Carlos Merino Moreno Instituto Universitario de Investigación IADE Facultad CCEE Modulo VIII. Universidad Autónoma de Madrid. carlos.merino@uam.es INTELLECTUAL CAPITAL REPORTING: A CASE FOR A CITY COUNCIL.
INTELLECTUAL CAPITAL REPORTING: A CASE FOR A CITY COUNCIL. ABSTRACT. Current context for public management is oriented towards a quality paradigm where public organizations are looking for schemes and tools in order to improve excellence argument inside new governance frameworks. From this viewpoint city councils reality has a higher proximity to citizens-clients what requiring mechanisms to open all ways for interaction above all inside councils set of legal competences but taking into account a basement created by resources and capabilities. In this sense, intellectual capital reports are a useful tool to support public management through an exercise oriented to explicit a hidden set of assets beyond physical nature and the accountability. Intangibles assets what supporting main values offer for City Councils. There are several mechanisms to identify and measuring such intangibles taking into account for this case study Intellectus Model as Spanish reference inside intellectual capital area. The project has followed such model with a common focus on a collaboration scheme. One of the main objectives are related to strategic development, management improvement (internal and external) where image and public perception are key issues. KEYWORDS. Strategy, Intangible Assets, Intellectual Capital, Knowledge Governance, Knowledge Processes, Organizational Learning. CLASSIFICATION: Case study 2
INTELLECTUAL CAPITAL REPORTING: A CASE FOR A CITY COUNCIL. 1 Introduction Public management is inside an important process characterized by succession of different paradigms. Evolution of such paradigms has evolved from the consideration of an administration legitimised by its regulating function to its link with policies oriented to quality or citizen s satisfaction. Last decades has been specially relevant to changes in public management cause different patterns derived from market mechanisms (private scheme) what creating new trends in citizens behaviour when acquiring products and services. Now awareness about quality is a clear requirement, same than market relationships. Then pressure from such reality is a strong driver for public management needs. This frame of performance is related to new models of public management specifically designed for the improvement of the organisational efficiency and effectiveness. Obviously, this field is now clearly linked to intangibles assets management where are located the roots of the organisational potential. In this sense, there are a big number of initiatives oriented towards public management improvement through different tools and mechanisms inside the scope of intangibles, knowledge management, and intellectual capital. Important efforts have been made to develop ad hoc tools to manage knowledge-based resources. Strategies has been related to organizational intelligence (Escorsa y Maspons, 2001; Eisenhardt y Santos, 2002; Esteban y Navarro, 2003; Kurtyka, 2003; Almeida et al, 2003), communications models (Davenport y Prusak, 1998; Szulauski, 2000), document management, learning platforms, networking, R&D, quality, all of them inside a circle characterized by tasks of capturing, storing, sharing and improving information and knowledge (Nonaka, 1991 y 1994; Grant, 1991; Kogut y Zander, 1992; Teece et al, 1997; Blumentritt y Johnston, 1999; Shin et al, 2001; Gupta y Govindarajan, 2000; Alavi y Leidner, 2001; Staples et al, 2001; Zahra y George, 2002; Argote et al, 2003 y Zack, 2003). Regarding Intellectual Capital initiatives have included regions and countries experiences (Amidon, 2001; Bontis, 2002; Bontis et al., 2000; Dutch Ministry of Economic Affairs, 2000; Edvinsson, 2002; Ernst & Young New Zealand, 1999; Pasher, 1999; Rembe, 1999). Consequently, the present paper attempts to contribute to the development of a framework of measurement and management of intangibles in the public sector, concretely inside city councils creating a specific report what are linked to current organizational challenges. 3
2. Drivers for new public management approach. Apart of structural considerations what corresponded to traditional way to understand economy matters, current approach is focused on organizational behaviour and the set of capabilities to get a better adaptability to the environment in relation to the characteristics of such context. Higher or lower dynamism will be an impact in the organisational requirement for adaptation and in management needs as well. Traditionally public institutions role has been characterized for years by an idea of rigidity and stagnation in an obsolete framework. However, last years has been taken into account relevant actions in order to adapt public administration to the named Knowledge Society. Richards (1994) developed an interesting path to show the evolutionary process in the public management approaches around three different paradigms: The public administration paradigm based on welfare state consideration and guaranteed models. In this sense, public administrations have articulated their function through bureaucratic systems. The cultural roots were close to principles of juridical rationality. Structurally this scope is focused on strong definition of functions and exhaustive administrative procedures. Obviously, such paradigm is involved on a bureaucratic side, legislation issues, controlling all the possible situations (Boix, 1994). The efficiency paradigm, after mentioned first stage public institutions developed an incremental solution based on the traditional issue inside public budgeting: sustainability. Policy makers have a big responsibility around creation of stable growth scenarios for public expenditures (Richards, 1994). The new paradigm of the client, driver for current processes support on client metaphor is being of the most relevant elements for the cultural and ideological change in public administrations (Díaz, 1998). There are key aspects for the development of new management systems oriented to the client satisfaction, i.e. : organisational culture, empowerment of the employees, self-evaluation, knowledge management and intellectual capital, etc. Besides the mentioned paradigms review, it is important to underline new challenges what knowledge society presents, as well as cultural orientations for public managers, which are generally considered in the new patterns related to modern management models (MAP, 2002; Wright, 1997): Creation of Intelligent institutions. Strategic management focus is oriented towards new skills and attitudes requirements what presenting better levels of organisational 4
flexibility. Even more, this consideration is more relevant inside public administrations scope due to their role as policymakers. Adaptation to coordination scheme among public institutions. Nowadays, there are several difficulties to know what right areas for different administrative issues are (European, national, regional, local). Thus, there is a clear need around systems, preferably related to information technologies in order to facilitate a systematic exchange of information between agents and the different layers involved. Citizen s satisfaction as main objective, citizens are more and more prepared and competitive. In consequence, the more skilled people demand a better public system. All of them describe a framework for strategic challenges appearing the need for innovation or new tools considering a range of parameters that include the current schemes of modernisation. In this sense, such approaches have an impact on legal framework at different administrative and research levels (European Union, OECD, etc.). For this reason, some initiatives as organisational quality systems in public administrations, fundamentally based on the EFQM Model, are important efforts to tackle mentioned challenges. For example, inside OECD scope there is an initiative named Public Management Committee (PUMA) what has been created with the purpose of promoting the exchange of experiences and best practices in public management among the different member countries. In this sense, those challenges need a set of strategies or action lines that could be described as follows: Quality in management and quality of management, underpinning its key role inside modernisation processes, not only in order to structure organisations, but also to measure, control and evaluate their activities. ICT Systems and solutions, where public administrations are players inside information and knowledge management, developing systems for co-ordination and interaction (internal and external). Training initiatives, in order to create new capabilities where factors as selection, motivation and coordination are fundamental issues for building new public management and managers (Wildavsky, 1993). New management models, around organizations more flexible, open and interconnected, where networking, creativity and non-formal communication are taken 5
into account (MAP, 2002). In this sense, public sector profile needs an important adaptation exercise to the reality of every administrative unit. 3. Intellectual Capital framework. The challenge for organizations around better quality for management increase importance for identification of key factors what impacting inside productivity and performance but traditionally focus has been oriented towards equipments and resources on a tangible scope. Structural focus has been main framework to analyze organizational development options (based on size, budget ). However behaviour side is now the critical field to inject energy inside strategic approach. Core factors are related to attitudes, aptitudes and capabilities translated to motivation, creativity, commitment, training, and skills inside a structural body where information and knowledge management are a basic raw material. In this sense, in 90s has been consolidated a strategic focus for organizational governance named strategic management where last paradigms have been questioned by a scheme based on resources and capabilities from a personal, organizational, technological or relational side. In such time there have been important efforts to develop managerial tools to measure and manage knowledge-based resources in organisations. As a result of these efforts, new models of intellectual capital have emerged; Skandia Navigator (Edvinsson, 1997), Intangible Assets Monitor (Sveiby, 1997), and Technology Broker (Brooking, 1996),. Additionally, it is necessary to note that there have been other important modelling efforts that also imply the management of intangible resources in firms. In this sense, models such as the Balanced Business Scorecard (Kaplan and Norton, 1992), Stewart s (1998) Model, Roos et al. s (1998) Model, and Dow Chemical s Model have indeed contributed in this direction. In Spain, we may highlight Intelect Model (Euroforum, 1998) and Intellectus Model (IADE-CIC, 2003). After reviewing some of the main literature on intellectual capital (IADE-CIC, 2002), the model in which we will base our empirical evidence, and thus the one that will be adapted to the reality of public administrations in Spain will be Intellectus Model (IADE-CIC, 2003). Its antecedents are grounded on Intelect Model s (Euroforum, 1998) philosophy and structure as well as on the research work of Bueno (2002a; 2002b). In this sense, Intellectus Model has been implemented several times inside financial sector, tax agency, biotechnological spin off, automotive company and city councils, creating a set of examples inside Intellectual Capital Reporting (ICR). 6
4. Final conclusion. ICR is an important tool to support strategic plans. Users have identified several key issues about ICR: a. Knowledge and understanding of intellectual capital methodology. b. Strategic thinking on intangible assets as fundamental module for the strategic support (development of strategic thinking on a hidden area). c. Identification and measurement of intangible assets what presenting organizational interest. d. Improvement of information management and external valuation from stakeholders. e. Strategic thinking around different organizational areas apart of those where traditionally tangibles are focused. f. Employees awareness for intangible management and development of knowledge management processes as actions to get a better intellectual capital. Next steps will be related to intellectual capital monitoring trying to support not only management side but also communication tasks in order to improve city council s image. 7
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Biographical note. Carlos Merino Moreno is currently in charge on research projects in IADE Universitary Institute and Co-ordinator of Innovation Services in Science Park of Madrid. His research areas are focused on intangible assets management, taking special attention, around business intelligence, intellectual capital and knowledge governance, transferring research outputs to different organizations and institutions. 11