©Karl E. Sveiby
It is tempting to try to design a measuring system equivalent of double entry bookkeeping with money as the common denominator. It is an established framework with definitions and standards and therefore "common sense".
This is precisely the reason why we should break with it.
If we measure the new, like knowledge, with the tools of the old, we won´t "see" the new.
Any measurement system is limited by Heisenberg´s uncertainty principle (1927) which says that it is impossible to measure simultaneously the speed and the position of particles. The physicist Bohr argued that this means that the observer is always involved in the measurement and that the physical world does not have well-defined attributes.
If truth is in the eye of the beholder in the physical world it is even more so for the world of business. There is no difference between money measures and other measures. Both are uncertain and all are dependent on the observer. There exist no "objective" measures. The main reasons why the money measures seem more "objective" and "real" are that they are founded on implicit concepts of what a company is and that the measures have been around for so long that they are guided by definitions and standards.
Once measures have been selected, they color what we see and how we act, and the problem with translating actions into money is that very few people in an organization handle money directly. Most of them work by using their competencies in the service of customers. Money is merely a proxy for human effort, and the 500-year-old system of accounting sheds little light on the vital processes in organizations whose assets are largely non-monetary, and intangible.
As of today, there exists no comprehensive system that uses money as the common denominator and at the same time is practical and useful for managers. Depending on the purpose for measuring, I do not think it is necessary either. Knowledge flows and intangible assets are essentially non- monetary. We need new proxies.
Most companies measure at least some of their intangible assets and they use non-monetary indicators particularly for measuring operational efficiency. Manufacturing companies have for instance measured their output in "tons per hour", hospitals and hotels measure bed utilization, schools measure average marks, universities measure number of PhD dissertations per year, etc. Operational efficiency &endash;the efficiency of the Internal Structure as I call it here &endash;has been measured at least since the birth of the industrial organization.
The other two intangible areas covered in this book are much more recent; customer relations, such as satisfaction levels and competence related measures, such as employee satisfaction and retention are still not monitored on a regular basis by most companies. The problem is not that "intangible measures" are difficult to design. The problem is more that the outcomes seem difficult to interpret. Customer surveys, for instance, &endash;when used systematically &endash;yield an abundance of data which managers find difficult to correlate with changes in business performance. Kodak for instance, does a monthly survey of some 300 customers in each area of the business, asking specific and open-ended questions.
As a Kodak manager says:
The answer is almost impossible. We know we are often measuring dissatisfiers rather than satisfiers.
He airs most managers´frustration by the lack of correct and certain measures. The Kodak manager, like most managers, believes that the money measures are more "real" than other data and he has no framework that he can use to interpret his data. His framework must be replaced by a new one, and a replacement which fits today´s reality could be some kind of "knowledge perspective".