Mobilizing change through the management control of intangibles

Description
This qualitative study explores the management control of intangibles in three Swedish companies. The present
analysis is discussed in terms of four theoretical perspectives, namely, evolutionary, action, organizational learning and
structuration theory. The results indicate that such enablers of performance as customer and employee perceptions of
individuals and organizational and relational competence are the key attributes that firms address. Equally important,
however, are different routines that facilitate learning and the transformation of knowledge into action. Routines
additional to surveys include statistical analysis, benchmarking, dialogues, salary bonuses, and contracts

Mobilizing change through the
management control of intangibles
§
Ulf Johanson*, Maria Ma? rtensson, Matti Skoog
School of Business, Stockholm University, 106 91 Stockholm, Sweden
Abstract
This qualitative study explores the management control of intangibles in three Swedish companies. The present
analysis is discussed in terms of four theoretical perspectives, namely, evolutionary, action, organizational learning and
structuration theory. The results indicate that such enablers of performance as customer and employee perceptions of
individuals and organizational and relational competence are the key attributes that ?rms address. Equally important,
however, are di?erent routines that facilitate learning and the transformation of knowledge into action. Routines
additional to surveys include statistical analysis, benchmarking, dialogues, salary bonuses, and contracts. # 2001
Elsevier Science Ltd. All rights reserved.
1. Introduction
Powerful forces are reshaping the economic and
business world. Many of these powers have led to
a fundamental shift in organizational processes.
The prime forces of change include globalization,
higher degrees of complexity, new technology,
increased competition, changing client demands,
and altering economic and political structures.
Such a development has resulted in steep learning
curves, in that companies struggle to adapt quickly,
respond faster, and to proactively shape their
industries. Organizations are beginning to recognize
that technology-based competitive advantages are
transient and that the only truly sustainable com-
petitive advantages they have are their intangible
resources. The interest in intangibles has grown
rapidly in numerous ?elds, including economics,
accounting, and strategic management. The lit-
erature on intangibles exploded throughout the
1990s (Johanson, Eklo¨ v, Holmgren, & Ma? rtens-
son, 1999) and many ?rms, as well as in?uential
organizations (e.g. the OECD, European Com-
mission, Brookings Institution, and the Conference
Board), embraced intangibles wholeheartedly onto
their agenda.
One of the main problems in understanding the
importance of intangibles appears to be that, while
0361-3682/01/$ - see front matter # 2001 Elsevier Science Ltd. All rights reserved.
PI I : S0361- 3682( 01) 00024- 1
Accounting, Organizations and Society 26 (2001) 715–733
www.elsevier.com/locate/aos
The present project is one of several subprojects in the MER-
ITUM (Measuring Intangibles to Understand and Improve
Innovation Management) project. The aim of the MERITUM
project is to investigate possibilities to measure and report
intangibles. Nine universities and research institutes in six Eur-
opean countries are participating in the project. The present
project has been accomplished thanks to ?nancial support from
the European Commission, OECD, the Swedish Council for
Work Life Research, Nutek, the Swedish Ministry of Trade
and Industry and the Swedish Public Relations Association..
* Corresponding author.
E-mail addresses: [email protected] (U. Johanson), mm@fek.
su.se (M. Ma? rtensson), [email protected] (M. Skoog).
there is still a heavy reliance on ?nancial informa-
tion, there is a general lack of information on
intangibles. In response to this information gap or
lack of understanding, many concepts and
measurement models have been suggested over the
years. Regarding human resources, human
resource accounting and utility analysis were pro-
posed already in the 1960s. To our knowledge,
about 30 studies have been performed during the
past 20 years concerning the e?ects of these mea-
surements on decision-making and learning
(Johanson, 1999a). In general, ?ndings from these
studies suggest that measurements make a mean-
ingful di?erence on decision-making and indivi-
dual managerial learning while integration in the
management control process is seriously ham-
pered or blocked entirely. Why is this the case?
Human resource accounting and utility analysis,
as for many other concepts o?ered in the 1980s
(Roslender, 1997), continue to exist within a tra-
ditional ?nancial accounting framework. How-
ever, in the 1990s di?erent models were
propounded, including the balanced scorecard
(Kaplan & Norton, 1992), intellectual capital
(Edvinsson & Malone, 1997), and the intangible
assets monitor (Sveiby, 1997). A common feature
of these models is that although they still rely on
measurements, ?nancial information is only
looked upon as one element of the information
that is needed. Because of this feature of the
models, they are often addressed as non-?nancial
models. Up to now, rigorous scienti?c investiga-
tions on the consequences of the adoption of these
non-?nancial models have not been conducted
(Johanson et al., 1999). Nevertheless, there is some
evidence to suggest that considerable enthusiasm
to employ the models is evident (Kaplan & Nor-
ton, 1999; Olve, Roy, & Wetter, 1998).
Human resource accounting, balanced scor-
ecard, intellectual capital statements, the intangi-
ble assets monitor, as well as other models have
sometimes (though not often) been utilized in
annual reports (Erhvervsudviklingsra? det, 1997;
Guthrie, Petty, Ferrier, & Wells, 1999; Johanson
et al., 1999). Even if investors and analysts fre-
quently assert their strong interest in taking infor-
mation on intangibles into account (Epstein &
Freedman, 1994; Mavrinac & Boyle, 1996), it
appears that what ultimately counts is conven-
tional ?nancial information (Carlsson & Eliasson,
1991; Eccles & Mavrinac, 1995). Why is it that
investors and analysts stubbornly decline to rely
on intangible information? Is it because of an
unrealistic fear that what is reported externally is
not seriously integrated in the management con-
trol process?
Boudreau (1998) for example, proposes that
human resource metrics are not linked to organi-
zational outcomes, but many practitioners, policy-
making organizations, and individual ?rms have
argued in favour of utilizing some kind of
measurement model for the purpose of manage-
ment control in addition to the external reporting
of intangibles. Nowadays, most organizations are
continuously transforming their management
control systems, and many ?rms want to expand
their management control systems and processes
into the intangible resource area. Three questions
arise in relation to intangibles. What kinds of
intangibles are measured? How are they mea-
sured? How are the measurements utilized?
2. The research problem
The assumption underlying the present study is
that ?rms, which are experienced with respect to
measuring and controlling intangibles in a for-
malized way, are expected to be keenly aware of
the importance of intangibles critical for the suc-
cess of the ?rm. These ‘‘experienced’’ ?rms are
also expected to recognize, measure, evaluate, and
report important intangibles in the management
control process. Finally, if it is anticipated to be
bene?cial, ?rms are expected to report on intangi-
bles even externally. The aim of this paper is to
contribute to the understanding of how the man-
agement control of intangibles is accomplished by
investigating three Swedish ?rms that are experi-
enced with respect to measuring and managing
intangibles.
Discovering the management control of intan-
gibles is a complex process because of a range of
problems related to the concept of intangibles and
the management control process. These problems
will be elaborated upon in the next two sections.
716 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
2.1. The concept of ‘‘intangibles’’
As is so often the case for many concepts,
‘‘intangibles’’ has no generally accepted de?nition.
Canibano and Sanchez (1998) state that the
adjective ‘‘intangible’’ normally accompanies dif-
ferent concepts, such as assets, investments,
resources, or other phenomena. The transforma-
tion of the adjective into a noun is suggestive of
the absence of a broadly accepted de?nition. Over
the years, numerous de?nitions and classi?cations
of intangibles have been proposed, particularly
during the last decade (Johanson et al., 1999). Not
surprisingly, a lack of consensus exists largely
because constituents of what could be regarded as
intangibles are dependent on the purpose of
addressing the concept (e.g. accounting, statistics
related to national accounts, and management
control). Furthermore, di?erent theories about
?rms a?ect the way in which characteristics, and
hence de?nitions of intangibles, are formulated.
The various de?nitions of intangibles will not be
discussed in this paper. (For a rigorous investiga-
tion on the concept see Johanson et al., 1999).
Johanson (1999b) suggests that the many classi?-
cations of intangibles could be arranged according
to the following four categories.
1. A dichotomized proposal of classi?cation is
perhaps the most common classi?cation
approach. The characteristics of these dichoto-
mies are, for example, legal ownership or not;
externally purchased or internally produced;
and people dependent or people independent
(compare Hall, 1992).
2. When classifying intangible investments, the
most common categorization appears to be
R&D, software, marketing, and organiza-
tion. Examples of this classi?cation are the
proposals made by the OECD (1992) and
Statistics Netherlands (1998).
3. Many practitioners propose a simple three-
way classi?cation of human, market, and
structure capital. These suggestions are now
widely dispersed (e.g. Petrash, 1996; Sveiby,
1997).
4. Recently, it has been suggested that integral
components of intangibles include not only
static states and input factors but also pro-
cesses and future opportunities. Therefore,
considering assets and activities, Johanson et
al. (1999) propose that ‘‘facts’’ and percep-
tions are a more revealing classi?cation.
Haanes and Lowendahl (1997) categorize
intangible resources into competence and
relational resources. Relational resources
refer to reputation, client loyalty, etc. which
are conceived of as being fundamental to the
performance of the ?rm. Competence is
de?ned as the ability to perform a given task
and exists at both the individual and organi-
zational level. On the individual level, com-
petence includes knowledge, skills, and
aptitudes; on the organizational level, it
includes client-speci?c databases, technol-
ogy, routines, methods, procedures, and
organizational culture.
The case studies in the present paper suggest
that de?nitions of intangibles are entirely prag-
matic for particular management purposes.
2.2. The concept of ‘‘management control ’’
Even management control is de?ned in various
ways. The concept is often related to the activities
concerning controlling and governing an organi-
zation (the control processes) and to the informa-
tion sources/areas that the control activities are
mainly based on (the control system). Anthony
(1965) makes a distinction between management
control systems and management control pro-
cesses. He argues that the system facilitates the
process and is the means on which the process
occurs. The system explains what it is and the
process explains how it functions. To understand
the system one has to understand the process and
vice versa.
Flamholtz (1996) provides a broad de?nition
when he de?nes management control as those
measures that (1) motivate people to take actions
consistent with organizational objectives, (2) co-
ordinate e?orts of di?erent parts of an organiza-
tion, and (3) provide information about the results
of performance and operations. Consequently,
Flamholtz refers to both the sources for management
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 717
control (the system) and the co-ordination of
activities (the process) that take place chie?y
because of the measures.
According to Emmanuel, Otley, and Merchant
(1990), management control is the mediating
activity between strategic planning and task con-
trol. It concerns the e?ective management of the
interrelationships of the whole organization and is
essentially a routine a?air, ’’reporting on the per-
formance of all aspects of an organization’s activ-
ity on a regular basis, so that all areas are
systematically reviewed’’ (Ibid. p. 97). The main
tool, though by far not the only tool, is manage-
ment accounting information which ‘‘. . .is col-
lected in a standard manner from all parts of an
organization; because it is in quantitative (mone-
tary) form, it can easily be aggregated into sum-
maries for higher levels of management. . .’’ (Ibid.
p. 97). Control is concerned with directing future
activities and thus it ‘‘. . .consists, in part, of indu-
cing people to do certain things and to refrain
from doing others’’ (Ibid. p. 97). ‘‘The person in
control is the one who has the power to enforce his
will on others’’ (Ibid. p.7). Emmanuel is referring
to both the process (activities) and the system
(tools). Control can be obtained through result
control, action control or personnel control.
Environmental issues, technology, size, strategy or
culture could in?uence management control prac-
tices. Flamholtz proposes that control systems,
which are not consistent with the value system of
an organization, are likely to create resistance (in
Emmanuel et al., 1990).
Two other issues addressed over the years in
management control de?nitions are whether
informal systems and processes should be taken
into account and who is in the position of control
(the managers or the employees). Simons (1990)
excludes informal systems and processes when he
proposes that management control systems are the
formalized procedures and systems that use infor-
mation to maintain or alter patterns in organiza-
tional activity. In contrast, Machin (1983) holds
that management control systems are the formal
and informal systems. He also states that the
objective of management control systems is to
help individuals control the things they do with
themselves and other resources.
In the present paper management control refers
to the organizational (as opposed to individual)
processes based on formal (as opposed to infor-
mal) information systems in which the managers
(as opposed to all employees) try to obtain control
of the organization. The management control
process involves several stages: recognition,
measurement, reporting, evaluation, and mobiliz-
ing change. This is a de?nition that we will use for
analytical purposes in the present paper but it is
far from sure that the case ?rms would agree on
this de?nition. Even with respect to de?nitions of
management control the cases suggest that de?ni-
tions are pragmatic.
2.3. Formulating the research approach
Based on the above-mentioned de?nition of
management control, the present paper addresses
two questions:
1. How are intangibles recognized, measured,
reported, and evaluated?
2. How is organizational change mobilized
through management control of intangibles?
Whereas the ?rst question addresses the input of
change, the second one refers to the process and
possible output. The phenomena studied are social
constructions of reality, which means that people
in the organization have di?erent perceptions of
the phenomena.
The research questions are investigated using
qualitative exploratory case studies (Yin, 1994).
Originally, 11 Swedish companies were selected
based on their skills and long-term experience in
measuring intangibles and utilizing these mea-
surements in their management control system. A
more detailed description of the methodology is
found in Appendix A.
In the present paper, three of the 11 ?rms have
been selected for further analysis. These ?rms are
a minor consulting ?rm, a major bank and a
major telecommunication company. (An overview
of the total material is provided in Johanson, Ma? r-
tensson, & Skoog, 2001). The three cases were
selected because they vary in size and represent dif-
ferent business ?elds and more importantly because
they represent the most comprehensive cases.
718 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
The research questions implicate di?erent theo-
retical approaches to studying the management
control of intangibles. The ?rst question addresses
the formal systems and processes that help the orga-
nization to gather, measure, evaluate and report
information. These processes are normal routines
that comprise relatively constant patterns. In the
analysis of these routines, an approach based on
evolutionary theory (e.g. Clement, Hammerer, &
Schwraz, 1998; Nelson & Winter, 1982) is taken.
When analyzing the second question, organiza-
tional change is addressed by practicing theories
of action (e.g. Weick & Roberts, 1993; Weick &
Swieringa, 1987), organizational learning (e.g.
Bjo¨ rkegren, 1989; Hedberg, 1981), and structura-
tion (Giddens, 1984).
3. Case 1—the consultant ?rm
The managing director and the sole owner of the
successful public relation consultant ?rm (about
100 employees) often states that fun and business
is his device. This is to say that employees should
be encouraged to learn and have a pleasant time at
work. However, he also adds, ‘‘Structures and
brands constitute the value of the ?rm. People
could be exchanged.’’ These statements suggest
that individual knowledge has to be transformed
into organizational knowledge. Such knowledge
transformation could be obtained in di?erent
ways. One means is to change working teams as
well as physical work places at the o?ce. Another
way is to emphasize to employees the importance
of working even in house to increase, for example,
the bank of experience.
About 10 years ago the managing director’s
attention was a?ected as regards the foolish treat-
ment of intangible investments as opposed to tan-
gible ones. A new toilet had been installed at the
same time as in-house investments were made to
develop a new data program. The toilet was
included in the assets whereas the data program
was not to be treated in that manner. At that time,
the managing director wrote a book together with,
among others, Sveiby (1989) and began to utilize
the concept of structure capital. However, in con-
trast to Sveiby and the others, he did not leave the
traditional balance sheet. Rather, he continues to
utilize the toilet anecdote and the balance sheet as
narratives to obtain what he regards as strategic
action. He is convinced that organizational as
opposed to individual knowledge, networks, and
company images is the key intangible resource
required to remain competitive.
Computer systems, time schedules, communica-
tion models, and knowledge about typical ques-
tions and answers are all examples of structure
capital. Consequently, the managing director pro-
poses that the most important intangibles, the core
competencies of the ?rm, are those seven intangi-
bles listed in Table 1.
These structure capital items are closely related
to how Edvinsson and Malone (1997) de?ne the
concept. Six of the items refer to a stable state as
opposed to an activity. The seventh, training pro-
grams, is an activity targeted for the individual.
However, evolutionary (Clement et al., 1998;
Nelson & Winter, 1982) and knowledge-based
theorists (Hall, 1992) put greater emphasis on
activities as opposed to assets. The resources that
produce the competitive advantage are the well-
springs that should be identi?ed. This makes sense
even in the present case. Actually, the assets are
not measured but rather their corresponding
activities. Hence, which activities correspond to
the most important intangible assets?
Though the assets above are not reported in the
company’s balance sheet, some of their corre-
sponding activities (training programs, knowledge
development of new products, software develop-
ment, and recruitment) are. The valuation is based
on historical costs, taking even time spent on the
activity into account. The managing director
maintains that, for the long-term success of the
?rm, he has to provide incentives with the message
that time spent by the consultants on, for example,
extending the computerized bank of experience is as
important as charging time to customers. Accord-
ingly, the balance sheet treatment is a symbolic
action to illustrate that he means what he says.
3.1. Comments and analysis
The content in Tables 1 and 2 could be regarded
as cognitive schemes (Bjo¨ rkegren, 1989) or search
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 719
rules (Nelson & Winter, 1982) that a?ect the evo-
lutionary (Nelson & Winter, 1982) change process.
In economic evolutionary theory (Clement et al.,
1998; Nelson & Winter, 1982), ?rms are char-
acterized by relatively constant patterns of beha-
viors or rules. These rules are subject to an
evolutionary process in the sense that they are
evaluated, reproduced, eliminated, varied, and
selected. The rules may be grouped into three
levels; at level 0 relatively ?xed rules (operating
Table 2
The most important intangible assets and their corresponding activities in the Consultant company (authors interpretation)
Most important intangibles assets (compare Table 1) Corresponding activities
Human capital Individual’s knowledge Training programs
Structure capital Knowledge of new products Knowledge development of new products
Models for performing speci?c projects Software development
Bank of experience Software development
Flexible work force Recruitment
Flexible work force Creation of teams
Flexible work force Change of work place once a year
Market capital Networks Participation in social activities
Networks Providing courses to customers
Image Delivering professional work to the customer
Table 1
The most important intangibles in the Consultant company (authors interpretation)
Which intangible? What does it consist of and why is it important?
1. Work models for performing speci?c projects Normally computerized. Incoming projects, including models concerning
?nancial relation projects, are put into existing work models. In this way,
individual human capital is transformed into structure capital and less
competent people can be used. A single task can be performed faster
and customer security increases.
2. Bank of experience Every project should be subject to documentation in a database; e.g.
there are 2000–3000 good answers to nasty questions to be used in a
client crisis. Again, individual human capital is transformed into
structure capital. Less quali?ed personnel can be used more e?ciently
by learning from experience.
3. Knowledge in new areas: ‘product development’ For instance, a forthcoming privatization of parts of the public sector
was foreseen in the 1980s. Other examples are knowledge about
nuclear energy, EU, and Euro.
4. Networks consisting of present and old customers
and other signi?cant persons
Networks are created and maintained by, e.g. taking part in social events,
arranging courses, and disclosing an annual report.
5. Training programs Increases the possibility to raise the chargeable hourly price. Extensive
programs for education and training can be created.
6. Flexible work force Recruitment, creation of teams, and change of workplace once a year are
important activities to obtain a ?exible work force.
7. Company image Delivering professional work to the customer is the most
image-enhancing activity.
720 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
characteristics) govern short-term behavior; at
level 1 there are investment rules, recording rules,
and in?uencing rules. The third level, level 2,
incorporates search rules that modify all lower-
ranking rules (including the search rules them-
selves). The rules a?ect physical states (the physi-
cal capital stock), knowledge (the ‘contents of ?le
drawers and the human memories’) and external
states (the attitudes that are directed toward the
?rm from the external environment, including
customers, competitors, and the public).
The evolutionary theory approach might suggest
that existent measurements gradually expand into
new areas because there is an overall search rule
stating that measurement is important and con-
tributes to the success in the present organization.
Theories on organizational learning have been
suggested by numerous authors (e.g. Argyris &
Scho¨ n, 1978; Hedberg, 1981; Levitt & March,
1988; Scho¨ n, 1986). A mutual aspect of these pro-
posals is that organizational learning not only
refers to understanding but also to taking co-
ordinated action based on the new knowledge
acquired. Johanson and Nilson (1995) hold that
organizational learning is present when domina-
tion beliefs are changed and co-ordinated action
has taken place. Domination beliefs refer to col-
lective cognitive structures that guide perception
and interpretation. Co-ordinated action relates to
a conscious collective action taken by a number of
individuals. Weick and Roberts (1993) suggest the
existence of a ‘‘collective mind,’’ which is con-
ceptualized as a pattern of heedful interrelations
of actions in a social system. Focusing on the way
this interrelating process is accomplished reveals
the collective mental structures. Bjo¨ rkegren (1989)
proposes that changes in individual or organiza-
tional cognitive schemes can be obtained through
either assimilation or accommodation. Whereas
assimilation means reinforcement and the extension
of existing cognitive structures, accommodation
refers to a rejection of the old and a reconstruction
of new cognitive structures. The latter could be a
threatening and traumatic way of learning.
In the present case the assimilation process has
been in e?ect for at least 10 years and continues
even today. Valuing intangible investments on the
balance sheet is a symbol or a narrative that
reveals the signi?cant importance of investing for
the future. The measurement practice is valued by
the managing director for its attention directing
bene?t and not because it ‘objectively’ measures
something. The preciseness in the balance sheet
valuation is not an important issue; rather, the
message is that he, as the owner, appreciates
intangible investments for the future as much as
he appreciates tangible investments. This message
?lters down to the employees through the balance
sheet valuation routine and external documents.
The process of controlling intangibles is com-
pletely integrated in the management control pro-
cess. The balance sheet valuation does not cause
any resistance from the stock market or banks
because the managing director is the sole owner of
the company with no need of additional loans.
3.2. Case 2—the telecommunication company
During the past 10 years, the number of employ-
ees in the telecommunication company (TC) has
been reduced from 50,000 to 30,000. One of the pri-
mary reasons for the reduction concerns the radi-
cal reconstruction of the telecommunication market.
From being dominated by a monopoly market
situation, the market has recognized an increased
competition because of government deregulation.
The speci?c company investigated here represents
one of eight business areas in the group. The busi-
ness area deals with information services and works
primarily with packing and distributing informa-
tion to di?erent meeting and market places, both
physically and electronically based. The business
area represents about 10% of the total group, with
4000 employees and a turnover of approximately 4
billion SEK in 1997. The company is presently
represented in six di?erent locations throughout
Sweden and operates in 11 other countries.
The management control system in this com-
pany addresses market capital, human capital, and
economic e?ciency. First, market capital is mea-
sured in four equally important dimensions: (1)
the image, (2) the product and the customer, (3)
the employees meeting with the customer, and (4)
customer loyalty. The image dimension relates to
the trademarks while the loyalty dimension refers
to the most important customers. Signi?cant
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 721
customers are selected based on their overall TC
rating. Concerning product and customer dimen-
sions, the measurements comprise expectations of
the products of TC and the way TC deals with
these expectations (Table 3).
All of the market capital measurements are based
on (100) questions that are asked via telephone
interviews by an external agency to randomly
selected customers.
Second, human capital within TC is de?ned as
‘‘the employee’s and the organization’s ability to
create value and e?ciency for the customer’’.
Human capital is measured by means of a ques-
tionnaire in nine dimensions: culture and values,
Table 3
Market intangibles in the telecommunication company
Dimensions Question areas
1. The company’s image (attraction) Trust
Reliable advertising
Service
Attitudes
Communication
Supports business development by IT proposals
Competent employees
Price
Environment
Internationalization
2. Products, goods, and services (relation carriers) Quality
Functionality
Support
Worth its price
3. Meeting of individuals and routines (interaction) Sales activity
&hsp sp=0.5;Availability
&hsp sp=0.5;Information
&hsp sp=0.5;Competence
&hsp sp=0.5;Service-minded
Delivery/installation
&hsp sp=0.5;Availability
&hsp sp=0.5;Quality of customer service
&hsp sp=0.5;Quality of technician’s work
&hsp sp=0.5;Co-ordination?
&hsp sp=0.5;Time consumed
Problem solving
&hsp sp=0.5;Availability
&hsp sp=0.5;Quality of customer service
&hsp sp=0.5;Quality of technician’s work
&hsp sp=0.5;Co-ordination?
&hsp sp=0.5;Time consumed
Customer care
&hsp sp=0.5;Availability
&hsp sp=0.5;Information?
&hsp sp=0.5;Competence
&hsp sp=0.5;Service-minded
&hsp sp=0.5;Relations development?
4. Loyalty (the outcome of 1–3) Repeatedly choosing the Telecommunication company
Recommending the Telecommunication company to others
Quality in relations to customers?
722 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
competence, motivation, responsibility and initia-
tive, authority, co-operation and processes, orga-
nizational e?ciency, employee awareness of goals,
and leadership. Human capital measurements are
done once a year based on a standardized ques-
tionnaire form.
Third, economic e?ciency is divided into four
dimensions: pro?t development, cost e?ciency, the
result after depreciation, and increased revenues
from new businesses. Budgets are no longer done
and, instead, scenario oriented business plans are
performed.
The control process of intangibles consists of
several sub-processes, including recurrent meet-
ings, benchmarking, target setting, assigning own-
ership, salary bonus, and statistical analyses.
Once a year each manager holds a ‘target dialo-
gue’ with his or her subordinates. The dialogue is
standardized in that a supporting document exists.
According to the document, the targets for the
dialogue should be concrete, measurable,
encouraging, realistic and time-limited, focused on
businessman-ship, administrative ability, initiative
and problem solving capacity, customer relations,
transformation of knowledge/competence, ability
to co-operate, and responsibility.
The outputs from the dialogue are made up of
short-term sales targets as well as long-term
developmental targets. Targets are normally based
on the human and market capital measurements.
In this way, ‘‘ownership’’ is assigned to every digit.
Depending on the results from the human and
market capital measurements, an average bonus of
25% of the salary is provided.
The results from the human and market capital
measurements are presented at a kick-o? meeting
in January of every year. At this event, each of the
50 managers that participate gets his or her pack-
age of ratios and graphs representing the results of
their teams/departments. The package also
includes comparisons with other units. Managers
express a strong interest in other teams/depart-
ments. After the kick-o? meeting, each of the
participating managers brings the measurement
results back to their speci?c units to discuss the
results. This procedure allows knowledge of the
measurements to be easily transferred to all
employees.
At the group board level, a comparison is made
of the results from each unit. Total results are then
classi?ed into four categories: excellence, strength,
potential, and problem.
Statistical analysis of the data indicated strong
correlations between 14 human capital factors and
high market capital. The statistical work is per-
formed by an external consultant ?rm using Pear-
sons analytical method. The ?ve human capital
factors with the highest correlation to overall
market capital are summarized in Fig. 1.
3.3. Comments
Referring to evolutionary theory the following
search rule is identi?ed; because of a change in the
market place, the ?rm tries to understand how it
could survive. This means understanding and
mobilizing change in customer and employee rela-
tions, and where technological development is
taken into account. Because both of these rela-
tions rely upon subjective perceptions, attitude
surveys are expected to be bene?cial. The results
from these surveys are subject to evaluation and
commitment for improvement by means of di?er-
ent mobilizing routines. The concept ‘routines’
refers to the activities that correspond to the
norms (rules) or the standards that regulate the
interactions between individuals (Grant, 1996).
Winter (1986, p. 165) maintains that an organiza-
tional routine is a ‘‘relatively complex pattern of
behavior. . .triggered by a relatively small number
of initiating signals or choices and functioning as a
recognizable unit in a relatively automatic fash-
ion.’’ The provocative feature with routines is
their ability to support complex patterns of inter-
actions between individuals in the absence of
directives or rules (Grant, 1996). A number of
in?uencing routines, listed later, could be identi-
?ed in the present case.
1. The di?erent measurement routines of
human and customer capital, as well as the
traditional management accounting routines.
All these routines could be called recognition
and measurement routines.
2. Single indicators are evaluated by managers
at di?erent levels of the organization. This
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 723
evaluation is based on either a comparison
with last year for the same organizational
unit or a comparison with other comparable
units (benchmarking activities). Another
kind of evaluation routine is the statistical
analysis that is accomplished to increase the
understanding of the ‘‘production function’’.
3. Presenting last year’s result at a kick-o?
meeting in?uences people’s attention to the
importance of accomplishing the manage-
ment control of intangibles. The presentation
is achieved by utilizing pictures with high-
faced validity. This could be conceptualized
as an attention routine.
4. Motivation is anticipated to be a?ected by
such di?erent motivation routines as bench-
marking, target dialogues, and salary bonuses.
5. A commitment routine takes care of that
subordinates get committed to change by
means of assigned ownership.
The indicators combined with these routines
trigger short-term behaviour or ?xed rules (Clem-
ent et al., 1998); for instance, a bad ?gure regard-
ing the quality of a technician’s work at a speci?c
unit mobilizes training activities. The number of
?xed rules is voluminous. Some of these are sub-
ject to co-ordination between organizational units
(e.g. pricing rules) while others are totally decen-
tralized (e.g. construction of working teams). By
de?nition, the latter are not fully known by top
management. The particular interest from top
management involves improving understanding of
the connections between operating characteristics
and strategy. The action generating e?ect of sys-
tematized measures and reporting routines is
clearly expressed in such comments as: ‘‘It’s good
to have it on paper and to be able to follow up
targets. It is also helpful that there is a time limit.
E?orts become more focused. It mobilizes action
at the operational level.’’
Weick and Swieringa (1987) propose that if
accounting information is focused on action factors,
such as cognition, motivation, and commitment
become central. By a?ecting collective cognitive
schemes by means of assimilation (Bjo¨ rkegren,
1989), action is generated by support of motivation
(benchmarking and salary bonuses) and commit-
ment (ownership) activities within the management
control process. These activities result in new kinds
of routines and a change in habits and organiza-
tional structures throughout the organization.
It is suggested here that action does not neces-
sarily include a cognitive element in that people
are always aware of how and why they act as they
do. People and groups in an organization act in a
customary manner until new ways of tackling
problems are learned (Johanson, 1999a). One has
to address attention, cognition, motivation, and
commitment to change habitual action.
Fig. 1. The Telecommunication company’s (TC’s) own visualisation of the correlations between human and market capital.
724 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
When studying change, it is also appropriate to
address structuralism in which organizations are
characterized by patterns that, independently of
individual actors, in?uence the possibilities of
action (Cu? et al., 1998). Giddens (1984) proposes
that (individual) action and organizational struc-
tures are related whereby (individual) action gen-
erates organizational structures and vice versa.
Equally important is that structures not only con-
strain but also enable action.
Giddens (1984) submits that structuration theory
is about the interplay of an agent’s actions and
social structures in the production, reproduction,
and regulation of any social order. Structures are the
foundation as well as the outcome of actions. Gid-
dens (1984) calls this ‘‘the duality of structures’’
and makes a distinction between three types of stru-
cture: signi?cation, domination, and legitimation.
. The signi?cation structure is the inter-
pretative schemes that organizational actors
draw upon in order to communicate mean-
ing. The interpretative schemes are the cog-
nitive means by which an actor understands
what others say and do.
. The legitimation structure involves the moral
constitution of interaction. The structure is
mediated through norms and moral codes,
which sanction particular behaviors. It com-
prises the shared sets of values and ideals
about what things are important versus what
things are of a more trivial nature. By doing
this, the legitimation structure institutiona-
lizes the reciprocal rights and obligations of
the social actors.
. The domination structure concerns the di?er-
ent ways of exercising power. In speci?c
time-space locations, the capacity to exercise
power relates to asymmetries in the distribu-
tion of resources. Giddens distinguishes
between two types of resource: allocative
resources, which arise from command over
material phenomena such as goods and
objects, and authoritative resources, which
arise from capabilities to organize and co-
ordinate the activities of social actors.
Giddens notes that these structures are involved
in all types of social interaction. Each social inter-
action involves signi?cation, domination, and
legitimation structures. Wicks (1998) persuasively
argues that structures provide the foundation for
both stability and change. It is the simultaneous
ability of structures to provide control of organi-
zational activities and yet be shaped by them that
creates the duality nature of structures.
In the present case the management control of
intangibles provides new possibilities of exercising
power (domination structure) because of the ‘tar-
get dialogue’ routine and new ways of commu-
nicating meaning and understanding (signi?cation
structure) through the recurring benchmarking
activities. The shared sets of values and ideals
(legitimation structure) as to what is important
and what is trivial are also in?uenced. This type of
in?uence is manifested through such comments as:
‘‘The reports often show what you already knew
but could not put your ?nger on. Before I always
got excuses when I made presentations. With this
new way of measuring and visualizing, I do not get
any excuses. Rather, the discussion is very rapidly
turning into supplying suggestions with respect to
improvements.’’
4. Case 3—the bank
In the beginning of the 1990s, a number of
banks su?ered from a severe economic crisis. As a
result, the workforce was reduced by almost 25%.
Some years later, the bank of Case 3 merged with
another bank, resulting in 139 local banks
employing about 12,000 persons. Additionally,
great emphasis was devoted to analyzing the mar-
ket as well as decentralization. To be able to con-
trol the decentralized organization a new
management control system was needed. The aim
of the new system was to create a control system
that re?ected the present, the past, and the future.
Earlier control models had major communicative
shortcomings. Action was promoted by increasing
the pedagogical aspects of the control system. The
new control system had its ground in total quality
management, which had already been used for
several years. Fundamental to the development of
the new control system was the belief that good
management and empowered workers a?ect the
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 725
entire human capital value. This, in turn, gen-
erates high market capital that results in higher
pro?tability.
The measurements of customer and employee
satisfaction were not new but were performed on
an ad hoc basis. Gradually, they were developed
from mere thermometers of satisfaction into
regular instruments aimed at learning and strate-
gic action. From being a personnel and marketing
department a?air the responsibility is now dis-
tributed throughout the company. The develop-
ment is further described in Table 4.
In 1992, the interrelated measurements of
human capital (HC), market capital (MC) and
pro?tability were initiated. Several years earlier,
monthly ongoing investigations were conducted
on which one tenth of the customers and fellow
employees were studied on each occasion.
HC refers to the integrated capacities of a com-
pany to deliver high quality work. HC measures
the notion of empowerment, i.e. what employees
want to do, what they can do, and what they
actually do in relation to business; it does not
measure how well employees get on in the organi-
zation. How well people enjoy their work is no
guarantee of success in business. The Bank selec-
ted four elementary keywords to measure HC:
meeting with customers, competence, organiza-
tion, and leadership.
MC is a concept comprising, e.g. the way cus-
tomers gauge a company’s appreciation of them,
how satis?ed customers are with the company,
and how loyal the customers feel toward the com-
pany. Does the customer actively search for alter-
natives or is there a general loyalty toward the
company and what the company o?ers in the way
of goods and services?
The results of the comprehensive and systematic
measurements were co-ordinated into a single
large database. Of particular urgency in the data-
base are the interrelationships between HC, MC,
and pro?tability and which of these that are the
most important intangibles. The Bank’s goal in
the future is to reduce the di?erent forms such that
only those that prove themselves important are
used. However, since novel situations arise unin-
terruptedly, it is necessary to add new questions
on a regular basis.
The correlations are generally made at the local
bank level because it has been found that the
intangibles HC and MC combine at this level. It is
noteworthy that strong correlations were observed
between MC, HC, and pro?tability during some
of the measurements.
The analyses have yielded new knowledge and
con?rm a number of details that earlier were only
intuitively understood.
. The correlations have demonstrated that
leadership a?ects all other parts; i.e. if lea-
dership fails so does everything else. A high
human capital index propels pro?tability in
that quali?ed leadership leads to increased
HC. A higher HC, in turn, results in a higher
MC, which subsequently a?ects pro?tability
positively. On the other hand, banks that are
without solid leadership will ?nd it di?cult to
show a pro?t margin. If the leadership works
well, the personnel will feel better and if the
personnel feel good, the customers feel good,
a chain e?ect that eventually yields higher
sales and consequently higher pro?tability.
. One has learned that intensive quality work
leads to better MC.
Table 4
The development of human and market capital surveys according to Ennerfelt, Paltschik, and Tillberg (1996)
Frequency Function Owner Output Base
Ad hoc Taking the organization’s
temperature
Personnel department/
marketing department
Data Occasional
questions
Ad hoc Improve relations, leadership,
motivation
Company management Information/
knowledge
Theory/hypothesis
Regular Strategy and action-oriented
learning
’’Everyone’’ Understanding/
in-sight
Theory and vision/strategy
726 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
. It has been shown that business personnel
are extremely important for the development
of pro?tability. O?ces that have obtained
lower scores on business personnel have
lower pro?tability.
. When customers perceive that accessibility is
functioning, this factor of accessibility is not
greatly a?ected. However, when customers
sense that accessibility is not functioning, the
accessibility factor is greatly a?ected and
everything else sinks dramatically with it.
. A large gap often exists between how custo-
mers perceive competence and how employ-
ees perceive their own competence.
. Satis?ed customers lead to higher pro?t-
ability since they have higher contribution
margin.
The measurements result in three types of
reports.
1. One report, with the results on an aggregated
level, is the so-called executive report. In this
report, strategic information is available for
management levels. The report provides a
basis for decisions about what kind of com-
petence development programs and product
development will be needed.
2. Each o?ce has its own report with results
being provided for all 130 local o?ces. In
this report there is information, for example,
about what the customers and employees of
the di?erent local o?ces think about the
bank’s business operations and whether the
customers and employees are satis?ed or not.
3. Each o?ce is provided a report with the
results for all 800 bank o?ces.
When the report is ready to be passed on to the
director of the bank, the lower and regional bank
directors each receive a ‘‘box’’ that is referred to as
‘‘tools for the future.’’ A three-person group com-
prising the bank director, a controller, and a
regional market analyst evaluate the results. The
local bank directors obtain ?gures for their region,
as well as the results from the open questions in the
measures taken of the customers and employees.
The results are then discussed within the so-
called developmental contract. The highest-rank-
ing director, together with his or her subordinates,
exchanges ideas and opinions about the results
and compares them with earlier measurements. In
addition, steps for improvement are planned and
discussed. From the beginning, only supportive
steps are taken but if development is not moving
in a positive direction, discussions about a volun-
tary job transfer can be initiated.
In Fig. 2, the results are depicted in the form of
a ‘‘wheel’’. An index for each indicator is marked
on a corresponding spoke. ‘‘The wheel’’ is a very
important symbol to communicate the idea with
the measurement routine. It comprises the di?er-
ent elements that are regarded as critical in the
Bank’s ‘‘production function’’.
The total index for human and market capitals
is used ?rstly to place the o?ces in relation to one
another. A partial index is then used in order to
get a general impression of where the problems
exist in each o?ce. Once the problem area has
been identi?ed, it becomes possible to generate
more speci?c questions to gain additional insight
about what needs to be done. The results are pre-
sented whereby the ‘‘best in the class’’ result is
available with some benchmarking values.
After the ?rst measurement, the disposition
established with regard to who makes changes is
that it is the local leaders who own the material
and thus it is these individuals who should be the
driving force when it comes to determining any
changes that need to be done. The three parts,
MC, HC, and pro?tability, are used in the con-
tract with the leaders. Salaries are directly linked
to the development of MC, HC, and earning
capacity.
Today, this procedure is always used at meetings
with analysts. Some of the analysts completely
lack understanding while others fully understand.
There is a large variation in the use of the
results, from individuals that use the results
extensively to those that barely open the box with
the results. However, persons who are negative
and never use the results have become fewer in
number. It is also the case that the question is
urged from the highest management levels and is
the Bank’s model in follow-up activities of busi-
nesses. Every local unit will engage in measuring
when in the process of planning activities. The
work with the tool and the results from the
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 727
measurements have had consequences for leader-
ship development programs as well as for recruit-
ment policies. At a strategic level, the results from
the measurements were used in connection with
the merger process (the Bank merged with another
bank during the mid-1990s), where the results
enabled one to get an idea about the state of the
banks and bank employees during the merger
process. For instance, how did the employees
react? Did the fusion place them under extreme
pressure or did it induce a positive reaction? How
did the customers react to the fusion? Were they
satis?ed with the merger or were they displeased?
The management control process itself is also
subject to continuous adjustment to improve the
understanding of the speci?c ‘‘production func-
tion’’ of the Bank. It is also subject to a follow up
routine: (1) ?rstly, response rates on attitude sur-
veys are followed and analyzed; (2) secondly, sta-
tistical analysis with respect to the consequences
using the measurement results; (3) thirdly, statis-
tical analysis regarding the e?ects of providing
feed-back on measurement results is provided.
The second item is a strongly correlated to
improvements on human capital index, market
capital index and ?nancial performance on the
local bank level The third item reveals that work
satisfaction and performance is signi?cantly
higher in organizational units where employees
who have got feed-back on earlier measurements.
The follow up routine is a signi?cant subroutine
or a support routine to the measurement routine
in order to ensure learning, action and change.
But the follow-up routine is more than that. It
could also be interpreted as a double-loop-learn-
ing (Argyris & Scho¨ n, 1978) routine to evaluate
the search rule itself.
4.1. Comments
The present case has many similarities with the
Telecommunication company and hence the con-
clusions drawn from the Bank case are almost the
same. Applying evolutionary theory, the search
rule in the bank is as follows: Because of sig-
ni?cantly increased competition, the bank
Fig. 2. The report that is delivered to managers in the Bank. (The Bank’s own original).
728 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
attempts to understand how it could survive. This
means understanding and mobilizing change in
customer and employee relations while consider-
ing technological development. Because both of
these relations rely on subjective perceptions, atti-
tude surveys should be particularly bene?cial. The
results from these surveys are subject to evaluation
and commitment to improvement through di?er-
ent mobilizing routines. The management control
process in itself is also subject to continuous
adjustment to improve the understanding of the
speci?c ‘‘production function’’ of the bank. Even
the six mobilizing routines, listed later, are similar
to those routines of the telecommunication com-
pany. However, in the bank case a seventh mobi-
lizing routine is added.
1. Recognition and measurement routines. Per-
formed by the di?erent measurement rou-
tines of human and customer capital, as well
as the traditional accounting routines.
2. Reporting routines. Indicators are con-
tinuously reported internally. There is no
special edition appearing in the annual
report but analysts are informed of these
reports when they visit the company.
3. Evaluation routines. Managers evaluate single
indicators at di?erent levels of the organiza-
tion. This evaluation is based on either a
comparison with last year for the same
organizational unit or by comparing with
other comparable units. Another kind of
evaluation routine is the statistical analysis
that is done to increase the understanding of
the ‘‘production function’’.
4. Attention routines. The managers’ attention
to the importance of accomplishing the
management control of intangibles is in?u-
enced by the meetings between regional and
local bank management teams. It is also
in?uenced by means of continuously utilizing
pictures (above all ‘‘the wheel’’) with high
face validity.
5. Motivational routines. Motivation is antici-
pated to be a?ected by benchmarking and
discussions with the local bank management.
6. Commitment routines. The local bank board
of directors becomes committed to change by
the assigned ownership that is a result of the
meeting with regional management.
7. Follow up routines. Response rates are fol-
lowed and analyzed. The commitment to
change is followed up by statistical analysis.
The indicators combined with these routines
trigger short-term behaviour or ?xed rules. For
example, a bad ?gure on the quality of technicians’
work at a speci?c unit mobilizes training activities.
The number of ?xed rules is multitudinous. Some
of these rules are subject to co-ordination between
organizational units (e.g. pricing rules) while oth-
ers are totally decentralized (e.g. construction of
working teams). The latter rules, by de?nition, are
not fully known by top management. The parti-
cular interest from top management is to improve
understanding of the connections between operat-
ing characteristics and strategy.
5. Conclusions
In the present investigation, the ?rst case di?ers
signi?cantly from the other two in the sense that
mobilization of action and change is mainly based
on a balance sheet approach in the ?rst case. By
placing investments in intangibles on the balance
sheet, top management communicates the impor-
tance of these investments to the employees.
However, the cases suggest commonly that it is
not the ‘objective’ measure of something but
rather the attention directing bene?t of the
measurement routine that is of primary interest.
The balance sheet and the ‘‘wheel’’ respectively
serve as narratives that are repeatedly made
known to employees (and to a certain extent to
customers, analysts and others). This is the way to
communicate the vision of what is regarded to be
the key elements to guarantee the long-term suc-
cess of the organization.
In contrast to the minor ?rm, the case studies of
the two large ?rms also tell us that it is regarded as
being important to a high degree of formalization
of the measurement practice. This is a way of
making ‘tacit’ knowledge about norms (search
rules) and activities (routines) explicit and thereby
more easily communicated these to thousands of
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 729
employees, customers and analysts. Many of the
di?erent components of the measurement routine
have been practiced for many years but they have
not been put together and formalized to the extent
that presently is the case. This formalization may
deny ?exibility and hence further continuous
change but at least the bank has made e?orts to
build in a follow-up routine to avoid this trap. In
the telecommunication as well is in the bank case,
classi?cations of intangibles are at a basic level
simply because they are utilized to communicate
how both intangibles and tangibles interact to
realize each ?rm’s vision. These simple classi?ca-
tions, however, do not contain exhaustive or
exclusive classes since this is of no interest to ?rms.
The intangibles are subject to division in an
endeavor to ?nd the performance drivers. Statis-
tics or investments based on historical ‘‘facts’’ are
of less interest than are perceptions of activities
that enable future performance. These ‘enablers’
are not assets in an accounting sense but are cus-
tomers’ and employees’ perceptions of individual
competence.
Itami and Roehl (1987) intimate that a char-
acteristic of all successful organizations is the
recognition of a learning process that runs parallel
with all operations, and that all activities have the
potential to either enhance or degrade the know-
how and reputation of the intangible resources.
They further suggest that, at a strategic level, this
view results in the selection of strategies that
function to enrich the ‘know-how stock’ of the
core competencies of the business. Such a state-
ment links organizational learning, knowledge-
based, and evolutionary theories to one another.
This is to say that the learning processes a?ect
intangibles. However, intangibles are even the
feedstock of competitive advantage (Becker &
Huselid, 1998; Hall, 1992). The competitive
advantage is contingent on having obtained an
excellent stock of tangibles and intangibles from
earlier investments or experiences, as well as hav-
ing performed better in comparison with others.
The management control in the present cases is an
instrument used to analyze performance, i.e.
enabling intangibles and thereby increasing the
value of the stock of knowledge. As an organiza-
tional learning routine, management control not
only comprises di?erent measurements but several
subroutines. These subroutines include;
1. Recognition and measurement routines
human capital surveys
market capital surveys
accounting
2. Reporting routines
continuous internal reports
informal information to analysts
3. Evaluation routines
evaluation of single indicators by each
manager
statistical analysis
4. Attention routines
meetings
5. Motivation routines
benchmarking
dialogues
salary bonus
6. Commitment routines
ownership, contract
7. Follow up routines
statistical analysis
The subroutines listed above could be related to
the action model of Johanson (1999a) and Weick
and Swieringa (1987) in the sense that meetings
and dialogues direct managers’ and employees’
attention to the results from the measurements.
These results, in combination with statistical ana-
lysis, a?ect knowledge. Motivation is further
addressed by a clear top management demand,
benchmarking, and salary bonuses. Finally, com-
mitment to change is made possible by means of a
contract between managers at di?erent levels. The
empirical data reveals that organizational learning
processes have been a?ected in the way that dom-
inating cognitive schemes and co-ordinated action
have been obtained. Referring to Giddens (1984),
management control of intangibles provides new
730 U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733
practices of domination structures through moti-
vation and commitment routines. The signi?cation
(i.e. the collective cognitive schemes), as well as
the legitimization (the shared sets of values and
ideals) structures are gradually transformed into
new structures.
In the present article the following theoretical
presumptions have been practiced when analyzing
the empirical data; Old collective cognitive
schemes (Bjo¨ rkegren, 1989; Weick & Roberts,
1993) are evolutionary (Clement et al., 1998; Nel-
son & Winter, 1982) changed through assimilation
(Bjo¨ rkegren, 1989) or (more rarely) through
accommodation (Ibid.). These new and old struc-
tures (Giddens, 1984) or rules/routines (Nelson &
Winter, 1982) direct attention and enable or inhi-
bit habitual change or organizational learning.
The prerequisites (e.g. attention, knowledge,
motivation, and commitment) for change to occur
(Weick & Swieringa, 1987) are a?ected by struc-
tures comprising legitimation structures (e.g.
organizational culture and leadership; Giddens,
1984) or domination structures (e.g. power; Ibid.).
In reference to Brunsson and Olsen (1990), it is
also important to question the very idea of imple-
mentation. Brunsson and Olsen hold that it is not
normally di?cult to start processes of reform (but
they are more di?cult to carry out) because the
principles of a reform are simple compared with
the chaotic reality of the world in which we live in
today. This gives the reform greater appeal. For
example, implementing the balanced scorecard
could be seen as an example of an attractive
reform because the balanced scorecard is a matter
of capturing, structuring, and reducing a complex
reality. The fact that the balanced scorecard has
often been well received may be related to its sim-
plicity in comparison with the chaotic reality of
today. The ?rms in the present sample, however,
have never made an explicit decision to apply the
balanced scorecard or any other approach that is
ready for use. Rather, it has been a long manage-
ment control transformation reinforced by a mar-
ket crisis. Parts of the present management control
system of intangibles have existed for many years
but they are presently put together in a way that
facilitates the learning of the companies’ speci?c
‘‘production function’’.
Appendix A
Methodology
The selection of the 11 case ?rms was based on
literature studies (Ehrvervsudviklingsra? det, 1997;
Olve et al., 1998). In addition, a panel of eight well
initiated persons was asked to rank the intent of
organizations on being recognized as what they
regarded as most experienced and most advanced
in measuring and controlling intangibles.
The original methodology used has many simi-
larities with grounded theory (Glaser & Strauss,
1967; Parker & Ro?ey, 1997; Slagmulder, 1997;
Strauss & Corbin, 1990). Documents and respon-
dents were selected taking ‘‘saturation’’ into
account, and previously acquired data were coded,
classi?ed, and reclassi?ed simultaneously with the
collection of new data. Data were collected using
focused interviews and by studying documents
describing the management control of intangibles.
The speci?c question areas used include the
following:
1. About the goal and the development of the
management control system:
What caused the development?
2. About the content:
What is measured?
How is it measured?
3. About the work:
Who is doing what and when is it being
done?
What is reported internally and what is
reported externally?
4. About outcomes:
What is the outcome?
Are decision-making, learning, and company
performance all signi?cantly in?uenced?
In the original study, from one to six persons
were interviewed and a large number of docu-
ments were studied in each organization. The
organization selected the respondents. Because the
present interest was to ?nd good practice (experi-
enced and advanced) cases, the bias in selecting
U. Johanson et al. / Accounting, Organizations and Society 26 (2001) 715–733 731
respondents in favor of the management control
system did not cause any di?culties. In all, 43
interviews were made and about 70 documents
were analyzed. Three researchers normally took
part in the interviews and in the assessment of the
documents. Each researcher wrote a note for each
source. In these notes, data were categorized to
enhance understanding of what comes about in
the di?erent organizations. The researchers have
subsequently discussed and compared their
respective notes. From these discussions, several
new categorizations have emerged.
In the data collection phase, an e?ort was made
to obtain two forms of triangulation: data trian-
gulation and investigator triangulation. The for-
mer involves triangulation of documents,
interviews, and literature while the latter pertains
to the three participating researchers comparing
their notes from the interviews (Patton, 1987; Yin,
1994).
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