The Balanced Score Card (BSC) and the Intangible Assets Monitor - a comparison

Đ Karl-Erik Sveiby, PhD, updated April 2001, all rights reserved.

There are several similarities between the Intangible Assets Monitor (IAM) and the Balanced ScoreCard (BSC). Both concepts argue that non-financial measures must complement the financial indicators. Both authors argue that the non-financial ratios and indicators must be lifted from the operational to the strategic level of the firm. Both concepts categorize the "intangible" areas into three :

Both the BSC and the IAM have a fourth category: Tangible Assets (IAM) and Financial Perspective (BSC). 

Despite the similarities the two concepts originated entirely independent of each other. The theories behind the Intangible Assets Monitor were first conceptualized in 1986-1987 in Sweden and have been used widely there, (See the Swedish Community of Practice). The BSC was developed around 1990 in the USA.

There are several similarities between the two theories. Both theories suggest that non-financial measures must complement the financial indicators. Both concepts categorize the non-financial, the "intangible" areas into three. Both also argue that the non-financial ratios and indicators must be lifted from the operational to the strategic level of the firm and that the strategy must be the driver of the metrics designed. Both theories advocate that change is the most important aspect to measure. Both also agree that this approach to measuring is not a new control instrument; the approach should be used for improving learning and dialogue.

But there are also some important theoretical differences.

1. The Intangible Assets Monitor is based on the notion of people as an organisationīs only profit generators. I argue that in a knowledge economy people should not be regarded as costs but rather revenue creators and that knowledge or people's competence are sources of wealth creation. If the notion of people as revenue creators is accepted, we have to come closer to "the source" of their knowledge if we wish to measure it more accurately. The profits generated from people's actions are the signs of success, but not the originator of the success. The IAM assumes that human actions are converted into both tangible and intangible knowledge "structures". These structures are directed outwards (external structures) or inwards (internal structures). These structures can be regarded as assets, because they affect the revenue streams. BSC does not make these assumptions.
2. The IAM is a Stock-Flow theory, same as traditional accounting theory. When using the IAM one perceives the three Intangible Assets as "real" assets. The focus should be on the "Flows", therefore the IAM theory suggests that we should try and find metrics indicating change in the assets, such as the growth, renewal, efficiency and stability. The idea should be to get a "peek" into how the intangible asset(s) are developing, by designing indicators that correlate with the growth of the asset in question, its renewal rate, how efficiently we are at utilising it, and the risk of loosing it. BSC is not a stock-flow theory; it achieves its purpose to balance the traditional perspective by adding three other non-financial perspectives; as was suggested in some earlier papers, there could in principle be many more perspectives.
3. The IAM's "External Structure" contains customers, suppliers and other "external" stakeholders and one selects the ones that are relevant. In most cases this will be Customers, which is why BSC advocates a singular Customer Perspective. However Public Sector organisations find it hard to see the community as "Customers" and many companies have so valuable allieances with their Suppliers that they must be included too.
4. BSC does not question the foundation of "what constitutes a firm". While the IAM is based on the notion of a "knowledge perspective" of a firm, Kaplan&Norton regard the notion of the firm as given by its strategy. They just want managers to take a more "balanced view". As they argue in their book p.8 (1996): "The Balanced ScoreCard complements financial measures of past performance with measures of the drivers of future performance. The objectives and the measures of the Score Card are derived from an organisationīs vision and strategy." The IAM thus becomes a more demanding option for a management team; to get the best value, one should start by re-designing the strategy to be more "knowledge focused".

So even if the BSC on the surface of it may look similar as in the Intangible Assets Monitor, the origins and the foundations of the concepts beneath the surface are very different. I would like to think of the IAM as more of a "Knowledge Era" measuring instrument, whereas I regard the BSC as more "Industrial Era". Therefore BSC users will probably develop non-financial indicators that are different from those using the Intangible Assets Monitor.
Read also Ulf Johansson's comparison between BSC and IAM in Increasing the Transparency of Intangibles and my Paper, Measuring Intangibles and Intellectual Capital - An Emerging First Standard,

Karl-Erik Sveiby