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Department of Industrial Management, Tampere University of Technology, Tampere, Finland Department of Business Information Management and Logistics, Tampere University of Technology, Tampere, Finland
Many different frameworks and methods have been developed for managing intellectual capital (IC). At the same time, many other management approaches, which companies are already applying in practice, also cover some issues related to IC. Business process management is one such approach. This paper aims to determine whether business process management is applicable for managing IC. The rationale for not implementing an additional management system for IC in some cases is that it may consume too many resources, having two or more overlapping management systems may cause problems for management control and the concepts related to IC may be confusing for the personnel even though the issues being managed, e.g. competencies and company image, are familiar as such. The role of business process management in IC management is examined empirically in a single case study. To explore the research issue in practice and to obtain an in-depth understanding of the phenomenon, the authors carried out an action research project in a case company. The ndings show that IC management can indeed be carried out through business process management. It was discovered, however, that managing IC through business process management is to a great extent about developing IC at an operational level, instead of controlling IC at a strategic level. The study contributes to prior research by illustrating how IC management can be applied in practice without utilising any specic IC management framework (i.e. by using the companys existing managerial approach). Copyright # 2008 John Wiley & Sons, Ltd.
INTRODUCTION
The importance of intellectual capital (IC) for the success of companies is nowadays widely acknowledged by both researchers and practitioners. IC-related assets such as brands, corporate image, databases, employee competencies, immaterial property rights and stakeholder relationships are
*Correspondence to: Paula Kujansivu, Department of Industrial Management, Tampere University of Technology, P.O. Box 541, FIN-33101 Tampere, Finland. E-mail: paula.kujansivu@tut. y Researcher. z Professor (acting).
often considered important but quite difcult to manage. Managing IC is challenging for a number of reasons. For example, IC is immaterial and non-physical in nature. This makes it difcult to observe and measure. The old phrase, you cannot manage what you cannot measure, has guided many management researchers and also practitioners in developing new methods for IC measurement. Many IC measures have been presented in the literature but, so far, they all seem to be somewhat problematic. Even if it is possible to measure the amount and quality of a certain intangible resources (e.g. competencies or corporate culture) it is difcult to determine its value. IC is something that
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facilitates the achievement of business results. However, rather than having an absolute value its value seems to be connected to many factors, such as the development of the business environment. For example, a new technological invention may suddenly render a companys key assets worthless or it may increase the value of a certain asset due to opening up new possibilities. Another issue, which makes IC difcult to manage, is that IC subsumes a number of various resources that require different tools and methods. In the last 10 years several frameworks for managing IC have been introduced. IC management frameworks include the Intangible Assets Monitor by Sveiby (1997), the Meritum Guidelines (Meritum, 2001), the Danish Guidelines (Mouritsen et al., 2003), the Knowledge Asset Value Spiral by Carlucci and Schiuma (2006), the Value Chain Scoreboard by Lev (2001) and many others. However, managing IC does not necessarily require any specic framework. In many organisations, there are not enough resources available to apply a discrete IC management system or adopting a certain method is not considered reasonable, although IC as such is considered an important managerial issue. Instead, many other management approaches or philosophies are also applied to cover some of the intangible factors of business, e.g. brands, employee competencies and stakeholder relationships. Business process management is one such approach. The main idea in business process management is to develop an organisations business processes by eliminating non-value adding activities and by improving the uency of processes at the boundaries of different organisational functions. This paper examines IC and IC management in the context of the business processes of a company. The paper aims to dene whether business process management is applicable for managing IC. The role of business process management in IC management is examined empirically via a single case study. Before the empirical examination, the research issue is dened on the basis of the earlier literature.
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diagnostic control systems can be used to determine whether operative targets are being reached. Futhermore, the tasks related to each of the IC management functions may not always t to the task proposed by Lonnqvist and Kujansivu (2007). For example, the acquisition of IC may be an operative task, e.g. when individual employees are recruited or trained with new competencies. However, the acquisition of new competencies (and other resources) can also be a strategic activity, e.g. when a new CEO or the board of directors is selected, or when another company is acquired. Another challenging issue related to dening IC management is its relationship to other management tasks. Many of the intangible resources included in the IC concept are managed in companies by using some of the more traditional management approaches, usually those related to functional management tasks (e.g. brand management, customer relationship management, human resource management and technology management). For example, the HRM deals with issues that are named human capital in the IC discourse. In practice, there are likely to be strategic HRM tasks as well as operative ones. It is not clear how the management of human resources could differ from the management of human capital (i.e. in the context of IC management). Perhaps it is only a question of different points of view. Perhaps the comprehensive view covering several intangible resources (in contrast to specic functional focus on a selected set of resources) might be one factor separating IC management from the functional management activities. Knowledge management is another managerial task which is closely related to IC management. Basically, both IC management and knowledge management aim at managing the intangible (knowledge-related) resources of a company. Compared to IC management, Wiig (1997) considers knowledge management more operational and narrow activity focusing only on facilitating and managing knowledge-related activities (e.g. relational capital would then not be included in the focus of knowledge management activities). However, there are differing denitions of knowledge management (Nonaka and Peltokorpi, 2006). Thus, it may be possible to dene the relationship between these managerial concepts in many ways. As a summary of the discussion above, it seems that it is difcult to provide a precise denition for IC management since IC covers so many issues which can be managed in varying ways at several organisational levels. Regardless of the conceptual problems, it seems that identifying the key aspects of a companys IC and managing them
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are important tasks for managers. There are potentially several approaches available in the literature for carrying out management activities related to IC. The following section discusses whether business process management could be utilised as means for implementing IC management activities. Also the rationale for such approach is provided. Business process management and intellectual capital management Many companies consider their organisations in terms of business processes. Denitions of business processes vary, but underpinning the denitions is the concept of a series of inter-related activities, crossing functional boundaries, with specic inputs and outputs. (Armistead and Machin, 1998) Childe et al. (1994) add that business processes must be initiated by and provide results for a customer who may be internal or external to the company. According to Allaire (see Garvin, 1995), business processes are the focus of re-engineering efforts. They are large, crosscutting collections of activities, like product design, order fullment and customer service. Management of the organisation by the consideration of these business processes is referred to as business process management. The main idea in business process management is to develop an organisations business processes by eliminating non-value adding activities and by improving the uency of processes at the boundaries of different organisational functions. According to Lee and Dale (1998) business process management is structured, analytical, cross-functional and continuous improvement of processes. Similarly, Childe et al. (1994) argue that the process-oriented viewpoint emphasises cross-functional performance rather than encouraging departmental optimisation. The approach concentrates rst on identifying the business processes, then analysing and reengineering each process. Benets from successful business process management are acknowledged by managers. They include improvements in customer service, increased productivity, reduction in errors and waste, better competitiveness, product or service quality, exibility and cost efciency (see e.g. Garvin, 1995; Zairi and Sinclair, 1995). However, there are many challenges that should be taken into account when implementing business process management, among them employees resistance to change, inadequate communication, lack of resources, unrealistic expectations and problems related to information technology (see e.g. Garvin, 1995).
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within business process management. Action research enabled us to achieve an understanding of important issues related to different processes. It also revealed what kind of factors are being developed in each process. Based on this understanding the suitability of business process management for IC management was analysed.
CASE STUDY
Research design In the previous section, the concepts business process management and IC management and their linkage were analysed to obtain a pre-understanding of the research question before the empirical research, which was carried out using the case approach (cf. Gummesson, 2000). The authors performed a single case study during the year 2005. The case study was considered a suitable approach since, at the moment, there is no literature available on the research issue (i.e. linkage between business process management and IC management). The case study provided a means to explore this issue in practice and to obtain an in-depth understanding of the phenomenon. For the purpose of this study, the authors carried out an action research project in a case company. The project included two inter-related aspects: carrying out practical development work (action part) and studying it in practice (research part) (see Table 1). The objective of the practical development work was to develop the companys seven business processes from the point of view of IC. The purpose was to identify important factors (development objectives) related to IC in each business process and to design how to improve them. The objective of the research part was to understand and analyse (in light of the experiences gained from the practical development) the application of IC management within business process management. As discussed above, the main research method used within the case study was action research (see e.g. Westbrook, 1995; Gummesson, 2000; Coughlan and Coghlan, 2002). This is a method in which a researcher participates in an organisations activities and examines an ongoing situation. Westbrook (1995) has suggested that action research could produce results that are relevant to practitioners, that are applicable to unstructured or integrative issues and that contribute to theory. Action research was chosen as the method of examination in this study because it was considered to provide good insight into the application of IC management Table 1
Perspective Practical development work (action part) Academic (research part) Purpose
Description of Alko Inc. and its intellectual capital The case organisation of this study, Alko Inc., is a Finnish company operating a chain of shops retailing alcoholic beverages. It was chosen as the case company because it had been applying business process management and was now also interested in applying IC management. Alko is an independent, entirely state-owned company established in 1932. The company is administered and supervised by the Ministry of Social Affairs and Health, Finland, and the companys function is laid down in the Alcohol Act and Degree. The function of the company and the fact that Alko has the sole right in Finland to retail alcoholic beverages containing over 4.7 per cent of alcohol by volume are primarily due to reasons related to social and health policy. Because Alko has the sole right to sell alcohol beverages it has a specic obligation, and is also in a good position to consider the different aspects of social, economic and ecological responsibility implicit in its function. Alko is also required to be impartial towards all suppliers. The company has 331 shops, 137 order points and 2584 employees in total (Alko, 2007). The economic environment within which Alko operates has some specic characteristics. The fact that Alko is the sole supplier of particular alcoholic products clearly confers an economic advantage on the organisation (may be regarded as an asset). However, this also brings with it a requirement to treat suppliers equally which likely imposes an additional burden on the knowledge with respect to supplier interactions (may be regarded as a liability).
To develop seven business processes from the point of view of IC To study the development work and its results
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Alko had started applying business process management about 2 years prior to starting the IC project. A lot of development work had already been carried out as regard to processes. The work had been (and still was) facilitated by a consultant. During the past few years 14 business processes (consisting of seven core and seven support processes) had been modelled and documented. Each process had been assigned to a process owner, whose work is supported by a process group. The process group includes key personnel of the process and in some cases also representatives of other processes. The development of business process management practices has been supported with organising joint sessions for process owners, in which they have been educated regarding the topic. Despite all 14 processes have been systematically documented, the implementation of business process management practices was proceeding at different stages. Some process owners have been enthusiastic about process development work while others have been more reluctant to change their ways of operating according to process management thinking. In addition, there have been personnel changes which have impeded the development work in certain processes. IC is considered signicant for the success of Alko. For example, it is important to have satised customers. Furthermore, high customer satisfaction can be achieved through competent employees and high quality customer service among other things. This in turn requires investments in the development of employee competence (e.g. education) and employee welfare. Business process management can also be regarded as an important element of the companys IC. For example, process descriptions and documents could be considered a part of the structural capital of the companyit is not lost if an individual employee leaves Alko. Some of Alkos business processes seem to be established in order to be able to manage specic aspects of ICeven if these actions were originally not regarded as IC management actions. Examples of such processes include competence development process (human assets) and the customer communications process (customer assets). One justication for the development of IC management activities in Alko related to coping with the risks associated with losing key competencies. Many tasks require specic competence that is difcult to acquire. The development of these competences requires years of training within the company. An example of this kind of task is the sensory examination and evaluation of alcoholic beverages. It is a specic skill which takes a long time to develop. Thus, if some of these key persons
Description and results of the development project The development project included seven of Alkos 14 business processes, namely providing service for the needs of the customer, customer communication, utilisation of customer communications, designing and controlling customer-based selection, ordering and delivering beverages, developing a network of shops and developing competencies. These subsume six out of seven core processes. Besides the core processes, one support process (i.e. developing competencies) was regarded as closely related to IC and therefore to be taken into account in the project. The development project was carried out during 2005. Each process was developed and studied individually. The methods used in this project included analyses of existing documents, interviews and workshops. The main phases of the project are summarised in Figure 1. They are discussed more in the following paragraphs. At the beginning of the project, the process charts and other essential documents related to business processes were analysed. The objective was to obtain a general view of the business processes included in this case study. Subsequently, the process owners (and in some cases also the key personnel of the process) were interviewed separately by the researchers in order to enhance the understanding of the processes. The purpose was to identify the important IC related to the process. The interviews lasted from 1 to 2 hours. They were based on ve open-ended questions: What is the process all about (i.e. denition of the business process)? What is the objective of the process? How is the process being developed? What kind of competence is needed to achieve the objective of the process? What kind of measures are used to monitor the achievement of the objective? We used these questions because they were easy for the respondents to answer. IC-related questions would probably have been more difcult to understand, since the concept as such is not so far well understood in many companies. After the interviews the researchers analysed the answers and identied the IC-related factors of each process. The IC identied from the perspective of
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Along with the day-to-day work by the process owner and the process personnel
Figure 1 Main phases of the development project: the integration of IC management and business process management
each business process was categorised into the three main subgroups of IC, namely human, relational and structural capital. Both intangible resources and activities related to IC were taken into account in the examination (cf. Meritum, 2001). Examples of IC (i.e. resources or activities) of different processes are Table 2
presented in Table 2. As a result of the interview phase, a relevant development objective in each business process was also identied. The process owners chose the development targets in light of the researchers suggestions. It would have been possible to choose several development targets
Business processes
Utilisation of customer communications Designing and controlling customer-based selection Ordering and delivering beverages
Positive attitude Special capabilities (e.g. sensory assessment of beverages) Materials control
Taking care of availability of products Creating image through e.g. opening ceremonies Identifying competence needs of other processes
Development and maintenance of electronic connections Cost accounting Assessment of the effects of education
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but, for practical reasons (e.g. limited resources), it was considered wise to focus on one target at a time. In order to illustrate the process-level IC and the related development objective, the competence development process is used as an example. From human capital point of view, it was considered important that all employees would be interested in developing their personal competence. Without a positive attitude towards his or her own competence development, not much can be done by the company. From relational capital point of view, obtaining knowledge regarding the competence needs of other business processes was regarded a necessary task in future. It is challenging, rst, to identify the competence development needs in different processes and, then, to provide competence development practices (education, training etc.) that are relevant to those processes. From structural capital point of view, the development, implementation and use of a model for evaluating the impact of various education activities on employees competence were identied as necessary. In order to be able to develop the effectiveness of the competence development process (i.e. in order to create working best practices), it is necessary to understand which activities and methods actually produce valuable outcomes (in terms of increased competencies and actual changes in the way of working). As regards to the various types of IC (i.e. resources and activities), it seems that important factors related to the competence development process consist of both intangible resources (e.g. the interest of developing ones own competence) and activities related to IC (e.g. the assessment of education impacts). Based on the discussions with the researchers the process owner of the developing competence process chose the following development objective related to relational capital: to design a model that combines the needs of various processes to the supply of training. This objective was prioritised because it was considered most current and necessary at that moment. The further development of each process was planned in one or two workshops, in which the relevant people related to certain business processes and the authors participated. Each workshop lasted from 2 to 3 hours. Development plans differed depending on the process. The practical development of the processes was carried out along with the day-to-day workas a part of conventional process development. During the development project the authors spent a total of 15 days in the case company. Besides interviews and workshops they participated, for example, in regular process owners meetings.
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with identifying important aspects of IC and based on them the development objectives of the processes were dened (and acted on). In comparison, in traditional process development projects the initial focus is not specically on ICalthough as a result IC may well be developed also.
CONCLUSIONS
This paper examined IC and IC management in the context of the business processes of a company. The study contributes to prior research by providing a description of the application of an IC management project in practice without applying any specic IC management model. It also denes and describes conceptually and in practice how the concepts business process management and IC management relate to each other. Even though the paper is quite descriptive in nature, it can be considered a valuable contribution due to the small amount of research published so far on the application of IC management in practice. Most of the literature so far on IC management suggests that IC management should be adopted using a specic framework (Edvinsson and Malone, 1997; Sveiby, 1997; Lev, 2001; Meritum, 2001; Mouritsen et al., 2003; Carlucci and Schiuma, 2006). At the same time there are studies suggesting that IC management can be executed as a part of other management systems such as quality systems or balanced performance measurement systems (see e.g. Lonnqvist et al., 2006). This study contributes to the research eld by providing an example of adopting IC management alongside a conventional management approach (in this case business process management). This article has demonstrated that process management provides a suitable way to carry out IC management. On the basis of the experiences gained from the single case study we conclude that it is possible to identify a companys IC by analysing its business processes. In addition, process management serves the development of IC at operational level. However, process management does not seem to be useful in controlling IC at strategic level. Actually, process management might be regarded as a tool or method for developing IC (cf. the framework by Lonnqvist and Kujansivu, 2007). On the other hand, the establishment of business processes and related management practices might be considered a strategic management activity aiming to control and develop IC, among other things. It seems that in some situations it may be practical to combine IC management with some other management practices rather than apply a specic
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IC management framework to design a separate IC management system. In many organisations the concepts IC and IC management are quite new and unfamiliar as such. In practice, however, they consist of rather common elements such as competencies and customer relationships. It seems that in contrast to discussing IC management, the focus could be on simple and ordinary activities, especially at operational level. This paper provides an example of how IC management could be applied within business process management. This study did not discuss whether other approaches than that used here might have been applicable for linking business process management and IC management. It would be valuable to study what the most useful way to link these two approaches might be. It would also be interesting to study how other managerial approaches could be integrated with IC management. In addition to just applying IC management in practice using different ways, it is important to analyse the effects (i.e. benets and disadvantages) of such actions. As in all case studies the quality of the research is difcult to verify. The following issues should be considered when evaluating this study. First, the case study was described fairly thoroughly in order to make it possible for the reader to assess the validity of the conclusions drawn. Second, there were two investigators in each step of the research project, which improves the reliability of the case description as well as the ndings. Third, the generalisability of the conclusions is problematic, as always in single case studies. However, the issue may be considered especially challenging in this case as we are discussing a company in a monopoly market situation. Nevertheless, the monopoly status is not so important for this study, as we examined the (internal) development of the business processes. Thus, we believe that the main conclusionswhich are not very specic since this is an exploratory studyare also applicable to other companies in a similar context (cf. Lukka and Kasanen, 1995), i.e. in companies that are already utilising business process management and are also interested in applying IC management.
REFERENCES
Alko. 2007. http://www.alko./informationonalko, [3 January 2007]. Armistead C, Machin S. 1998. Business process management: implications for productivity in multi-stage service networks. International Journal of Service Industry Management 9: 323336.
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Zairi M, Sinclair D. 1995. Business process re-engineering and process management, a survey of current practice and future trends in integrated management. Business Process Re-engineering & Management Journal 1: 830. Zhou A, Fink D. 2003. The intellectual capital web: a systematic linking of intellectual capital and knowledge management. Journal of Intellectual Capital 4: 3448.
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