Also, the results of our study provide a flavour of the fifth stage of IC research as we can see evidence that the managerialist perspective is limiting and we explore impacts beyond intended consequences and highlight a perpective of IC in action.

Unintended consequences

This section briefly explores the theory of intended consequences, which is used to explain part of our story. Intended consequences of a purposive action are limited to those elements in the resulting situation that are exclusively the outcome of the action (Merton, 1936) and are relatively desirable to the actor. Unintended consequences (also known as unanticipated consequences or unforeseen consequences) are outcomes that are not those intended by a purposive action. For the purpose of this study, we label consequences that relate to the stated objectives ‘intended consequences’, or main effects, whereas consequences that do not relate to the stated objective are labelled ‘unintended consequences’ or side effects (Brüggemann et al., 2013).

The theory of unintended consequences was popularized by Robert K. Merton in 1936. Merton’s (1936) ‘consequences’ of purposive action are limited to those elements in a resulting situation that are exclusively the outcome of the action, that is, those elements that would not have occurred had the action not taken place. In an organization, attention is restricted to such situations that are immediately or directly the outcome of an action (Ashton, 1976). Nevertheless, due to the interdependence of organizational elements, there is a possibility that a change in one element may yield unforeseen consequences in other elements.

Unintended consequences should not be identified with consequences that are not necessarily undesirable (for the actor) (Merton, 1936). Though unintended, these consequences may be positive, negative, or perverse and are sometimes desirable. A positive unintended consequence is an unexpected benefit derived from an action, which we can refer to as luck or a windfall. A negative unintended consequence may result in unexpected adverse effects in addition to the intended effect of an action (e.g. while budgets help in increasing organizational efficiency, they may also reduce employee motivation). A perverse effect is a consequence contrary to what was originally intended, that is, when the intended solution makes a problem worse. Therefore, unintended consequences are NOT uniformly errors or mistakes that are not welcome; they are surprises that can vary on a scale from lucky to unfortunate (Campbell et al., 2006).

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Merton (1936) highlights five factors to a correct anticipation of consequences of action: ignorance, error, immediate interest, basic values, and self-defeating prediction. The first factor, given the existing state of knowledge, means that it is practically impossible to predict with certainty the results in any particular case. Also, incomplete knowledge, based on which action is carried out, could lead to a range of unexpected outcomes. This is categorized as ignorance that leads to incomplete analysis. The second factor that gives rise to unexpected consequence is an error. It is normal for human beings to err in any phase of action: an appraisal of the problem, selection of a course of action, or implementation of the action. Sometimes, an action can erroneously be taken based on the fact that it worked in the past, but may not prove successful under the current situation.

The third factor resulting in unintended consequence is immediate interest, which refers to situations where the actor looks for immediate results (short-run) neglecting the consideration of further consequences (in the long run) depending on a range of interests such as psychological needs, cultural values, economic needs, and so on. The fourth factor is that of basic values, which refer to situations where there is no consideration of further consequences because of being pressured by some basic values to perform certain actions. The final factor, self-defeating prediction, refers to instances when the public prediction of a social development proves false precisely because the prediction changes the course of history. Sometimes, people are scared of unfavourable unintended consequences of a particular act and want to avoid them.

Research method

Research using narrative methods enables researchers to place themselves at the interface between persons, stories, and organization (Czarniawska, 1998, 2005). Narrating is a mode of thinking and persuading that is as legitimate as calculating (Llewellyn, 1999, p. 220). Narratives can be defined in several ways. For instance, according to Riessman (1993, p. 17), narratives are discrete units, with clear beginnings and endings, detachable from the surrounding discourse rather than as situated events. Denzin (1989, p. 37) encapsulates the characters of ‘narratives’ as a story that tells a sequence of events that are significant for the narrator and his or her audience. Thus, for the purposes of this study, we define a narrative as a story that has a plot, a beginning, middle, and an end. It has an internal logic that makes sense to the narrator. A narrative relates events in a temporal, causal sequence and every narrative describes a sequence of events that has happened in the past. A narrative label can be applied at the personal, organizational, or societal level and allows multiple stories to be bundled together to form narratives (Hawkins and Saleem, 2012).

Narratives take different forms within organizational studies. This includes research that has been written in a story-like manner, research that collects stories, and research that looks at organizational life as story-making (Hawkins and Saleem, 2012). In this research, we use two forms of narratives. First, research is written in a story-like fashion. Second, stories were collected from the organizational members, reports, and newsletters (i.e. tales of the field, gathered from the field). Narrative accounts (coherent wholes) were constructed using parts supplied by organizational members and from those found in the reports and newsletters including the relevant and excluding the irrelevant (Llewellyn, 1999, p. 225). This helped to create some unified stories.

The narratives are constructed from raw and fragmented material obtained from the documents and transcripts of stories collected from interviews. The written and oral material complemented each other. The raw material thus obtained is organized with the help of a plot and characters. Thus, we perform narrative analyses by collecting descriptions of events, actions, and happenings, and synthesizing them using a plot into stories. The purpose of the narrative analysis is to produce stories as the outcome of the research. Narrative analysis studies rely on stories as a way of knowing, and stories emerge as data is collected and then are structured and rendered through an artistic and rigorous analytical process. Barone (2007, p. 456) calls this a ‘narrative construction’ because “recasting of data into a storied form is more accurately described as an act of textual arrangement”. In this research, narrative analysis is used to analyse the empirical data collected by the financial institution (e.g. narrative construction is performed).

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For this research, narrative analysis helps us answer the aims of this chapter, which are to examine how IC was mobilized in a large organization. In answering this question, a search was conducted for pieces of information from various sources such as interviews and different internal and external reports. Explanations based on evidence from the past were organized into a unified story in which the links between the events were developed (Polkinghorne, 1988). Written texts were considered not just as a collection of words but a sequenced discourse and a network of narratives that could be read in a variety of ways (Krippendorff, 2004, p. 63). The texts found in the written reports did not merely map, speak about, or indicate the features of the organization, but were considered to construct worlds for the people in the organization to see, enact, and live with (Krippendorff, 2004, p. 63). These texts were sequential in nature, and the narratives in each of the reports were not considered as individual silos but were integrated with each other to form a coherent story. Therefore the contents were read and re-read, compared and matched with interviews that helped the researcher to form the plot and sew the fragments of information collected to transform them into patterns of knowledge and to make sense of the organization.

Written texts are understood to be created within, and against, particular traditions and audiences (Riessman, 1993). Texts always stand on moving ground, and there is no master narrative (Clifford and Marcus, 1986). Nevertheless, written reports that represent the organization’s practices were considered as the voice of the organization as a whole. The analysis and discussion sections of this study do not contain evidence (in the form of quotes) taken from reports and interviews, but consist of plotted stories that were configured by the researcher from the data collected.

The data was gathered from the back office of one Australian financial institution (known hereafter as the Bank) and included interviews and documents. These are all traces of past events of the organization that helped uncover how management mobilize IC in practice. Interviews took place with 14 senior executives and 45 employees of the back office (BO) of the organization. The documents gathered and analysed included both external and internal documents that managers use as tools that can be consulted for their future managerial activities. External documents analysed include annual reports and extended performance accounts for a five-year period. Internal documents included the strategy documents2 of the BO for three years and employee newsletters for five years. In the case of interviews, each of them took approximately one to one-and-a-half hours. All interviews were tape recorded after obtaining the prior consent of the interviewees and were later transcribed.

The interviews started with a brief introduction of the purpose of the study and data required. The questions to executives were open ended and revolved around IC and strategy of the Bank, the effect of strategy in the working of the BO, strategic resources of the BO, challenges faced by the BO in implementing the strategy, IC indicators, and interviewees’ individual role in the development of significant resources. The employees were asked to narrate stories on their work life experiences within the Bank, how performance measures helped and hindered their performance, and how work normally is done at the Bank. Leading questions were avoided, and the interviews were informal, building a rapport with the respondent. However, probing questions were asked during the process to access more information.

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The BO of the Bank was chosen for the study because the senior management of this division wanted to examine its IC resources to understand if these could be measured, managed, and reported to demonstrate the BO’s value to the senior management of the Bank. Therefore, the BO developed extended performance accounts (EPA), which highlighted using various measures to demonstrate the value it provided to the rest of the organization and the senior management of the Bank. The BO was a pilot study, and later the structure of the EPA was used to report on its IC to external parties. Thus the importance placed on the development of IC by BO made it an important research site. Covering data for five years in one organization revealed the uniqueness of this case and provided an understanding of its ‘idiosyncrasy’ and ‘complexity’ (Polkinghorne, 1988).

The investigation followed a path of narrative analysis that did not rely on standard methods. Peräkylä (2005) argued that qualitative researchers who use written texts or narrative interviews as their material should not try to follow any predefined protocol in executing their analysis. For them, it is necessary that the researcher has paid close attention to what the interviewer and the interviewees say to each other and how they say it. Also, the researcher must read and re-read the interview transcripts together with the gathered documents to ascertain key themes and give a fuller account of the connections between events and experiences.

The interviews in this study were treated as sessions of ‘interrogation’ in which the researcher was inquiring for ‘facts and information’ and not collecting ‘views and opinions’ of both managers and employees (Czarniawska, 2005, p.47). Being the interviewer and the researcher, the narrative researcher does not have the privilege of distancing him- or herself from the data. Finding the ‘right distance’ involves conscious work, but nevertheless, a degree of closeness to the data assists the researcher to interpret what is happening within the organization (Boyle, 1994, p. 166).

In this study narrative analysis was used to offer an account that transcends the individual voices of the participants (Llewellyn, 1999). The procedure adopted was to organize data elements into a coherent developmental whole by synthesizing data rather than separating it into its constituent parts. Events and actions that were related to one another were gathered from the reports and interviews and were contributing factors to the advancement of a plot. Commonalities were observed in the way evidence was generated – through interviews and searches in documents – by the researcher being immersed over the long term3 in the social world of the organization (Coulter and Smith, 2009).

An understanding of the narrative structure was necessary to proceed with narrative analysis. As explained earlier, narratives have a beginning, middle, an end, and logic. The events gathered from the documents and interviews were not just temporal; it was found that they had a sequence where one event led to the next. As the papers and interviews were examined, it was found that a plot for each of them was being formed. Since a plot was emerging, the information collected was treated as plays and configured based on dramatic themes (Llewellyn, 1999) – romance, tragedy, comedy, and satire.

Romance is a form of narrative on a single character and his/her/its potentialities (Czarniawska, 2005, p. 21). It depicts a quest, a valiant tale, or a journey to a desired end and includes a heroic victory over adversity (Llewellyn, 1999, p. 225). In accounting research, the goal oriented decision usefulness story is a romantic plot that seems to be popular since it portrays a successful progression to the objective. Tragedy, according to Czarniawska (2005), views humankind as subjected to some laws of fate, laid bare through the central crisis that constitutes the hub of the narration. In accounting and management research, tragic plots are used as precursors to the main romantic plots (Llewellyn, 1999).

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Comedy represents humankind not as subject to laws of fate, but forming parts of a higher unity, which despite setbacks and complications, works to resolve everything into harmony and a happy ending (Czarniawska, 2005, p. 21). The goal of comedy is the restoration of social order, and the hero must have the requisite social skills to overcome the hazards that threaten that order. Llewellyn (1999, p. 226) provides the example of “The evolution of management accounting” by Kaplan as a comic narrative that offers lessons for the future happy development of accounting techniques. Satire shows the absurdity of all that occurs and must reject the rational laws of fate in tragedy, the pursuit of common harmony in comedy, and self-fulfilment in romance (Czarniawska, 2005, p. 21). Llewellyn (1999, p. 226) points to accounting research that takes a post-modernism perspective as satire in describing how managers and organizations are inundated by chaos, ambiguity, and uncertainty.

Thus the ‘plots’ emerging from narratives helped in the organizational level analysis (macro) that had a structure of which the individual participating executives (managers) and employees were themselves not aware. As mentioned earlier, evidence in the form of quotations is not provided in our chapter, since the organization’s management (micro) did not see its activities as tragic, comic, romantic, or satiric. Also, quotes from interviews and documents are not used as these can suppress the voice of the participants and at the same time ignore the role of the researcher. These plots are the interpretations of the researcher and not that of the participants, but nevertheless, participants can be heard in the stories.

The plot that the researcher discovered for the story displayed the connections between various types of information collected from the data. Also, based on these plots, the required information was carefully chosen from the data gathered to be included in the final storied account. Next, ‘narrative smoothing’ removed those elements that contradicted the plot or were not essential to its development (Spence, 1986). While performing narrative smoothing, care was taken not to impose a predetermined order on the data and to ensure that the final story fitted the data, while at the same time brought order and meaningfulness that was not apparent in each of the documents or interview transcripts in isolation. Thus, in the story form, narratives helped in bringing unintended consequences to the surface.

The scenario

Before narrating the stories, it is necessary to set the context in which the events happened. This section briefly describes the scenario and establishes the stage for the stories by providing information on the events that occurred at the research site when the Bank introduced a new customer charter.

Similar to any other large service organization, the Bank had a ‘customer focus’ strategy. The Bank trusted that it could provide value across its business through the ‘service-profit chain model’4 that could be established through the relationship between internal practices and employee commitment, customer satisfaction and loyalty, profitability, and value creation. These can be represented by the three IC categories (i.e. human, structural, and relational capital).

Based on its new customer focus strategy, the Bank launched a ‘single point interface’ customer charter to bring sweeping change focused on the customer rather than products. The senior managers believed that this new charter would reflect the expectations of the customers. Single point interface was a commitment from the Bank to its customers that it would provide an appropriate solution within an appropriate time. Thus, the Bank believed that it could create long-term shareholder value by committing to providing superior services to its customers.

To materialize this single point interface charter, management of the Bank decided to bring about two changes. First, it was agreed to automate the Bank’s systems with the intention of enabling employees to have immediate access to information about the customer to deliver the single point interface commitment. Also, the Bank automated those ICT systems that could make more processes self-service for customers at all times, with a hope that this would help improve the customer experience and increase customer loyalty to the Bank. Second, it was decided to provide training to the Bank’s employees to be able to deliver the single point interface commitment. The intention was to invest in training employees along the value chain to use the latest technology to be customer focused and develop their customer contact skills, expecting to provide effective service to customers at the first point of contact.

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To aid and monitor its new customer focus strategy, the Bank proposed to organize its performance measures around the service-profit chain. This meant that management had to create, account, and focus on IC information, such as employee satisfaction, customer satisfaction, and customer loyalty, together with a concern for financial performance measures. This was present in the Bank’s external reports called EPA, BO’s internal reports called strategy documents (SD), its internal employee newsletters (ENL), and also in the conversations between employees within the BO.

At the time the interviews were conducted and the researcher was embedded in the BO of the Bank, the BO was at a transitional stage in the customer oriented strategy. The SD highlight that the focus of the BO was being shifted from efficiency and cost cutting to concentrating on enterprise-focused capability development and improving customer experience through customer focused service propositions. The BO, being the core service provider for the Bank’s other business units, was responsible for making investments in automating the Bank’s services and training the Bank’s employees.

Interviews with senior executives revealed that this was also the time when the BO had been maintaining its costs flat for several years and was struggling with its image as a cost centre. The BO management found its cost cutting programs reasonable since it had demonstrated long and steady periods of incremental change in line with organizational objectives. So there was a tendency at the BO to stick with what was safe and predictable and still use cost reduction measures rather than experiment with other forms of transformational changes to prove their value. Thus, on the one hand, the BO management was attempting to move away from being a cost centre and at the same time clinging to cost cutting financial measures. On the other, the new customer focus strategy of the organization meant that the BO had the responsibility for spending large amounts of financial resources in automating processes and training employees.

Besides the significant financial investments required, automation had its challenges. From the interviews with the BO’s executives, it was found that the process of automation was carried out with two aims: cost efficiency and customer satisfaction. These aims were pulling the BO in two different directions. For instance, when the BO managers had to decide and prioritize what to automate, based on the principles of the customer focused strategy, they preferred to automate processes that delivered the greatest results with customer satisfaction. This could not be materialized since it involved significant financial investment. Instead, they had to automate processes that were focused on particular products because of cost pressures. Thus while customer orientation was a broad agenda, cost efficiency forced the BO to cling to the economizing agenda.

The shift in the strategy on ‘paper’ resulted in unintended consequences within the BO. What follows is the narrative on what happened within the Bank’s BO when the newly developed customer focus strategy was confronted with the existing systems, and when the BO management started using IC to help identify the knowledge resources that could prove the BO’s intangible value to the Bank’s other business units.

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Narratives on mobilization of IC

The purpose of this section is to provide a thematic sequenced account, linking the parts collected from the interviews and the documents gathered, which convey meaning from the author to the reader on the manner in which managers of the Bank mobilize IC. Stories are constructed on events that happened in the organization before and during the study period. Thus three coherent stories are built, which lead to an understanding of the manner in which managers mobilize some aspects of IC.

Story 1: a tragedy

The single point interface and service-profit chain were reflected in three different spaces: internal documents (SD and ENL), external documents (EPA), and the conversations between the BO managers. The qualities of the service-profit chain (e.g. causality, identity, and influence) were present in all three spaces (i.e. both documents and among the BO managers), but the way they crafted the service-profit chain and customer focus was different. Senior executives used the proposals from the documents (i.e. toolbox) to increase or decrease resources (such as employees and technology), in a bid to move towards a customer focus.

The external EPAs provided a range of IC resources relating to the construction of customer needs. They indicated that customer focus was to provide new inexpensive (to customers) products and solutions, employees to provide immediate solutions, updated technology such as talking ATMs, e-statement initiatives and data security, branches with extended opening hours, helping the local community (such as rescue helicopters and surf lifesavers), and working towards sustainability – all of which were to increase shareholder value and financial resources. The EPAs enunciated the ambition of customer focus as expansion and perpetual investments along the service-profit chain. Thus the central discourse of the EPA was of expansion and abundant investment in intangible resources to increase shareholder value and financial capital, and this did not seem to be a concern.

While internal SDs shared a concern for the customer, this concern was overshadowed by the existing objective of the BO – cost efficiency. The SDs recommended investment in product transformation (products with heightened attention to customers) and technology development, with the main performance indicators centred on rationalization, economization, simplified processes, and expenditure reduction. SDs showed graphs predicting a decline in employee head count for a reduction in cost. Also, SDs supplied a comparison with competitors and demonstrated that products, technology, and IT were ‘below rivals’. However, people and culture were ‘above rivals’. Thus management was convinced that it was important to invest in technology and products and not necessarily in employees. Hence BO management decided to invest in advanced technology but decided to pay scant attention to employees, thus separating the resources by investing in one and disregarding the other.

The conversations at the BO also reflected customer orientation, but the BO managers struggled to craft their ideas about service-profit chain and customer focus. This was because the documents that were intended to guide management actions pulled customer orientation in opposite directions, mostly recommending disentanglement and separation of the resources. The BO managers were reluctant to make changes in technology for two reasons. First, such investments would be costly and risky when the effects of the investment’s results were uncertain. Second, there was no guarantee that this new technology would make customers happy. Though EPAs proposed continued investments in technology, product, and employees, the BO inclined towards cost reduction and economization, and investing in technology, but not employees because their key performance indicators (as specified by SDs) were based on cost reduction. There was little synchronization between the IC of the BO, as reflected in their SDs, and the customer focus strategy of the Bank.

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This is a tale that has a plot of classic ‘tragedy’ in which the Bank is subject to laws of fate. This story begins when the Bank management changed its strategy to customer focus and introduced its single point interface customer charter. The customer charter was translated differently in external and internal documents, which resulted in confusion among the BO management in making the choice of knowledge resources in which investments should be made (i.e. mobilizing non-financial resources). BO management had a (financial) crisis to be cost conscious; they were in a situation where they had to make a significant financial investment in technology for which they were forced to compromise on employee numbers. The crisis is not revealed in the EPA but is identified in the SDs that provides the solution of rationalization and economization.

The EPA enacts a fatalistic tragedy (Sköldberg, 1994, p. 229) by playing down the crisis and proposing continued investments in technology, products, and employees. Here the problem (of financial budgets) does not show up, but the solution (investments to enable customer focus strategy) comes to the forefront. The SD, on the other hand, plays the drama as a triumphant tragedy (Sköldberg, 1994, p. 229) where the emphasis is on the successful overcoming of the financial crises. The SD recommends a reduction in employee numbers and outsourcing, to free up money to fund the new customer focused technology.

The EPA dwelt mainly on ideals and brought a message of expansion and continuous investment in knowledge resources, while the SDs communicated on demands and conveyed a message on frugality, rationalization, economization, and efficiency, all of which were shaped by the financial budgeting process. The EPAs proposed a continual increase in all aspects of IC and the service-profit chain, providing positive correlation. However, in SDs the elements of service-profit chain were traded off and a negative correlation emerged. Thus, the internal and external documents’ messages confused the managers, which led to the unintended consequences described in the story to follow.

Story 2: a satire

With the rising awareness of the importance of measuring IC, the BO sought to change its image from a cost centre. Also, the confusion created by the IC documents (EPA and SD) about investing in products, technology, and employees to enable customer focus, meant that management faced challenges in mobilizing IC resources. The appearance of causality found in the EPA appeared straightforward and uncomplicated since these included few non-financial performance indicators, were disentangled and separated, and projected no restrictions on financial investment. Similarly, the internal documents (SD) also recommended separating the IC elements despite limited money. Nevertheless, when management started to develop and mobilize non-financial resources, in particular IC, they experienced friction between the different categories of IC resources (i.e. human capital, structural capital, and relational capital).

It was arduous for the BO to completely adopt a customer focus strategy as it was not in direct contact with the Bank’s customers and could reach customers only through other business units. Nevertheless, changes were made at the BO to transform the Bank’s services to be customer focused. Technological upgrading commenced, but with some hesitation. To achieve the highest value from automation, those processes that promised delivery of customer satisfaction had to be automated. However, since the Bank had a legacy of product oriented technology, it was challenging and expensive to change to customer-oriented technology. Investments were hesitantly made in new technology since the returns were doubtful and, even if expected, would emerge only in the long run. Also, budget restrictions forced the BO to automate processes that were focused on particular products. This left the BO to oscillate between (product oriented) processes and customers, and they faced the risk of pushing customer focus into second place behind the objective of cost focus.

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Next, to support the working of new technology and use technology constructively in the delivery of customer focus, the BO had to work with the Bank’s human capital by training employees and thereby improving their customer-facing skills. In other words, the BO had to simultaneously invest in people to make adequate use of new technology and move towards a customer focus. However, due to the cost focus of the BO and its budgetary process, two constraining factors emerged. First, technological change was partially developed and implementation was delayed. Second, to conserve financial cost, human capital was being reduced. Also, training of employees was not successful, since training was on partially developed technology.

At the time of interviews, the technological change had not yet been completed, but the BO had started its process of restructuring to eliminate process workers. Downsizing came rapidly, and in this process of restructuring, the Bank removed not only process workers, but also knowledge employees with capabilities and skills required by the Bank, therefore reducing IC resources. With incomplete automation and a reduced workforce, the BO now had to resort to outsourcing. Customer satisfaction was affected due to a combined effect of incomplete automation, untimely restructures, inappropriate training, and outsourcing. This in turn affected customer loyalty. Finally, despite investing in automation to enable customer satisfaction and employees being aware of the importance of customer focus, the Bank was struggling to meet its single point interface commitment.

This is a case of ‘satire’ with shifting ambiguities and complexities. The story starts with confusion created by the documents and the consequent challenges the BO managers faced in mobilizing IC resources. Management mobilization of non-financial IC elements caricatures the EPA and SD and shows the inconsistencies between the two. A general fragmentation or disassociation was identified and hence this story could be classified as fragmented satire (Sköldberg, 1994, p. 230). The disassociation differs in intensity but is all pervasive. It exhibits itself in many ways: between customer focus and automation of product oriented processes; between customer focus and reduction of employee numbers; between training and new technology; and between customer focus and outsourcing.

The BO managers had to cope with antagonistic signals that led to confusion – a satiric drama. In the setting of the BO, both documents (EPA and SD) were prevalent, and the BO managers separated the non-financial IC elements based on the documents. The BO managers were overwhelmed by chaos, ambiguity, and uncertainty due to the multiple and varied network effect of the non-financial IC elements and the influence of financial capital through the constrained budgetary process. The BO senior managers seemed to be challenged by the performance of the IC elements and were unable to use these effectively while constrained by financial resources. Moreover, the documents (EPA and SD) that were meant to guide them suggested disentangling of the non-financial IC elements, but in reality, this was not possible. By disentangling the IC elements, the BO management confronted negative unintended consequences in mobilizing IC because these items work well as a network and not separately. For instance, when technology was isolated from employees, and financial investments were made, it became expensive but little used because it was not supported by employee skills’ development. Similarly, due to the budgeting process, when employee numbers had to be reduced substantially, the BO managers had to rely on the new technology and outsourcing, which were not functional without increased spending on employee capabilities via training.

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Despite the problems faced by BO management in mobilizing the three categories of IC due to cost restrictions, the Bank was partly successful in mobilizing its human capital using various workplace flexibility discourses in the employee newsletters (ENL). This is described in the next romantic story.

Story 3: a romance

Though the Bank increased its automatic processes, it still had a substantial number of employees. Also, the Bank had to attract and retain people with the skills and expertise to deal with the processes that were being automated. This required knowledge workers, not process workers, who were looking for incentives beyond financial rewards, such as challenging jobs, career growth, and recognition and appreciation. Also, importantly, employees were keen to have flexibility at work to allow them to juggle the demands of work with other interests and needs, including family responsibilities.

Workplace flexibility arrangements already existed, but at the time of restructure, the Bank’s management extensively publicised its workplace flexibility policies to its employees using the ENL. The intended purpose of workplace flexibility was essentially to motivate employees and regain employees’ confidence with the Bank (impact human capital). Nevertheless, it had a positive unintended consequence too. Workplace flexibility not only helped managers to motivate employees (human capital), it also reflected on the internal culture of the organization (structural capital), impacted the community and customers (relational capital) positively, and reduced employee costs (financial capital).

The Bank used its ENL to highlight how employees could use flexible working arrangements to achieve efficiencies. The discourse in ENL was used to provide information on workplace flexibility to construct the employees’ purpose at work. The discourses adopted in the newsletters seem to influence the attitudes of employees and shape employee behaviour, which positively impacted the culture of the organization. Employees’ loyalty to the Bank increased since the Bank stated they provided flexible work options. Similarly, family and dependant care arrangements provided by the Bank also left employees with a feeling of gratitude and loyalty towards the Bank. Employees were ready to return the favour by working harder and longer.

The external reports (AR and EPA) indicated that workplace flexibility arrangements helped the Bank. Interviews (with managers and employees) and ENLs suggested that though not intended, this indirectly helped the BO in several ways. First, at the time when restructures were inevitable, flexible working arrangements allowed the Bank to retain skilled employees who were ready to work on a part-time basis. This enabled the BO to retain existing knowledge flows. Second, since the employees felt indebted to the Bank, they worked harder in their reduced working hours. Third, when employees had to care for their family at home, they were still willing to work from home, which was beneficial to the organization. Fourth, retention of employees was easier for the BO as employees felt loyal to the Bank. Fifth, the Bank paid employees who were adopting flexible working options for a lesser number of hours, which suited their cost cutting agenda.

The Bank actively promoted community volunteering as a part of its flexible workplace arrangements through ENL. Employees were encouraged to take up community activities of their choice for which they were given one day of leave in a year. As evidenced in the external reports, the Bank became involved in volunteering with an expectation of establishing a brand image as an institution that cared for the community. Also, community volunteering helped in building relationships with customers and the community. Through voluntary work, the employees were able to build deeper, stronger, and trusting relationships with clients and the community. Moreover, volunteering became the culture of the organization.

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Though community volunteering did not directly reflect on the financial performance of the organization, it did so indirectly when management was able to use volunteering to mobilize different IC categories. As a result, the service-profit value chain appeared to work. At the BO, as community volunteering did not affect its cost strategy, the employees were encouraged to be involved in volunteering. All that the BO had to do was to release an interested employee for volunteering for just one day in a year. Employees were also encouraged to use their weekends for volunteering, which resulted in generating future business (by improving the relationship with the community and customers).

As intended, employees’ involvement in community activities as representatives of the Bank promoted the organization’s brand name among community and customers. ENL discourses showed that volunteering also built a positive reputation with clients and the community, lifting the Bank’s profile. Also, the ENL demonstrated that employees’ activities to support the community enabled reciprocal support to the organization from the community. The interviews with staff also revealed that employees were happy to be involved in volunteering and showed their loyalty to the Bank as they saw the Bank as an organization that cares.

The plot of this story is ‘romantic’. This story starts at a time when the BO managers were trying to mobilize various IC elements by separating them due to constrained budgets. Managers searched for ways in which all three IC elements could be mobilized and realized that the discourse of workplace flexibility could help in this endeavour. It is a powerful tale about a transition from a complicated state of affairs (incomplete automation and untimely restructures), to a happy state of affairs (improved employee morale, loyalty, and support from community and customers). Instead of analysing why restructures and automation were proving difficult, the focus of ENL was on promoting workplace flexibility.

There is little emphasis on the original undesirable state of affairs, and the ENL concentrates on the final desirable state (Sköldberg, 1994). Through the significant emphasis on community volunteering, management attempted to increase the initiative of organizational members to achieve organizational performance. The BO managers had allowed their employees to express their self in choosing to do their preferred voluntary work, which is also the central message of the romantic mode. Thus by using discourse on workplace flexibility in ENL, the Bank achieved its (intended consequence) of putting all three IC elements to work together. It also had positive unintended consequences of changing the culture, increasing employee loyalty, and being able to retain existing knowledge flows.

Unintended consequences captured by narratives

By using narratives, we could show how the IC documents of the Bank led to management actions and how these actions produced consequences (both intended and unintended) in the form of organizational events (Llewellyn, 1999, p. 221). This analysis is one of many possible stories that could be told about the BO of the Bank. The narratives exhibit explanations rather than demonstrate them (Polkinghorne, 1988, p. 21), and by doing so, the unintended consequences of the managerial use of IC resources come to the surface.

Originally, at the Bank, management decided to make changes to technology and human capital, intending to aid the service-profit chain and achieve customer focus. The intended consequence was when new technology and trained employees worked together; it would result in superior service. Superior service would, in turn, make customers happy, who would be loyal to the Bank, which would then result in increased profits and improve shareholder value. This is a straightforward causal relationship envisaged by management, and if IC elements worked independently as planned, the intended consequences could be achieved. However, IC elements worked as a network and hence produced unintended consequences (positive, negative, and perverse), which the three narratives have highlighted. Also, the narratives help in understanding that there were several other factors (limitations) that led to unintended consequences.

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Considering first ignorance, given the state of their knowledge and the different directions that the EPAs and SDs took, it was not possible for managers to predict with certainty that investments in technology would work. The managerial decision on investments in technology was based on assumptions based on different documents (Story 1). Their assumptions were based on a few verifiable (yet different) aspects as shown in the documents, which were only a tiny part of the reality existing at the Bank. The managers were not clear about the needs of the customers, had partial knowledge of customer needs, and carried out automation based on this knowledge. For instance, they assumed that the clients preferred the use of new technology that would aid self-service (such as ATMs, Internet banking). This was not supported by evidence and investments were made with some doubt. They had to wait for a long time to see the results from any new technology (Story 2).

Next, managers saw employees’ skills in action on a daily basis, and since it was always available, they ignored its importance. They expected that their human capital could be replaced by automation (structural capital), which was not the case at the Bank. When they found that automation was expensive, they made people redundant to conserve cost, and this led to confusion, which was also not anticipated. New technology was available, but could not work on its own and needed employees’ support to function. However, with redundancies and inappropriate training on new technology, employees could not efficiently support new technology, hence resulting in negative unintended consequences that surprised management (Story 2).

Another factor that led to unintended consequences was error. To achieve high value, processes that delivered customer satisfaction had to be automated. Nevertheless, based on SDs, management erroneously decided to invest in technology that was product oriented due to its cost focus (Story 1). Also, since the Bank already had the tradition of product oriented technology, it was considered safe to invest in existing technology, because it worked in the past and it was hoped that it would work in the current situation. This error had the perverse unintended consequence of driving customer focus behind cost focus. It is perverse because the solution (of investing in product oriented technology) made the problem (move towards customer focus) worse. Investment in product oriented new technology created more problems by pulling away from customer focus (Story 2).

Another error that was detected was (during the implementation stage) associated with the training of employees. Employees were supposed to understand new technology and use technology effectively to aid customer service. However, as the Bank was in a hurry to make employees redundant, the remaining employees were left with more work and did not have sufficient time for training on the new technology. Also, technological development was partially complete, and training was given on technology that was not tested properly. Training did not also correspond to real life situations, leaving employees confused rather than understanding the functioning of the new technology. Thus, although management intended to give due importance to training, unintentionally it had become expensive and ineffective (Story 2).

In terms of immediate interest, the BO was a cost centre that did not have income generation opportunity. Hence, to prove its value to the organization, the BO had to monitor its cost. Its performance measures (as shown in SD) were based on economization and expenditure reduction. So the immediate interest of the BO was cost, which led to several negative unintended consequences. Investment in new technology was affected, employee head count was reduced, and work was outsourced. The BO management was interested in short-term cost efficiency and had to ignore the long-term strategy of customer focus because its performance measures were based on cost savings. Thus the Bank’s cost control strategy seemed to be harsh and did not merge with the development of the organizational resources that added value in the long run (Story 1).

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Another immediate interest for the Bank was workplace flexibility to attract and retain people by keeping them motivated. At the time of restructures, workplace flexibility was not just used to regain employee confidence; it also had a positive unintended consequence. Employees were happy with a bank that provided them with flexible options for working from home and part-time jobs, which made them loyal to the Bank. Unintentionally, the Bank was able to reduce its employee costs as it was paying for fewer work hours (part-time jobs) or employees were working longer (from home) for the same pay (Story 3).

Turning to basic values, the BO did not focus on customers of the Bank. Instead it focused on improving the Bank’s operational efficiency. The BO was being pressured by its core value (of keeping a low cost profile) to achieve a significantly lower expense. Hence, it decided to invest in new technology and reduce head count at the same time with a subjective satisfaction of having kept costs low (by making employees redundant) and made investments in inappropriate (product oriented) new technology (Story 1).

The Bank valued community involvement and identified itself as a good citizen in Australian society. The Bank built a brand name as an organization that always endeavoured to build a deeper, stronger, and trusting relationship with the community. By doing so, it seemed to respond to social issues in the community, and from an IC perspective, the organization expanded its boundaries into the wider ecosystem (Dumay, 2016). This idea of community volunteering produced positive unintended consequences. The Bank not only improved its brand name but also improved its image among employees and customers. Employee morale was raised at a time when it was affected by restructures, and customers and the community also found the Bank to be a good corporate citizen (Story 3).

However, the Bank’s management developed its customer focus strategy based on self-defeating predictions and found solutions for problems that were not present. For instance, management believed that customers were not happy with existing technology. So it invested in new technology, which rather than help customers, was found to be a hindrance. Also, employees did not have adequate knowledge of this new technology and were not able to help customers use it. Existing technology was probably not a problem at the Bank, but because of self-defeating management prediction that existing technology was not suitable for customer needs, they changed it unsuccessfully (Story 2).

Another instance where self-defeating predictions (leading to unintended consequences) were found was in SDs. As mentioned before, SDs highlighted cost rationalization as a principal aim of the BO. SD also showed that the Bank’s human capital and culture were above rivals, but with the technology it was below rivals. This inference resulted in predicting that technology had to be improved. So to improve an underperforming resource such as technology, it decided to reduce head count as management’s view was that it was better performing and would not have a negative impact. What could have been a solution to a self-prophesied problem, in fact made the problem worse, resulting in confusion at the BO that led to customer dissatisfaction (Story 1).

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Conclusion

To understand the complex network of non-financial resources and to provide insights on the use of IC resources, an appropriate way to explore them would be by starting from observing them in action. Therefore, this chapter used narratives to inquire into the mobilization of IC in the Bank – a large Australian financial institution. By using a narrative structure, it was discovered that there was a deeper meaning hidden within this confusion and ambiguity in the effect of non-financial IC resources.

The BO management faced trials while using non-financial resources because these were constantly moderated by unacknowledged conditions (economized investments) and unintended effects (effects on various IC elements that were not anticipated).

The three stories of the BO of the Bank describe how managers mobilized various IC resources. In doing so, the stories brought out unintended consequences of managerial mobilization of IC. Story 1 was a tragedy where the EPA and SD constructed different meanings of customer needs and contradicted each other on the amount of financial investment that could be made on the different non-financial resources. As described in the previous section, a story that has a tragic plot highlights negative unintended consequences. The tragedy was then transformed into a satire in story 2 when managers struggled to mobilize the elements of IC within budgetary constraints. Here the story highlighted that there are possibilities of occurrence of both negative and perverse consequences. When the managers promoted operations that did not require significant financial resources, they could transform the story into a romance. This is the plot of story 3, which shows how the management of the BO was able to use the discourse on workplace flexibility within the ENL to (unintentionally) influence all three IC elements. A romantic story has positive unintended consequence. This story brings out the organization’s intent to move from a managerialist perspective towards an ecosystem perspective (Dumay et al., 2017).

We have argued in this chapter that it is important to pay attention to unintended consequences – positive, negative, or perverse. A tragic story focuses attention on problem areas and crises. The story highlighted negative unintended consequences that needed particular attention as these could result in chaos and confusion and ultimately break down the customer focus strategy if left unattended. Perverse consequences, as highlighted in the satiric story, also need managers’ attention as organizations can avoid investing in (unnecessary) solutions that could make the problem worse. Thus, satiric plots are appropriate to locate decision points that direct attention to transitions where different actions lead to different results. Finally, positive unintended consequences as depicted in our romantic story could bring desirable solutions. So if managers pay attention to positive consequences, they could leverage the benefits derived out of it.

To conclude, unintended consequences occurred in part due to the contradicting aims and were fuelled by the prolonged time taken for the execution of the strategy. Unintended consequences could also be attributed to two other causes. First, the lack of congruence between the goal of the BO – cost focus – as moderated by the SDs and the actual goal of the Bank – customer focus. Second, the network effect when IC elements interact with each other. Thus, while not challenging the desirability of using IC resources independently by management, we conclude that the use of IC resources could be a liability if not understood. There is a danger that IC elements could fail unless management directs attention to the unintended consequences.

As with any body of research, this study using narrative analysis comes with a few limitations. First, the analysis has been performed as a complex transaction between the researchers and evidence, the results of which are provisional and translations may not be accurate. It is a story of the organization in action as interpreted by the researcher. Second, the results have to be judged based on characteristics of verisimilitude, fidelity, coherence, plausibility, usefulness, and evidential warrant (Coulter and Smith, 2009). Triangulation of all data collected from the documents (both internal and external) and interviews (of executives and employees) was sought to produce confidence in the events that occurred at the BO. Recollection of past events was selective and produced from the perspective of the interviewees at the time of the interviews, which could be different on the date of the original experience. Finally, the study was conducted in the BO of an organization (i.e. the Bank) and does not show variations or comparisons with other organizations.

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For the purpose of future research, to show variation or comparison more than one case study could be conducted. Second, narratives methods could be combined with other forms of qualitative or quantitative analysis. Using a literary device such as narratives with other methods could bring out some interesting results. However, Riessman (1993) cautions that combining methods needs some creative epistemological footwork since the interpretive perspective of narratives is completely different to the realistic assumptions of qualitative and quantitative analysis. Third, though this study looks at non-financial information, it specifically pays attention to IC elements (human, structural, and relational capital). Other non-financial resources such as social and natural capital are ignored and should be examined in detail in the future.

Notes

1    For example, Balanced Scorecard, Intangible Asset Monitor, Intellectual Capital Statement, Service profit chain, the Skandia Navigator, Meritum Schema, Ericsson Cockpit Communicator, Strategic Business Models, Extended Performance Accounts, VAIC, etc.

2    Strategy documents are highly confidential documents that were available only to the senior executives of the BO. We were given access to only three years of these documents due to confidentiality reasons. Therefore, analysis was conducted based on available documents.

3    The researcher spent a period of six months at the BO of the financial institution. This helped in observing the regular functioning of the BO.

4    The ‘service-profit chain model’ establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain (which should be regarded as propositions) are as follows: profit and growth are stimulated primarily by customer loyalty; loyalty is a direct result of customer satisfaction; satisfaction is largely influenced by the value of services provided to customers; value is created by satisfied, loyal, and productive employees; employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers (Heskett et al., 1994).

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