Does Measuring Intangibles for Management Purposes Improve Performance? A Review of the Evidence

Summary

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Despite the development of dozens of frameworks and techniques for measuring intangible assets, an open question is whether the internal measurement of intangible assets for management purposes is associated with higher economic performance. This paper provides an overview of the statistical evidence on the performance consequences of intangible asset measurement. Although the bulk of these studies provide at least some evidence that intangible asset measurement is associated with higher performance, many are limited by over-reliance on perceptual satisfaction or outcome variables, inadequate controls for contingency factors, simple variables for capturing complex measurement practices, and the lack of data on implementation practices. I conclude by offering suggestions for improving and extending studies on the performance consequences of intangible asset measurement.

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Does Measuring Intangibles for Management Purposes Improve Performance? A Review of the Evidence

1. Introduction

The belief that intangible assets have become key drivers of economic performance has prompted a growing number of firms to emphasise intangible asset measures for internal decision-making and control purposes. At the same time, an increasing number of measurement frameworks such as the Balanced Scorecard (Kaplan and Norton, 1996), Performance Prism (Neely et al., 2002), and Intangible Assets Monitor (Sveiby, 1997), among many others, have been developed by academics and consultants to guide these measurement efforts. A key question is whether greater measurement of intangible assets for management purposes actually improves economic performance, and whether any performance benefits are contingent on the firm's organisational environment and specific measurement practices.

This paper provides a broad overview of statistical evidence on the links between the internal measurement of intangible assets (typically using non-financial indicators) and economic performance, with particular emphasis on studies examining actual economic results rather than survey respondents' self-assessments of measurement system satisfaction or organisational performance. This evidence takes two general forms: (1) largesample, cross-sectional studies investigating whether firms making greater use of intangible asset measures for decision-making or compensation purposes are associated with higher accounting performance and stock returns; and (2) quasi-experimental, company-level analyses examining whether accounting performance improved after the adoption of measurement systems with greater emphasis on intangible assets. Consistent with Franco and Bourne's (2004) review of the performance measurement literature, the evidence indicates that the strength of the statistical relations between intangible asset measurement and organisational performance declines as the sophistication of the analysis increases. The majority of cross-sectional studies support the hypothesis that greater use of intangible asset measures for internal purposes is positively associated with organisational performance, with stronger results using self-reported performance rather than actual accounting or stock market returns. These studies also suggest that the performance benefits from intangible asset measurement are contingent on the extent to which the measures and their relative importance are appropriate for the organisation's chosen strategy, value dr...

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