The Swedish Community of Practice

A number of both research and practical efforts to manage knowledge organisations and to measure knowledge emerged in the mid 1980s in Sweden. It might be called a "Swedish Community of Practice". See below for the community in managing knowledge organisations.

Measuring Knowledge in Sweden

The Swedish community in measuring today follows two tracks; one is Human Resource Cost Accounting, the other might for lack of better label be called the "Konrad track". The latter design is the origin of the Intangible Assets Monitor.

The Konrad track consists of managers who use primarily non-financial indicators to monitor and publicly present their intangible assets, based on theory originally brought forward by a work group consisting of members from several Swedish knowledge companies, the so called "Konrad Group". Konrad reported its suggestions in a report, (Sveiby ed. 1988) Den nya Årsredovisningen (Eng. The New Annual Report) and a book, (Sveiby ed. 1989) Den Osynliga Balansräkningen, (Eng. The Invisible Balance Sheet). Based on the concept of the Knowledge Organization (Sveiby 1986) the book outlined a theoretical framework for public reporting of intangible assets and coined a/o the concepts "Structural Capital" and "Human /Individual Capital".

The designs and concepts were further developed in practice by companies like WM-data, Skandia and KREAB and via Skandia´s "Business Navigator" they later found their way into the USA and Canada (a/o Canadian Imperial Bank).

The purpose of Konrad´s first conceptual designs was to encourage knowledge companies to improve their public reporting, thereby opening them up for external analysis and reducing the rate of return required by stake holders. One further development was a stock evaluation model designed by Sveiby in 1987 for internal use by the business journal Affärsvärlden (not published). Affärsvärlden started analyzing the IT sector and consulting sectors in 1986, using both models for giving buy/sell advice for stocks in companies listed on the Stockholm Stock Exchange and also launched a newsletter Konsultvärlden covering the Swedish consulting industries. Affärsvärlden has built up a database with data for companies in the IT sector, management consulting, training, advertising, head-hunting and accounting in some cases ranging back to 1986

In 1993 the Swedish Council for Service Industries issued a recommendation for its member companies to use a number of indicators describing their human capital in their annual reports. The indicators were based on the Konrad design with additional input from a/o Skandia. The recommendation was one of the inputs into the 1995 OECD and EU initiatives to issue recommendations for reporting on human capital.

In 1994 43 Swedish knowledge companies (Öhman 1996) measured and reported at least some of their intangible assets according to the "Konrad" model including WM-data, Skandia AFS, KREAB, Jacobson & Widmark, Ångpanneföreningen, FFNS, Awapatent, Komrev and Lindebergs.

The Konrad group´s intent to design a system also for internal purposes was never realized. Some companies however, started using the Konrad indicators also internally. Two Swedish firms, WM-data and Skandia AFS, have become international leaders in the field. They have approached the subject in two different ways.

WM-data was already using some non-financial indicators internally, when the Konrad -report in 1988 inspired them to design a coherent management information system with both an internal and external purpose. The company by now has the longest experience of all in using these indicators and is a world pioneer in the field. WM-data has included a comprehensive section on the subject in its annual reports since 1989 (see example). The indicators have been used internally to follow up WM-data´s strategy with considerable success, but the company has maintained a low profile in theory development.

Skandia AFS (a subsidiary of the Skandia insurance group) has chosen to make their measurement system for intangible assets a differentiation device. Skandia AFS appointed Leif Edvinsson "Director of Intellectual Capital" in 1991, with the brief to devise a way to measure the value creating processes and he was instrumental in developing the theory of "Intellectual Capital", which incorporates elements of both Konrad concepts and ideas from The Balanced Score Card (Norton & Kaplan 1993). Skandia now has 3 years of experience of reporting, the company actively and publicly promotes its Navigator and is one of the driving forces in the "Intellectual Capital Movement" that is growing in momentum world-wide.

Figure 1. The development in non-financial management information systems. (Source: Author + Nilsson & Strand 1996).

Some of the companies in the "Swedish Commuity of Practice" are:

Skandia AFS is a subsidiary of the Swedish Insurance Company Skandia. The company have been using non-financial ratios since 1994 and are pioneers in using Intellectual Capital for publishing in a systematized manner and they use a number of the indicators outlined on this web site (see example). Skandia´s efforts are the most ambitious today, and probably the most well known outside Sweden.You may read the supplement to their Annual Report 1995, or download it as a PDF file.

WM-data. Sweden`s largest computer consultancy firm, with 5,000 employess and a turnover of SEK 5 Billion, is listed on the Stockholm Stock Exchange. WM-data, is a pioneer in using the indicators outlined on this web site for strategic purposes. They have kept a low profile, but their approach to monitor their strategy with non-financial ratios is most interesting, because they can after several years experience (since 1988) demonstrate some clear results. You may learn more about how WM-data uses the indicators on this web site, visit WM-data's website or order their latest Annual Report in which they publish their ratios and discusses the use of them by emailing wmdataab@wmdata.com

KREAB, is one of Sweden´s largest media and communication consulting firms. Its managing director, Peje Emilsson, was one of the participants in the Konrad report and his company has used the ratios for both internal and external reporting since 1988. Their latest Annual Report (in Swedish only) can be ordered via email kreab@kreab.se.

Jacobsson & Widmark J&W, is one of Sweden´s largest technical consulting companies with 2000 employees and a turnover of SEK 1.2 Billion. It is listed on the Stockholm Stock Exchange. Their HR Director, Siv Axelsson, was one of the members in the Konrad report and their Annual Report 1995 features a large number of the indicators outlined on this web site. The Annual Report (in Swedish only) can be ordered via fax +46 8 767 62 29 or email from Siv Axelsson.

Lindebergs is one of Sweden´s largest accounting firms outside the "big six". One of their senior partners, Stig Wikström, was a member in the Konrad report, and they have developed the most ambitious Annual Report of all accounting firms in Sweden. The Annual Report (in Swedish only) can be ordered via fax +46-8101027.

Ångpanneföreningen ÅF, is one of Europe´s largest technical consulting firms with some 1600 employees. They have been using the ratios in the Intangible Assets Monitor since 1990 in a section in their Annual Report.

Bohlin & Strömberg is a Swedish consulting firm, with for their size, a very ambitious Annual Report, featuring several of the key ratios on this web site.

Celemi, featured elsewhere on this website did the world´s first Intangible Assets Audit in 1995. Their annual reports for 1996-2000 are also available on line.

PLS Consult is a Danish management consultancy firm, and I hope they forgive me for including them in a "Swedish" community. They use a number of "intangible ratios" measure their performance from a knowledge perspective (see example). PLS Consult can be contacted through email at ls@pls.dk

TurnIT is a Swedish computer consulting firm that published an Intangible Assets Assessment in their Annual Report 1999.

Human Resource Costing and Accounting

PEI Personel Economics Institute, School of Business, Stockholm University are focussing their research on Human Resource Accounting. One of their driving forces is Dr. Ulf Johansson. With Gröjer, J.E as cowriter he has written Human Resource Costing and Accounting. "2nd ed. Arbetarskyddsnamnden, Stockholm, 1996, and with Nilson, M 1995: The Usefulness of Human Resouce Costing and Accounting. He is also the Editor of the Journal of Human Resource Costing and Accounting, Stockholm University (click here for Subscription and information). You will find a very interesting article by Ulf on this web site.

Ulf is also instrumental in establishing the Swedish "Key Ratio Institute", a databank of HR indicators that is currently subscribed by 130 Swedish companies with together 250,000 employees. The Institute does not have a web site, but if you are interested in more info send a fax to Eva Eriksson PAforum, on +46-8 -206579 or email Ulf.

Managing Knowledge Organisations in Sweden

The concept of managing knowledge organisations also originates from Sveiby/Risling (1986). The book introduced the idea that there exist knowledge organisations, that is organisations that primarily manage and sell the knowledge created by their employees. Such archetype of the knowledge organisation is the consulting firm so many of them are to be found among professional services firms, Also internal departments in large companies such as computer departments, accounting departments, HR-departments can be defined as "Knowledge Organisations". Since the introduction of the concepts in 1985 a large number of Swedish managers began to experiment and implement the concepts in their firms. Many of them are also measuring their intangible assets, and are mentioned above.

A lot of information about managing knowledge organisations can be found in the Library.

Only the Beginning. . .

Although Sweden by now has some ten years of experience in the field, it is still a very long way to go. Both Skandia and WM-data report tangible benefits form their measuring programs. Still, few service companies follow the recommendations of The Council for Service Industries, only a handful companies are measuring their intangible assets according to a theoretically coher ent model, and none is publishing anything close to the ideal. There are several reasons for their coyness, and for the lack of momentum so far.

One is that many managers regard such reporting as pointless. The only response they get to their annual reports comes from financial analysts, who usually leaf quickly past those pages because they do not know how to read the figures, and have no time to learn how. Nor are managers aware of their internal uses. There are very few corporate managements, like those of WM-data and Skandia AFS, who are willing to set aside resources to develop their understanding in how such calculations can be used to follow up their strategy.

The second reason is the opposite: the fear that such indicators might give too much away. Very few companies dare to publish information about their external structures, who their customers are and what they think the company, who their competitors are or informa tion about their internal and external image. They may publish some figures, if they look good, but the interesting figures, those that can be freely interpreted by independent com mentators, or might reveal some competitive advantage, are not willingly disclosed.

A third reason is the one mentioned above; that there exists no rigorous theoretical model for this type of report. Accounting systems are not designed for the purpose. This make the key indicators difficult and expensive to determine, and impossible to compare.

We also lack practical experience. As in all measurement systems, a number tells us nothing at all, unless we can compare it with a yard stick of some kind, another company, with a previous year, or with a budget. When we start measuring intangible assets, we must therefore be prepared to keep doing so, for quite some time, before we can evaluate the results. Skandia, in its third year, still reports (Nilsson & Strand 1996) internal resistance.

That is why it is so hard to mobilise the pressure - from the authorities and investors - needed to make managers publish figures that show them up at a disadvantage. Legal rules, and public opinion are very important when it comes to reporting. The requirements annual reports must now meet are the results of past action, by various pressure groups. The response to Skandia´s recent Intellectual Capital report by the SEC in USA suggests the time is now ripe for a change.

Continue the Dialogue!

There exists no alternative to dialogue in this emerging field. Email your comments and questions to: karlerik@sveiby.com.au.

References

Kaplan & Norton (1996): The Balanced Score Card . HBS Press

Nilsson U. & Strand C. (1996): Den upplevda nyttan av att använda kunskapsredovisning . (Perceived benefits from accounting for Knowledge) Examensarbete 1996:47 C. Högskolan i Luleå.

Sullivan Patrick H.(2000); Value-driven Intellectual Capital; How to convert Intangible Corporate Assets into Market Value. Wiley

Sveiby KE & Risling Anders (1986): Kunskapsföretaget , (The Knowhow Company) Liber.

Sveiby KE ed. (1988): Den Nya Årsredovisningen. Workgroup "Konrad". Ledarskap Stockholm.

Sveiby KE ed. (1989): Den osynliga balansräkningen (The Invisible Balance Sheet), Ledarskap Stockholm.

Tjänsteförbundet (1993): Valuation of Service Companies. Publication nr 10. The Swedish Coalition of Service Industries. Order via fax +46 8 791 76 01

Öhman Per (1996): Kunskap i årsredovisningen . (Knowledge in the Annual Report). Examensarbete 1996:05 C. Högskolan i Luleå.