The Routledge Companion to Intellectual Capital

In recent years intellectual capital (IC) has been subject to criticism for a number of reasons. Dumay (2014), for example, expressed the opinion that IC has been too focused on reporting and not enough on IC management. The same criticism was raised by Bukh and Johanson (2003) in relation to the Meritum project. More recently, Japanese initiatives have downplayed the IC management issue (Johanson and Koga, 2015; Yao and Bjurström, 2015), despite the development of the Intellectual Asset Based Management (METI, 2005) guideline.

This chapter aims to address this criticism by developing an integrated IC management framework to understand how public and private organizations handle their IC management. Referring to Gröjer and Johanson (1998), the chapter is also a contribution to the practice turn in IC (Guthrie et al., 2012; Dumay et al., 2017). The framework incorporates management control (MC) and performance management research and aims to increase understanding of how work environment management was performed in about 250 Swedish organizations (Frick and Johanson, 2013). To further check the usefulness of the framework, it was applied to understand IC management in a successful medium-sized Swedish IT consultant group (Johanson and Skoog, 2015). The use of the concept ‘integrated’ refers to the need for cohesion between different management items classified in four categories (i.e. management ideal, content, supporting processes, and continuous evaluation).

Several initiatives with respect to previous IC guidelines will be addressed here: the Meritum guideline; the Danish guideline; the Austrian legislation; and the Japanese guidelines.

After several years of discussion within the OECD and EU during the 1990s, an extensive European R&D project addressing IC management and reporting was undertaken. The project, which was labelled Meritum, was divided into four sub-projects: classification of concepts; capital market aspects; MC issues; and the development of a guideline. The Guideline for Managing and Reporting on Intangibles (Meritum, 2002) was built on the knowledge acquired from the three earlier projects and divided into three sections. In the first section the basic concepts of IC, human capital, structural capital, and relational capital are defined. In the second section, which concerns the management of intangibles, the clear relationship between measurement, reporting, and management is addressed. The last section contains an IC report model comprising three parts: vision of the firm; summary of intangible resources and activities; and a system of indicators.

In the late 1990s, the Danish government encouraged an R&D project that in 2001 culminated in the Danish IC guideline (DATI, 2001). It focused on the preparation of IC statements for external publication, in which four elements together express the company’s knowledge management. The four elements link users of the company’s goods or services with the company’s need for knowledge resources. They include the acknowledgement of the need for expressing the knowledge narrative of the company, the management challenges to improve knowledge management, and a set of indicators to define, measure, and follow up different initiatives.

Since 2007, Austrian universities and research institutions have had a legal obligation to set up a ‘Wissenbilanz’, similar to the Meritum IC report (Piper and Pietsch, 2006). The report should include a narrative and indicators addressing goals, strategies, resources, planned research, and education activities as well as results. The legislation originates from a demand to increase transparency with respect to how universities and research institutions exploit tax-based funding. However, even before the Wissenbilanz became a legal obligation its likely impact on internal management process was questioned.

Finally, Japan has been one of the most ambitious countries with respect to trying to adapt the ideas of IC. Since the turn of the century, a number of METI guidelines have been launched. One of these is the Intellectual Asset based Management (IAbM) (METI, 2005). In the Kansai region, IC seems to have been adopted more so than elsewhere in Japan. In 2008, the Kyoto prefecture created its own Chie management evaluation and certification system, which refers to the technology and know-how that cannot be registered as intellectual property. It also includes other intangible business resources that bring about corporate value, such as human resources, customer base, and brand. In other words, Chie equals the strength of companies and their management (Yao and Bjurström, 2015).

Initially, the expectations from METI as well as from financial market actors was high (Johanson and Koga, 2015). IC was regarded as highly important with respect to comparative advantages for firms. However, after several years, firms were hesitant to disclose IAbM reports. There were not many firms in Japan that adapted the guidelines. The IAbM guideline was not used by big firms, and a study of SMEs (Johanson et al., 2009) revealed some concerns with respect to its usefulness. Even the interest in the Chie system declined (Yao and Bjurström, 2015).

How can this decline in interest in IC be understood? It seems that this decline is not restricted to Japan; global interest in producing IC statements has been declining (Dumay, 2014), including for the Meritum and the Danish guidelines (Nielsen et al., 2014). As Dumay (2014) suggested, the production of a report does not necessarily say anything of what is going on inside firms or in internal discussions between fund managers, analysts, and banks. Neither is it significant for what is going on with respect to communication between firms and the financial market, which may happen through other channels like the internet and meetings. An early interview study with SMEs (Johanson et al., 2009), as well as a study of four fund management firms (Holland et al., 2012), were attempts to achieve an understanding of the learning and decision processes taking place.

The four initiatives are not the sole, but are probably the most influential, guidelines to have been launched. They have focused global attention on IC management and reporting, but have not shed light on how IC management should be tackled. In this respect, the Japanese and the Danish guidelines are the most advanced. The Japanese IAbM guideline explicitly addresses IC management. The guideline is detailed but the theoretical foundation is not obvious, which makes the guideline unclear. However, despite declining interest, it may be too early to draw any conclusions. Even if the number of external IC reports is reduced, firms have perhaps learnt something about IC resources and IC management that is not easily understood from simply counting reports. For example, in the Japanese context we do not know enough about the role of IC and IAbM inside firms as well as in communication with stakeholders. This could be established from the kind of mature second phase studies for which Dumay (2014) advocates. As Bjurström (2012) proposed, the Japanese context is probably well positioned for a more profound understanding. The diffusion of IC ideas by means of different fairly well-prepared guidelines has taken place over more than ten years. Johanson and Bjurström (2015) suggested that this probably means that the adoption of the IC idea will move into another phase. Instead of diffusion of the IC idea, it could be a matter of re-invention (Rogers, 1995). In the Japanese context, there is a strong change agent (i.e. METI, as part of the national system of innovation).

Dumay’s (2014) second phase studies require a critical mass of interest. This may still exist in Japan, where there may be possibilities for gaining a deeper understanding of the interactive re-invention phase. It is important to unlock the black box and try to gain a deeper understanding of what is happening inside firms with respect to IC management. The aim of this chapter is to suggest a framework that may be useful in furthering this understanding.

Before developing the IC management framework, which will be called an integrated IC management framework, it is necessary to summarize briefly the theoretical background.

Accounting has traditionally used formal systems to focus financial resources. The basic idea is to represent reality objectively and transparently. MC is a top-down process by means of ‘command and control’. However, over the last decades, there has been criticism from both practitioners and researchers (Johnson and Kaplan, 1987; Johnson, 1992) of management accounting and control practices and their lack of relevance and usefulness. It has been suggested that perceptions of management accounting and control tools and techniques have changed during this discourse (Johanson et al., 2006). From having previously been seen as instruments for supporting top management in making complex organizational activities and transactions more intelligible to managers in general, the tools are regarded as separating top management from the organization by being too abstract, short-sighted, money-oriented, and simplified. Another important argument concerns the transformed approach to organizational value creation, where industrial logic has been challenged. Industrial logic and the traditional tools of management accounting and control do not lend themselves to addressing crucial value-creating aspects, including intangible resources such as knowledge and customer relations (Sveiby and Lloyd, 1987). It has been suggested that these intangible resources are the only truly sustainable competitive advantage of a firm (Mouritsen et al., 2001). Health and work environment, as valuable organizational resources, are further examples of problems that are normally considered in other arenas within the enterprise rather than in the MC and accounting function. Organizations of various kinds have realized that the traditional means of control, which have often involved mutually isolated financial and non-financial measures, objectives, and targets, can no longer be legitimized (Johanson et al., 2001a, 2001b).

Several authors have suggested that a new approach to accounting and MC is required and two pathways have been identified. First is the development of completely new non-financial models like balanced scorecard, intangible assets monitor, health statements, IC, and integrated reporting. The second is traditional accounting where MC is the point of departure in attempts to extend its borders. The framework to be suggested later in this chapter is based on a combination of these two pathways.

MC has been defined as “the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives” (Anthony, 1965, p. 17). MC is supposed to be the link between strategy and operations. However, Anthony´s definition has been criticized by Ferreira and Otley (2009, p. 264) for encouraging a narrow view “that falls short of capturing the richness of issues and relationships implicated in MC systems design and use. In particular, it concentrated on formal (and usually accounting) controls without setting them in their wider context”. Additionally, Simons (1995) holds that MC is, and should be, an interactive communication process as opposed to just a diagnostic one-way information tool. One-way hierarchic communication has often been linked with command and control behaviour (Bjurström et al., 2010) where processes are the main concern. This might be dysfunctional because organizational vision and goals may be forgotten. Lapsley (2009) adds that a strong focus on measurability has supported a ‘tick-box mentality’ where audits are performed by ‘accountocrats’ (Power, 1997).

Hofstede (1978) complained that MC and accounting suffer from philosophical poverty. The latter facilitates an instrumental approach to MC where basic values and visions can be forgotten. Dean (1999) holds that there is a need to reconsider the regimes of government behind MC and to investigate and address basic MC values. Following the same kind of reasoning, Hasselbladh et al. (2008) used the concept of ideals instead of values. The term ideal here refers to a basic intention shared by a collective of individuals which is the rationale for the existence of a specific organization. If the governance ideal is not supported by the complete MC system, the MC process will fail to reach its aims. MC may end up in a box-ticking ritual. Andersson (2014) demonstrated a conflict between two kinds of values with respect to providing home help service for elderly people in a Swedish local authority. The ideal of accurate care held by employees (and by politicians) was in sharp contrast to an ideal of administrative and economic efficiency promoted by the management of the organization. Middle managers find themselves under pressure when they have to satisfy both of these ideals.

MC has also been accused of being too focused on obtaining a representation of objective facts by using exact and precise measures. In opposition to this, mainstream MC and accounting accepts the idea that because objective facts are hard to achieve when it comes to accounting, the focus needs to be shifted towards mobilizing action by means of ‘good enough’ measures (Johanson et al., 2001b; Mouritsen et al., 2001). MC is about influencing the behaviour of involved actors, and MC processes are located in a system of complexity where single causalities seldom exist. It is rather a system of complex mutual causalities (Bjurström, 2012).

As a consequence of the criticism of MC systems, Ferreira and Otley (2009) prefer the concept performance management system. They view:

[p]erformance management systems as the evolving formal and informal mechanisms, processes, systems, and networks used by organizations for conveying the key objectives and goals elicited by management, for assisting the strategic process and ongoing management through analysis, planning, measurement, control, rewarding, and broadly managing performance, and for supporting and facilitating organizational learning and change.

Based on a theoretical framework comprising evolutionary action, organizational learning, and structuration theories, Johanson et al. (2001a, 2001b) performed an explorative qualitative study of the performance management practices addressing intangibles in several Swedish companies. They identified different routines that facilitate learning and the transformation of attention and knowledge into action. Routines additional to surveys include statistical analysis, benchmarking, dialogues, salary bonuses, and contracts. A classification of the routines is highlighted in Table 16.1.

Johanson et al. (2001b, p. 731) conclude that the routines are listed above direct managers’ and employees’ attention to the results from measurements:

These results, in combination with statistical analysis, affect knowledge. Motivation is further addressed by a clear top-management demand, benchmarking, and salary bonuses. Finally, commitment to change is made possible by means of a contract between managers at different levels. The empirical data reveals that organizational learning processes have been affected in the way that dominating cognitive schemes and coordinated action have been obtained.

Referring to Giddens (1984), management control of intangibles provides new practices of domination structures through motivation and commitment routines. The signification (i.e. the collective cognitive schemes), as well as the legitimization (the shared sets of values and ideals) structures are gradually transformed into new structures (Johanson et al., 2001b).

To analyse the design and the use of performance management systems, Ferreira and Otley (2009, p. 266) suggest a framework comprising 12 issues that need to be considered. These issues are:

1 the vision and mission of the organization and how this is brought to the attention of managers and employees, including the mechanisms, processes, and networks that are used to convey the organization’s overarching purposes and objectives to its members;

2 the key factors that are believed to be central to the organization’s overall future success and how they are brought to the attention of managers and employees;

3 the organization structure and what impact it has on the design and use of the performance management system;

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4 the strategies and plans that the organization has adopted and the processes and activities that it has decided are required for it to ensure its success, that is, how are strategies and plans adapted, generated, and communicated to managers and employees?

5 the organization’s key performance measures deriving from its objectives, key success factors, and strategies and plans, that is, how these are specified and communicated and the role they play in performance evaluation;

6 the level of performance that the organization needs to achieve for each of its key performance measures;

7 the processes that the organization follows for evaluating individual, group, and organizational performance;

8 the rewards or penalties, financial or non-financial, which managers and other employees gain by achieving or failing to meet performance targets;

9 the information flows and systems that the organization has in place to support the operation of its performance management system;

10 the type of use of information and of the various control mechanisms that are in place;

11 the alteration of the performance management systems in the light of the change dynamics of the organization and its environment, that is, have the changes in performance management system design or use been made in a proactive or reactive manner?

12 the strength and cohesion between the components of performance management systems and the ways in which they are used.

Primarily based on the proposals by Ferreira and Otley (2009), Hofstede (1978), Hasselbladh et al. (2008), and Johanson et al. (2001a, 2001b), the construction of the framework will be presented in the next section.

The integrated IC management framework was originally constructed by Frick and Johanson (2013) for the purpose of analysing work environment management – also later extended by Johanson and Skoog (2015) when analysing IC management in a couple of firms. All the applications have been performed in Sweden.

Ferreira and Otley’s performance management systems framework is adjusted and further developed to underline the importance of: (1) the communication process as opposed to the information process, that is, emphasizing the interactive as opposed to the diagnostic approach (Simons, 1995); (2) the basic values or the performance management systems ideal as suggested by Hofstede (1978) and Hasselbladh et al. (2008); (3) the supporting routines as proposed by Johanson et al. (2001a, 2001b); and (4) finally the learning aspect with respect to the continuous adjustment of the performance management system in accordance with what has been suggested by, for example, Nonaka and Toyama (2005).

To improve the usefulness of a framework, overlapping issues should be clarified and, if necessary, deleted. A grouping of the elements into different categories might also be useful. Therefore, the issues are classified into Ideal, Content, Support, and Evaluation. The performance management system framework is outlined in Table 16.2.

Each of these elements will now be explored. In relation to vision, Ferreira and Otley (2009) claim that vision and mission are comprised of core values. They hold that “Vision and mission statements are landmarks that guide the process of deciding what to change and what to preserve in strategies and activities” (p. 268). To distinguish between these concepts, we prefer to separate the core value – which we label ideal – and the vision. In accordance with Hasselbladh et al. (2008), we suggest that ideal is a part of the belief system that is sometimes unknown to employees as well as stakeholders. Vision is often, but not necessarily, a written statement that works as a guiding principle. When it works as expected the vision is broken down into strategies, plans, and goals. During this process, critical success and risk factors are identified and subject to measurements. Follow-up is equivalent to Ferreira and Otley’s evaluation. We prefer to instead use the concept of evaluation in relation to the evaluation of the complete performance management system. Follow-up refers in our framework to the content elements.

Ferreira and Otley discuss reward processes and supporting organization and communication structure but do not give attention to responsibility and contract processes. In the Swedish firms analysed by Johanson et al. (2001a, 2001b), responsibility and contract processes were important components influencing managerial behaviour in accordance with issues labelled ideal and content in our framework. The Swedish companies in Johanson’s et al. study were keen to allocate responsibility for certain actions that were assumed necessary and these responsibilities and actions were outlined in some kind of contract, written or un-written, between different hierarchical managerial levels. The contracts encouraged managers’ commitment to visions, strategies, and goals.

Concerning cohesion between ideal, content, and support, Ferreira and Otley (p. 275) claim that “Although the individual components of the performance management systems may be apparently well-designed, evidence suggests that when they do not fit well together (either in design or use) . . . failures can occur”. This means that it is important that (4) key performance measures link back to (3) key success/risk factors and to (2) strategies and objectives, and finally to (1) the vision and the ideal. Even the supporting processes should be cohesive with ideal and content. However, cohesion is not enough. A learning process is also needed to adjust the performance management system to changed conditions – a kind of double-loop learning process where reflection about the relevance of the performance management system in relation to its ideal is challenged. If necessary, the performance management system is adjusted. The latter refers to a kind of self-renewal process that Nonaka and Toyama (2005) call “kata”. The need for adoption of the performance management system with respect to changes in the organization or its surroundings is also addressed by Ferreira and Otley.

The framework is not a manual that prescribes what should be addressed when analysing or developing performance management. Neither does the framework prescribe anything about linear causality. The issue at stake, performance management, is probably a matter of a number of mutual causalities that may vary in different contexts. Further, we want to add the word ‘integrated’. Integrated has here another meaning than in the Integrated Reporting initiative (IIRC, 2012). As it is used here, it has nothing to do with ecology and sustainability, but rather is a way to underline the importance of coherence between ideal, content support, and evaluation.

It remains to be seen if the performance management framework presented now could be used in different contexts. It was originally developed when analysing texts summarizing about 250 Swedish work environment management cases (Frick and Johanson, 2013).

To demonstrate how the framework was used, this section will first contain an analysis of the work environment management cases and, second, the IT consultancy firm case. There are many similarities between IC and work health/work environment. Work health and work environment are important elements influencing competitive advantage (Johanson et al., 2001a). However, they are rarely addressed in the IC literature. When trying to understand the effects of Swedish legal working environment provisions, Frick and Johanson (2013) constructed an analytical framework based on earlier proposals by Ferreira and Otley (2009), Hofstede (1978), and Johanson et al. (2001a, 2001b). After a revision of the framework it was used to understand IC management in a medium-sized Swedish IT company, Stretch (Johanson and Skoog, 2015). Both these cases are presented in this section.

A two-step procedure was used when the performance management system framework was applied to the empirical context. First, the framework was applied to a rich case description of the work environment management in a Swedish local authority. The aim of this first step was to find out if the theoretically developed performance management framework was useful for an extended analysis of the other 250 Swedish cases on work environment management that were found in database searches. It is important to note that the approach to the analysis was explorative, seeking to ascertain if it is possible to deepen the common understanding of why work environment management works or otherwise, and which are the critical factors if work environment management is integrated in organizational management? The need for integration of work environment management with general organizational management is explicitly called for in the Swedish mandatory provisions of systematic work environment management.

One researcher selected and analysed the 270 cases from a completely different perspective from the performance management framework. The performance management system framework was unknown even to that researcher. The results were written down and handed over for a performance management system framework analysed by a second researcher. After that the second researcher presented the performance management system framework and the analyses to the first researcher in order to avoid misunderstandings or shortcomings with respect to interpreting the text provided by the first researcher.

Before presenting the outcome of this two-step analysis, it is necessary to emphasize that in the final report (Frick and Johanson, 2013) the focus is on employers’ shortcomings in their work environment management to a significantly greater extent than their successes. The aim of the explorative analysis was not to grade the work environment practices in the different organizations but to understand how these practices could be improved and also to understand the usefulness of the framework for future research and development of work environment management.

In the local authority case, the analysis reveals that the work environment ideal appears to be unclear. A work environment vision (issue (1) above) exists, but this vision is not supported by other performance management system issues. Critical factors (3) are vaguely described. Strategies and goals (2) exist, but these are not consistent with existing performance measurements (4). The latter means that follow-ups (5) are difficult to perform. The formal treatment of the provision requirements is good, and in accordance with the provisions, but still the achievement of the ideal of a healthy work environment is not convincing. Budget issues seem to be more important than improving the work environment. This probably due to insufficient or vague responsibility and contract processes (7), as well as rewarding processes (6) that prohibit necessary work environment investments when these investments exceed the budget.

An analysis of all of the other 250 case studies shows the same pattern; most of the larger organizations strive to fulfil the requirements of formal routines required by the provisions, but without necessarily obtaining a healthy workplace with low risks. Identification of risk factors (3), actions plans (2), and follow-ups (5) are more developed and effective in reducing accidents than in relation to other technical risks (e.g. noise and heavy lifting), and particularly so for abating organizational risks (psycho-social issues).

Regarding the content of the work environment management, the performance measurements (4) are poor and more oriented towards formal provision routines than related to achieving a healthy work environment with low risks. The lack of or inadequate performance measures complicate the essential follow-up (5) and self-improvement of the work environment management itself. The responsibility and contract processes (7) are not sufficient, which reduces the organization’s commitment to change. The latter also refers to (8) the communication processes, that is, the internal work environment dialogue that is supposed to take place between management and unions. Cooperation by means of dialogues, that is, interactivity (Simons, 1995), is a central issue in the work environment legislation. When dialogues and cooperation are suffering – that is, formal meetings but with a limited content – learning about how the work environment management promotes a good work environment (10), becomes complicated. To conclude, the practices we found seem to be in conflict with different ideals, that is, on the one hand an ideal that is limited to a ‘tick-box mentality’ and on the other a more profound work environment ideal of abolishing or at least reducing health risks in the workplace.

In this case the aim was to understand how the founder, main owner, and chairman of the board was thinking about integrated IC management in the successful medium-sized Swedish IT consultant company, Stretch. Also it was to explore if the framework was useful as a guideline for a semi-structured interview. Before the interview a number of questions were developed covering different items in the framework. The interview guideline is presented in the Figure 16.1.

Stretch is an innovative consultancy company … Together we spend our days finding new ways to simplify processes and “stretching” businesses with awesome technology. This is a winning approach that lets us maximize the resources available to our customers’ core business – where the true business value is found. We are the large small consultant that delivers with personality and creates business value. We promise to care. We are curious about you, your business and the global market. We are driven by achieving results. Curiosity is for us about continuously moving forward and breaking new ground, beyond obstacles that will arise along the way. As such, a close dialogue is essential to us at Stretch, one in which we listen to our customers and then provide expert advice.¹

Our case study organization Stretch was founded in 2002. The Group operates on the Scandinavian market with companies in Stockholm and five other cities and has approximately 170 employees. To be the “large small consultant” it must separate itself from its competitors, many of which have technical competence but not the ability to create value for customers. The idea of being the “large small consultant” is also behind the company’s division into seven subsidiaries (strategy).

During his interview, the founder, principal owner, and chairman of the board said that he is driven by the ambition to ‘win’ (ideal). Money is not the primary driving force, although profitability is important (ideal). Stretch is to be considered as very competent (strategy) and should also be able to lead the development of the business. “I believe that we are that competent. Many are watching us”. A basic value is always to be able to choose (ideal). The possibility of choice creates opportunities and freedom. The opposite would be dependence. Therefore, it is important to the founder that the enterprise has a long-term perspective (strategy) and is operated profitably (ideal) so that their investments can be self-financed (strategy).

How to become a competent and profitable industry leader? The following four strategies were identified by the founder as important at the time of start up and continue to be so. First, customer focus, quality, and customer value. Stretch shall “make a difference together with the customers”. To fulfil and exceed customer expectations, not only structured processes and delivery precision are required; the customer must also understand that the company is listening, is interested, and acts in the customer’s best interests – it is a question of customer-perceived quality. In a recent survey, customers suggested that the culture of commitment, competence, and fun at work is infectious and that quality contributes to customer value. Second, organic growth through profitability – most of the company’s profits should be used for growth. Third, entrepreneurship and creativity, in which at least 20 per cent of the company’s turnover three years ahead should come from something that the company does not do today: “If employees grow even the company will grow”. Fourth, the most attractive workplace – in 2014 Stretch was ranked as the eighth most attractive workplace among medium-sized companies in Sweden. The company has been among the top ten companies for the last ten years.

An important task as a leader is to promote what employees are good at. According to the Stretch founder: “Most people have greater demands on themselves than others have on them”. Therefore, employees should set their own objectives (strategy, reward) within certain frames. For example, Stretch only operates in the Scandinavian market (strategy). In addition to mobilizing creativity and entrepreneurship, an important task for managers is to maintain certain strategies and objectives (responsibilities, contracts). The Stretch founder also emphasizes the importance of differentiating between desire and ability. Ability can be gained, but desire is more difficult.

Stretch subsidiaries are expected to develop a three-year vision. The business plan (plan, target) is built from the bottom up and provides a framework for the business. All employees should participate in developing the business plan (strategy); while the founder’s task is to emphasize the frames for the future, he is not expected to come up with new ideas. Rolling forecasts replace budgets and critical key ratios are formulated (performance measurement), referring, for example, to potential employees and customers.

Some of the strategic and operative processes are coordinated between subsidiaries. This includes, in addition to common customers, recruitment and competence development processes. When employees commence their employment, it is made clear that all consultants are expected to work a certain number of hours internally to contribute to the business planning process and to participate in spring and autumn conferences as well is in monthly meetings.

It is essential to promote understanding of what business means (strategy), and to support this training, addressing culture, leadership, and sales models are mandatory for all leaders. Participation in competency networks is also common throughout the organization.

The individual consultants’ billing, as well as time spent with customers, is continuously followed up. Development talks take place twice a year and are documented and approved by the responsible manager and the employee (reward, responsibilities, contracts). The basic salary is fixed with an individual bonus as well as a company bonus paid. The individual bonus is related to the individual’s billing and the company bonus to the subsidiaries’ profitability. Generally, the salaries are high (reward).

When an employee is considered to have contributed to the four strategies mentioned earlier, he or she can be proposed to become a partner of the subsidiary (reward). Two partners should be on the board of directors of each company. To date there are 40 partners.

Stretch seems to be a very efficient company with customers that are satisfied with the competent, creative, and results-oriented consultants. The growth of the company is good and well planned; the idea of 20 per cent new operations within three years creates a creative and entrepreneurial climate in accordance with the four strategies. Employees enjoy their work and develop their competencies, and profitability is good.

According to the founder, the different management items appear to interact effectively, probably because the ideal of freedom of choice and the profitability to maintain freedom of choice interacts with a high level of competence. The strategies of customer quality and value, organic growth, attractive workplace, entrepreneurship, and support for creativity are underpinned by the ideal to be “the big small consultant that combines personality and value creation”. Supporting processes like rewards, responsibilities, and contracts further leverage the ideal. Finally, the continuous learning process demonstrates that the founder at least has a good overview with respect to what is needed to achieve an integrated IC management system.

Of course, this example does not give a full picture of how integrated IC management is performed in the organization. It is the perception of one person, the chairman of the board. However, it provides a good view of what he wants to obtain and how he wants to run the company to achieve management ideals.

The integrated IC management framework outlined and applied in this chapter is a further development of the performance management systems framework suggested by Ferreira and Otley (2009). It attempts to classify the different IC management items into four classes (management ideal, content, supporting processes, and evaluation). The issue of ideal is a response to Hofstede’s (1978) view about the hidden ideology of MC systems, whereas the concept of supporting processes is further developed from our own findings (Johanson et al., 2001a, 2001b). Finally, evaluation is inspired by Nonaka and Toyama’s (2005) suggestion that it is of uttermost importance that every management system is subject to adjustment based on reflection and learning.

The framework is not intended as a manual that prescribes what items have to be addressed to achieve successful IC management. It is not intended as a tick-box tool and it does not suggest a causal relationship between the items. Rather the management issues that it aims to address probably consist of a number of mutual causalities. The goal is to increase understanding of the obstacles to improving performance management irrespective of any concerns about IC management or working environment management. This means that the framework can benefit from further development.

Existing IC guidelines do not sufficiently address IC management and therefore a deeper understanding of how IC management is performed is needed for policy makers to be able to improve guidelines and for big private and public organizations to improve their understanding of the role of IC in their own operations.

Because of the ageing population and the lack of a competent workforce in many Western countries, there is also a great need to improve understanding of how work environment and work health affect and are affected by competitive advantage, as well as a need to consider sustainability at an individual, organizational, and societal level. Policy makers need the knowledge that research can provide from across a range of academic disciplines. The title of our Accounting, Auditing & Accountability Journal article (Gröjer and Johanson, 1998) still resonates: “Reality present – but where is the knowledge?”

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