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Intellectual capital dynamics in universities: a reporting model

IC dynamics in universities

M. Paloma Sańchez Autonomous University of Madrid, Madrid, Spain

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Susana Elena Universidad Pablo Olavide, Seville, Spain, and

Rocıó Castrillo Autonomous University of Madrid, Madrid, Spain Abstract Purpose – The purpose of this paper is to analyse the increasing attention to universities and research organizations at political level and the growing implementation in these institutions of intellectual capital (IC) management and reporting mechanisms, traditionally used by private companies. The objective of the paper is twofold. On one hand, to present an IC report specially designed for universities, suggesting a battery of indicators for resources related to research activity, and, on the other hand, to move one step forward and discuss current challenges in relation to establishing standards for universities to manage and report on their IC and the difficulties in capturing the process dynamics. Design/methodology/approach – The paper reviews recent literature both on conceptual issues and experiences in relation to IC. The Austrian IC report, the observatory of European university exercise and some recent experiences of the Madrid regional government concerning Madrid universities are analysed. Both theory and practice contribute to the development of an IC reporting and management model for universities. Findings – A model for reporting and managing IC resources in universities and research organisations is suggested. IC dynamics are discussed and current shortcomings of IC analysis presented. The latter points may define the research agenda in the field. Originality/value – Available experiences are used to discuss possibilities and difficulties in showing the dynamics of higher education institutions by means of an IC report. Keywords Intellectual capital, Universities, Research organizations, Management information, Information disclosure Paper type Conceptual paper

1. Introduction European higher education (HE) and research organizations have been undergoing a process of in-depth transformations in recent decades and these can be analysed taking into account two parallel processes. The first process is represented by theoretical insights provided by two evolutionary perspectives: the mode 2 of knowledge production (Gibbons et al., 1994) and the triple helix model (Etzkowitz and Leydesdorff, 1996). Both stress the emergence of a new paradigm of knowledge production defined by transdisciplinarity and solution-oriented research. In this scenario, university-industry-government The authors are grateful to Dr Karl-Heinz Leitner, from ARC in Austria, for his comments on an earlier version of this paper.

Journal of Intellectual Capital Vol. 10 No. 2, 2009 pp. 307-324 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691930910952687

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relationships become more dynamic and interdependent, contributing to the creation of hybrid organisations, alliances between universities and firms, trilateral networks, etc. Universities interact now with a variety of other knowledge producers (Gibbons, 1998, p. 1). This framework is mostly accepted in specialised literature and has become crucial for understanding universities’ role and their links with other actors in the current economy (Mowery and Sampat, 2004). The second is the increasing interest in HE institutions and the intense debate on the role that they play in the mentioned change of paradigm. This process is represented by the political actions undertaken by the European Commission (2006) and the collective reflection process underway in some institutions, such as the European University Association (EUA), the European Association of Research Managers and Administrators and some experts groups, such as the one responsible for the Reporting Intellectual Capital to augment Research, Development and Innovation in SMEs (RICARDIS) report. Some major consequences of these processes are as follows. 1.1 Increasing emphasis on the multi-function of the HE institutions An intensification of industry-academia relationships has added to the important traditional functions of universities: knowledge generation (research) and knowledge transmission (teaching). Higher priority is now given to their social dimension, getting involved in social exclusion problems, gender issues and environmental protection, just to name a few (EUA, 2005, 2007). This “third mission”[1] refers to activities whereby universities address social welfare needs and private or public economic objectives (Molas-Gallart, 2005). Although the latter concept is now a major issue in the HE debate, the notion is still very ambiguous and differs greatly from one university to another, depending on the configuration of activities, the territorial embedding and the country’s institutional framework (Laredo, 2007). Teaching and research are still important objectives, but their scope is much larger. Teaching includes the establishment of lifelong learning mechanisms and the provision of specialized courses to cover a wide variety of demands. Curiosity-driven research is as ever very important but research aiming at providing short-term practical solutions to all types of problems is also a must. Innovation is central to competitiveness and growth, and universities are committed to improving innovation capacities; the ability to work with different partners is thus essential to create the necessary networks. These multiple roles in a single university are creating serious internal tensions and thus new mechanisms are required to deal with them. 1.2 Towards greater institutional autonomy Governments are urged, on the one hand, to give universities sufficient autonomy to deal with these challenges, and, on the other, to provide the adequate funding to undertake the tasks (EUA, 2005, 2007). Regulatory provisions to encourage private funding and to allow the combination of public and private funds are also considered necessary, since the design of a coherent institutional strategy directly depends on a minimum degree of financial autonomy (Bonaccorsi and Daraio, 2007). Obviously, more autonomy means more accountability, to allow all the partners to assess the institution’s performance.

1.3 Need of new management and reporting instruments To cope with multiple missions and fulfil their accountability duties, HE institutions need to improve management and reporting mechanisms. As Chatterton and Goddard (2003, p. 19) recognise, “responding to the new demands requires new kinds of resources and new forms of management that enable universities as institutions to make a dynamic contribution to the development process”. They must compete more for teachers, researchers, students and funds and get used to managerial procedures and producing reports which allow internal and external bodies to evaluate their performance. Like other colleagues in the field, the authors argue that HE organizations should use the intellectual capital (IC) framework[2] as a heuristic tool to aid them in their new management challenges and diffuse their intangibles resources and activities to their stakeholders and society at large. Although it is a young field of research and therefore experiencing teething problems, there is an increasing number of papers and experiences about how to use the IC framework for public institutions in general, and HE and research centres in particular. The main objectives of this paper are twofold. On one hand, to present an IC Report specially designed for universities, suggesting a battery of indicators for resources related to research activity, and, on the other hand, to move one step forward and discuss current challenges in relation to establishing standards for universities to manage and report on their IC and the difficulties in capturing the process dynamics. In line with this, the structure of this paper is the following. Section 2 reflects on how recent literature is dealing with the issue of IC management and reporting in public institutions supporting the idea that an IC report can help these institutions to better face the challenges of the new scenario. In Section 3, three significant regional, national and multinational experiences are highlighted. Section 4 presents a model for an IC report in universities, suggesting some indicators for resources related to research. Finally, Section 5 discusses current challenges in relation to establishing standards for universities to manage and report on their IC activities and the difficulties capturing the dynamics of the process. 2. IC in universities and research organizations Adapting management and reporting IC in companies to other types of organizations has gone two ways. The first deals with assessing intangibles aggregated at meso (communities, industries, etc.) and at macro level (cities, regions and nations). For example, The World Bank has organized three conferences on this issue in 2005-2007 (Chatzkel, 2006) and attempts have been made to measure IC at country level, for instance in Sweden (Rembe, 1999), Israel (Pasher, 1999) and the Arab region (Bontis, 2004). The second dimension, more related to the scope of this paper, suggests using the IC framework at micro-level for public institutions. Some papers included in this group are based on new public management (NPM) principles. These have been used by governments since the 1980s to enhance public sector efficiency and the quality of its services, by decentralizing and applying competition, treating the beneficiaries of public services as customers. Governments thus provide the particular institution with more autonomy to meet its goals and reward performance (Borins, 1995), which demands measurements and reporting mechanisms, subject to the corresponding


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auditing revisions. The phenomenon was initially seen as an issue for developed countries, particularly Anglo-Saxon, with the best cases studied in the UK, Australia and New Zealand (Barzelay, 2001; Guthrie et al., 2004). The USA, Canada, and to a lesser extent some European countries, also received attention (Borins, 2002; Guthrie et al., 2004) and the above principles were tentatively applied in certain developing African countries (Larbi, 1999). Dunleavy et al. (2006) argue that “NPM is dead” because in the digital era governments will recover control and central management because of their larger communication and storage capabilities. However, if the NPM principles are compared with, for example, the aforesaid EAU demands, the European Commission policy recommendations, and certain policies adopted by European governments[3], the coincidences are clear: universities should follow the basic principles of autonomy and accountability in order to better manage their internal affairs and satisfy societal needs. Some colleagues have compared the NPM with the IC perspective and argued that the latter will help public institution management and reporting. Guthrie et al. (2004) state, for example, that NPM is simply a refinement of the traditional reporting structures while the IC framework provides a better basis for understanding and reporting on organizational performance and providing greater transparency and accountability. Almqvist and Skoog (2007) criticize the excessive focus of most NPM applications on one stakeholder (the customer or the recipient of the service) while the IC framework addresses different stakeholders simultaneously, providing a better view of how collaboration and networking are key drivers in the value-creating process of a public organization. This paper shares the same view, and also that of Mouritsen et al. (2005) and Leitner et al. (2005), in the sense that the IC framework is a valid attempt to meet the new demands of public institutions, and that the IC report is a useful tool for internal and external purposes. Some examples show how the IC report goes beyond the NPM focus, because it provides, together with a language and management control system, “a communication device about how the public sector institution works to create value” (Mouritsen et al., 2005, p. 285). An IC report can help to identify structural and personal strengths and weaknesses, reveal the current state of the different university missions and be used as a controlling and monitoring instrument (Altenburger and Schaffhauser-Linzatti, 2006). IC information is not necessarily designed for evaluation purposes but can be used for it. As in any evaluation process, the evaluation criteria must be set a priori (Leitner, 2004), meaning that the institution’s goals should be clear and included in the IC report, so that both managers and outside readers may check actual performance in relation to them. However, not all are in favour of universities following this reporting path. Piber and Pietsch (2006), using the focal point of new institutionalism in sociology and examining the Austrian law (referred to later on), argue that this is an attempt to obtain legitimacy from the social environment by taking as gospel things that are not necessarily proven. Although the authors do not share the way, they criticise the overall exercise, they agree on the idea that a complex organization such as a university cannot be completely translated into figures and expect them to guide the decision-making processes successfully. Indeed, the usefulness of the IC framework

useful resides in its use as a communication tool where individual figures are meaningless and detailed description is needed, and one of whose objectives is to encourage discussion on what has to be measured and how. Performance assessment should be related to the explicit institution objectives and, accordingly, greater internationalization, for example, would only be “better” if such an objective were the institution’s aim.


311 3. IC measuring and reporting experiences As argued before, different institutional initiatives show how IC approaches are used within universities and research organisations (Sańchez and Elena, 2006; Leitner, 2004; Leitner and Warden, 2004). Examples of national, multinational and regional approaches are provided below. 3.1 A national case: Austria For more than a decade, Austria has been re-shaping the HE sector to make universities more competitive, efficient and autonomous. The University Organisation Act 1993 (and its amendments of 1997 and 2001) aimed to provide universities with more institutional autonomy and the University Organisation and Studies Act 2002, focussed on enhancing university research and teaching performance by using resources more efficiently, making changes easier, promoting creativity and individual initiative, and becoming a more active, independent and critical intellectual authority (Elena, 2007). A major consequence was the introduction of IC reports recognising that the “the efficient use of IC is essential for a university’s performance” (Leitner et al., 2005). The Federal Ministry, in collaboration with the Conference of Rectors, selected the final set of indicators. Their detailed list, plus the structure of the ICR were published by an order in February 2006 (Altenburger and Schaffhauser-Linzatti, 2006). This only partly captured the spirit of the previous acts because there was not so much relevance given to the definition of objectives. Although the results of the first year reports are not yet available, some trial exercises have been set up by some university departments such as those within the Vienna University before the first set of results was due. These exercises have raised concerns about the outcome and usefulness of the report, warning about some unintended consequences (Altenburger and Schaffhauser-Linzatti, 2006): . Risk of divergence between external and internal reporting, producing an external report with little to do with the internal management processes. . Danger in reporting the required set of indicators without descriptive elements. Researchers and practitioners alike know that indicators are not self-explanatory; they can imply different things to the reader. Consequently, descriptions become crucial to contextualize and understand the information provided by the indicators. So, if universities miss out the narrative elements to complement the quantitative information, there is a risk of reporting a set of meaningless indicators. Moreover, there seem to be an excessive number of indicators which could suppose a workload outweighing the usefulness of the information itself. . Although the law requires the university to define its strategy and goals, the selection of indicators has been made in general terms to allow comparability in

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Austrian universities with no direct link with the university’s strategy. Indicators might reflect the strategic priorities, but the generally expected situation is an uncoupling of both elements in the process. Besides, this, in the medium- and long-run, universities may become more opportunistic, redefining their goals according to the indicators they need to fulfil, which could bias the main objective of the whole process. The process of applying IC reporting in Austrian universities has to be followed up by analysing its real impact on university management and reporting systems in the coming years. 3.2 A regional case: Madrid Regional governments in Spain are responsible for funding their public HE institutions. Some of them (as Andalucıá, Catalunã or Valencia) have established models to fund part of the university budget on the basis of indicators which, although not using the name as such, could be labelled as IC indicators. The Madrid Government, taking into account the national and some international experiences (OECD, 2004) launched a similar model to be used for the period 2006-2010 (Comunidad de Madrid, 2005). The model was the result of a consensus agreement between the representatives of the six Madrid public universities and the government, and has the following declared objectives: . distribute current public funds on the basis of transparency and fair criteria; . take into account variables such as capacity, quality and improvement of university activities; and . define an information system in universities which allows the monitoring of results and auditing. The total amount of funds are distributed annually, so any increase to one university rewarding better performance means less for the others. This process calls for an external auditing of the indicators to ensure accuracy. A relatively short list of indicators (around 40) was defined to show, on the one hand, general information on the universities, such as people teaching and researching in the different fields, and results in terms of, for example, PhD theses, scholarships, and external funds accrued. On the other hand, other objectives were agreed to through consensus, and additional indicators assessing their performance were defined. Their purpose was to measure things like graduates’ success in the labour market, the relative importance of lifelong learning courses, increased researcher qualifications, etc. Agreement on an indicator’s definition was easier to arrive at than the relative weight it carried when funding was allotted. It was also agreed to encourage the improvement and dynamics of performance. The Madrid universities have already provided the regional government with figures for 2006, and the funds for 2007 have been distributed taking them into account. However, there is no written analysis of the results and effects of the process yet, but the feeling of the government and some universities managers is that: . The process is encouraging universities to modify their internal accounting systems and edging them towards a cost-accounting system which would

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produce more accurate information on the inputs and outputs of different units (labs, departments, etc.). One university has already started using the figures to help internal resource allocation process. An external audit of the figures provided has not yet been called for. This means that the universities prefer not to compete against each other for the regional funds and that the government is not pushing in that direction. This may be due to the fact that, at the moment, the funds distributed according to the new rules are only producing minor changes in the relative weight of the different universities.

3.3 A multinational exercise: the observatory of European universities As described in detail in Sańchez and Elena (2006), the Observatory of European Universities (OEU) is a pilot project undertaken by researchers of 15 universities and research institutes from eight European countries[4] between June 2004 and November 2006, within the Policies for Research and Innovation in the Move towards the European Research Area Network of Excellence. The observatory was born to give response to university management, societal demands and policy concerns. The top governing bodies in the centres involved were willing to disclose their figures and processes to the researchers reflect upon them collectively and suggest shared ideas about what is necessary to measure today in HE institutions. The main result of the project has been a Methodological Guide (OEU, 2006), which suggests what to measure and how to do it. A shared framework has been depicted using a two-dimensional matrix, which represents the relations between emerging strategic transversal issues (autonomy, strategic capabilities, attractiveness, differentiation profile and territorial embedding) and five thematic dimensions (funding, human resources, academic production, third mission and governance). The analysis of the inter-relations (the cells of the matrix) was made first by formulating key questions about them and then by suggesting precise indicators to answer such questions (Sańchez and Elena, 2006). The guide also provides concrete numerical examples of the latter based on the information produced by the participants. As in the Austrian trials (Altenburger et al., 2006), the research groups’ debates, with and without the institutions’ managers, were more interesting and revealing than the numbers. Because of time and budget constraints the exercise was limited to research activities, although it was recognised that it should be extended to the other university missions. The last chapter of the guide is the Intellectual Capital Report (ICU Report). It selects a set of indicators from all those previously defined and suggests how they should be made public homogeneously, in order to enhance transparency and answer the various stakeholders’ needs. The report was fully tested at the Autonomous University of Madrid – UAM (as described below) and partly tested on other OEU universities. The detailed rationale and contents of the report, for which the signers of this paper are fully responsible, is presented in Section 4. 3.4 A brief reflection on the three cases The three cases are examples of how the increasing interest in having HE institutions reporting their intangibles to society is developing in practice.


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The observatory results reproduce the theoretical models, developed initially for companies, assuming that the usual, and right, procedure is to first define objectives, then indicators to monitor their achievement, and finally decide on what information and how to report it to stakeholders. However, the other two cases show that the actual order in the process is the opposite. First, a governmental authority, with some previous interaction with the institutions in question, defines the content of the report, assuming some generic objectives common to them all. This reporting duty encourages management changes in the institutions, some of which may be opportunistic and, eventually, jeopardize the benefit of the whole exercise. In this top-down process, the university’s role is reduced, first, because there is little room to show their uniqueness and particular strategy, and second, despite the claim of increased autonomy, at least in Spain, they are not free to modify many of the parameters which build the indicators, for example, the number of teachers or undergraduate students. These experiences pave the road to some of the discussions undertaken in Section 5. 4. The ICU Report: main characteristics and test The aim of the ICU Report which forms part of the OEU project is to make recommendations for the disclosure of university information on research. Following the recommendations of the European Commission (2006), it depicts the logical movement from management and internal strategy (design of the institution’s vision and goals) to the disclosure of indicators, taking into account previous guidelines for companies (Meritum Protect, 2002; Danish Trade and Industry Development Council, 2003; Society for Knowledge Economy, 2005; Japanese Ministry of Economy, Trade and Industry, 2005) and for universities (Leitner and Warden, 2004). The three parts, all equally important, are the following: (1) Vision of the institution, aiming to present the main general objectives and strategy and the key drivers to reach them. (2) Summary of intangible resources and activities, aiming to describe the intangible resources that the institution can mobilize and the different activities undertaken or planned to improve them. It should show the uniqueness of the institution and the priority lines established and the main areas of interest on which the institution will focus. (3) System of indicators, aiming to allow the internal and external bodies to assess the performance and estimate the future of the institution correctly. In this way, a university engages with measured and clear objectives that can be assessed over time. It should allow a follow-up on whether the activities have been launched and if objectives are being met. As shown in Table I, the indicators are classified following a well-spread taxonomy, into human, organisational and relational capital. Within each category, the different headings follow the strategic issues defined in the OEU guide. It is suggested that indicators are produced in both absolute and relative terms so as to provide useful comparisons.

Human capital Efficiency 1. Total funds for research and development (R&D)/number of researchers F 2. Number of PhD students/number of researchers NF 3. Number of researchers/number of administrative personnel NF Openness 4. Number of visiting fellows from other universities/number of researchers (per field) NF (A. national and B. international) 5. Number of PhD students coming from other universities/total number PhD students NF (per field) (A. national and B. international) Organisational capital Autonomy 6. Amount of resources devoted to R&D/total budget (personnel cost is not included) F 7. Structure of the research budget by scientific fields (by disciplines) F 8. Amount of budget constraints (personnel cost þ equipment cost)/research Budget F 9. Amount of research budget managed at the central level/research budget F 10. Lump-sum for research (A. governmental funding and B. non-governmental funding)/total F funding for research F 11. Share of staff appointed through autonomous formal procedure (at the university level þ by type, field and units) (consider procedures dealing with positions and academics) 12. Non-core funding/A. total budget and B. budget for research F 13. Thresholds imposed to fund-raising (including weight of tuition fees on total budget and NF incentives given to private donors to support research activities) 14. Structure of non-core funding NF Codification of knowledge through publications 15. Number of publications by disciplines/total publications of the university NF 16. Number of co publications per field (six Frascati levels) (A. national and B. international) NF 17. Number of citations of publications by discipline/total university publications NF 18. Share of specialisation publication in a discipline compared to the total university NF publications 19. Indicators of production for books, chapters, e-journals, etc. NF 20. Indicators of visibility for books, chapters, e-journals, etc. NF Codification of knowledge through intellectual property 21. Number of active patents owned by the university (by field) NF 22. Number of active patents produced by the university (by field) NF 23. Returns for the university; licences from patents, copyright (sum and percentage to F non-public resources) 24. Joint IPRs by university professors and firm employees F Strategic decisions 25. Existence of a strategic plan for research NF 26. Existence of mechanisms to evaluate the strategic research plan NF Frequency NF Brief description of the process NF Relational capital Spin-offs 27. Number of spin-offs supported by the university NF 28. Number of spin-offs funded by the university and percentage above the total number of NF spin-offs (funded þ supported) Contracts and R&D projects 29. Number of contracts with industry (by field and by a competitive/non-competitive NF classification) (continued)


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Table I. ICU report: system of indicators

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Table I.

30. Number of contracts with public organisations (by field and by a competitive/non-competitive classification) 31. Funds from industry/total budget for research 32. Funds from public organisations/total budget for research Knowledge transfer through technology transfer institutions 33. Existence of a technology transfer institution 34. Checklist of activities of the TTI Intellectual property management Research contract activities Spin-offs Others 35. Budget of TTI/Total university budget Knowledge transfer through human resources 36. Number of PhD students with private support/total PhD students 37. Number of PhD students with public support/total PhD students Participation into policy making 38. Existence of activities related to policy making 39. Checklist of activities related to policy making Involvement into national and international standards setting committees Participation in the formulation of long-term programmes Policy studies Involvement in social and cultural life 40. Existence of special events serving social and cultural life of society 41. Checklist of special events serving social and cultural life of society Cultural activities Social activities Sport activities Others Public understanding of science 42. Existence of specific events to promote science 43. Checklist of specific events to promote science, to classical involvement of researchers in dissemination and other forms of public understanding of science Researchers in media Researchers in forums Others

NF F F NF NF

F NF NF NF NF

NF NF

NF NF

Notes: F – financial indicator; NF – non-financial indicator

The indicators were selected from the very many suggested in the OEU guide with the following criteria: . feasibility of data gathering, based on the experience of all universities participating in the OEU project; . perceived usefulness of the information provided and expected confidentiality concerns, mainly based on the UAM testing study; and .

a first pre-trial to test the characteristics indicators should have (Meritum Protect, 2002).

It was clear during the OEU exercise that every question could be answered using different indicators and that these could be interpreted differently by different readers.

Therefore, any system of indicators is not self-explanatory and it is crucial to take into account the narrative of the first two sections to avoid ending up with meaningless information. Since the indicators are intended to show both comparability and the uniqueness of the institution a tension is created which is further discussed in Section 5. Accordingly, this proposal acknowledges the European Commission (2006) recommendations and suggests a set of indicators which might be common to all the institutions in the sector. The chosen list is not too long ands allows universities to add those indicators considered necessary to clearly reflect what was included in Parts 1 and 2 of the report. The proposal also addresses some practical issues. For example, it provides recommendations about the data-gathering process, who should be responsible for it, and the reporting frequency. It also suggests breaking down the scientific fields in six knowledge areas, following the Frascati Manual (OECD, 2003). As mentioned before, the ICU Report has been tested by interviewing different level decision makers[5] at the UAM. The goals of the UAM case study were: . evaluating, following a Likert scale, the usefulness of the selected indicators for management; and . assessing possible barriers for the disclosure of indicators due to confidentiality issues. The interviewees considered all indicators useful or very useful and none was rejected. No indicator raised confidentiality concerns and everybody showed awareness of the need for transparency, e.g. in funding distribution, and interest in engaging with measurable objectives and compromises with society. This ICU Report proposal is an exploratory exercise. Several shortcomings have been identified which call for additional research and testing. For example, some indicators have to be more clearly defined; the OEU exercise dealt mainly with research resources, so no indicators are proposed for any activities, and teaching synergies between teaching and research are not tackled. Finally, the ICU Report is not a panacea, since universities have been gathering information on some indicators (such as the number of publications or patents) for years. The main achievement, apart from providing some new information, is presenting it in a single document with homogeneous language and criteria. But, more importantly, it shows the emergence of a new culture based on greater societal demands and accountability concerns. 5. Main challenges and work ahead The above examples show that the real achievement of a model widely used by universities and research centres to manage and report on their IC is still a long way-off. Some of the challenges to overcome, taking the previous experiences into consideration may be the following. 5.1 Boundaries of the institution definition Whatever model is used, a difficult but necessary task is defining the boundaries of the institution. Clear rules are needed, similar to those established in the case of private companies when producing reports[6]; decisions on how to categorise, for example, human resources working part-time in the institution and outside; research projects undertaken jointly by the institution and an outside organization; patents jointly


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developed by the institution and outside partners, co-publications, etc. Agreements have to be reached at supranational level to arrive at comparable data. The OEU exercise is an exploratory example of a standards setting agreement, which has to be extended at higher level. 5.2 Internal management information versus information for diffusion Companies producing IC reports differentiate between the information needed for management purposes, not all of which needs to be diffused, and the information to be made available to stakeholders. The issue is much more complex in universities, especially those governed by collegiate bodies following democratic principles (Elena, 2007). For example, the rectoral team may decide to undertake a study to see in which departments or labs new posts are needed (based on the institution long-term aims). In this case, it may not want the results of the study publicized since they could be contested by the “loosing” departments. Given confidentiality’s problems, it is unlikely that many universities would undertake sensitive issues, thus jeopardizing part of the positive effects of IC exercises. 5.3 Trade-off between comparability aims and efforts to show the institution’s uniqueness A problem shared with companies is the difficulty in producing a report that shows the specific profile of the institution while providing information that allows its comparison with others. The RICARDIS report (European Commission, 2006) suggests reaching a balance by having a list of shared indicators, useful at sector level, and allowing the institutions to produce additional ones to suit their particular needs and aims. Very many of the examples suggested in the OEU (2006) Methodological Guide could be included in the latter group; some of them, in particular those included in the ICU Report (last chapter of the OEU guide), could be part of the former. Moreover, the number of indicators suggested for the sector may pose additional problems. If there are too few the comparison exercise will not yield substantive returns, and with too many, the institution, which has to add those required for its own needs, is unable to cope with the measuring burden. 5.4 Balance between leaving room for innovation and improvement in the institution and allowing comparability with data of previous years While the continuous need for adjustment of the IC approach (Almqvist and Skoog, 2007) is part of its richness, it might also serve to discourage its practice. The “narrative” part of the IC report must explain any adaptation to environmental changes and the production of new measurements. The costs of continuous adaptation have also to be borne in mind; a system to manage and measure IC requires the implementation of a set of routines (Meritum Protect, 2002) for monitoring the process; updating this may be very costly and produce negative reactions in the people who have to implement it. 5.5 IC dynamics. Is it possible to show them? The biggest challenge faced by IC application in HE organizations is showing the dynamics of the process: what the institution does to move from one given situation to another. Most of the literature distinguishes between inputs and outputs (or outcomes)

with a “black box” in the middle which is difficult to analyse. As the process is not linear, the distinction between inputs and outputs may be misleading because outputs may be inputs of the same or a different process (for example, PhD students who have become researchers or faculty members or outside financial resources that can convert research results into a spin-off company). To avoid this double-counting, the distinction can be made between “resources” which capture the institution’s inputs and/or outputs at a given moment, and “activities”, as suggested by the Meritum Protect (2002) guidelines, and endorsed by the European Commission (2006). Although these “activities” have been labelled differently – Mouritsen et al. (2005) refer to them as “efforts”, Leitner (2007) “processes” and Altenburger and Schaffhauser-Linzatti (2006) “performance process” – they all refer to “the black box”, which is what the institution has done to increase, adapt, acquire, measure, monitor, etc. its resources, throughout a given period, and which shows the dynamics. With this objective in mind, the IC report should be composed of an adequate mix of: . financial indicators on the amount of resources devoted to a given activity in absolute and relative terms; . non-financial indicators as number of people involved or frequency of the activities; and . detailed description of the activities and the actions undertaken in response to measurements. The above is not an easy task and the choice of activities to be described and, whenever possible, measured, deserves collective attention and careful checking, to make sure that the indicators fulfil most of the requirements (Meritum Protect, 2002). The European Association of Universities is an example of an institution which could undertake a process to define a minimum set of activities to be described and measured. The measurement of activities is also a key issue in the policy context, since describing activities and providing indicators for them would not only be a good instrument to redefine a university’s internal policy but also to help designing and evaluating higher education policy. 5.6 Voluntary versus mandatory IC reports for universities It is not simple to adopt a clear position in this debate. On one hand, a legal obligation for universities to submit a report every year is a crucial step in the proliferation of IC models world-wide. Having homogeneous reports could facilitate benchmarking analysis and comparative studies to help decision-making processes, improve the articulation of public policies and increase transparency in the whole system (Avkiran, 2006). On the other hand, an IC report should be designed around the specific characteristics of each organisation to capture its idiosyncrasies and specific situation. Accordingly, each institution should identify its own intangibles regarding the contribution to value creation and taking into account strategic objectives. In this sense, the Austrian experience has shown that the specification of the IC report contents has given rise to a problem which is likely to appear in any similar process: too many data are required and not all the data are necessarily connected to institutions’ goals. This creates an unnecessary burden on the institution and is of little use in assessing performance.


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This latter argument leads to the idea that it would be better to build specific models for each organisation, which could only be done with voluntary initiatives. Additionally, voluntary experiences involve real learning processes in an institution whereas a legal obligation might not. Although the Austrian experience is still too young to draw definite conclusions, mandatory reports at such an early stage of development in this field may be counterproductive. The analysts of the Austrian case (Altenburger et al., 2006) expect a kind of opportunistic behaviour in universities, since they may only try to improve the indicators required, disregarding important aspects or processes that would have been developed otherwise. Leitner (2004) also quotes Davies (1999) when mentioning the possibility of “goal displacement”, where performance-based assessment creates incentives to direct efforts towards meeting the requirements and not to satisfying the institution’s aims. In addition, as the trials in the University of Vienna show, the law cannot prevent problems, difficulties and conflicts of interest in the implementation process. For this reason, a cultural change in the academic community is required in order not only to accept changes in the governing structures, but also new ways of working, new assessment processes, new labour positions, and new accountability at all levels; such a new conceptualisation of universities will require more than a top-down reform. Accordingly, the ICU Report proposal is an attempt at the standardization of indicators at sector level, with the understanding that each university should develop organisation-specific indicators taking individual considerations into account. When designing the implementation process for the institution, it is extremely important for the success of the project that the academic community and university management participate actively. A mandatory IC report might, for the moment, not result in a learning process. 5.7 The IC reports: a true and fair view of the institution As mentioned before, universities and research organizations are adopting many of the practices used by companies. In this context, current companies’ obligation to produce information that reflects their “true and fair view”, could also apply to the mentioned institutions. The “true and fair view”, a concept recognised by law[7], has a clear message: companies should provide a true and fair view when reporting their financial situation and results. Should the established norms to prepare this report not be sufficient to show such a view, the company is obliged to produce the necessary additional information. Moreover, in exceptional cases, if these norms to prepare the report produce an untrue or unfair view of the company, the company need not strictly follow them, providing that there is a clear explanation given (Can˜ibano, 2006). The spirit of this concept can be transferred to universities: they should provide a true and fair view of their goals and their IC resources and activities, so that their impact on society could be assessed. To do so, some general norms should be followed bearing in mind that their application should not prevent the true and fair view of the institution. But what are the norms in this case? It is needed a set of rules at European level which take into consideration the lessons of the previous experiences. Another look at business may help define the characteristics of those rules to improve transparency and prevent bad behaviour, norms and principles related to corporate governance are being issued both by supranational and national request (Can˜ibano, 2004).

Although these norms at European level are not legally binding, public and private bodies are increasingly following such recommendations, as they are becoming aware of the importance society attaches to such practices. As the RICARDIS document recommended, the establishment of a task force (or the appointment for such purpose of an already existing institution) would be necessary to develop general rules which could serve as a guide for universities to manage and report on IC with the objective of providing the mentioned “true and fair view” of the institution. Summing up, this paper has endeavoured to show the current situation of the application of the IC framework in HE institutions, with special emphasis on the concerns that some initial experiences raised. These experiences have been used to discuss the possibilities and difficulties of showing the intangibles in HE institutions by means of an IC report. There is growing evidence in support of the application of IC tools in universities and the potential benefits this would bring. However, it should be acknowledged that steps are still to be taken, most at supranational level, in order to reflect university dynamics and allow the IC report to serve as both a response to the institution’s accountability needs and an improvement of its management practices. Notes 1. This role is not entirely new since, during the second-half of the nineteenth century in the USA, the main aim of the so-called “land grant universities” was to serve the local community by meeting agricultural needs and aiding regional development (Mowery et al., 2004; Martin, 2003). 2. The IC concept and categories breakdown that this paper uses are those established in Meritum Protect (2002) and endorsed by the European Commission (2006). Special emphasis is made to distinguish, as these two documents do, between intangible resources (static view) and intangible activities (dynamic view). As Lev (2001) suggested, “intangibles” and “intellectual capital” as used as synonymous. 3. The Spanish and the Portuguese Governments are issuing new laws supporting these principles. 4. Germany, Spain, France, The Netherlands, Hungary, Italy, Portugal and Switzerland. 5. In total, 14 two-hour interviews were made during June and July 2006. Apart from the objectives related to the ICU report, the interviews also covered governance issues (Sańchez et al., 2007). 6. The OECD (2005) Oslo Manual specifies very clearly how to measure innovation in a multinational company distinguishing between the individual firms and the group as a whole. 7. The “true and fair view” is very dear concept in the Anglo-Saxon world (it has been used by Great Britain since the beginning of the twentieth century), was incorporated by the European Commission (1978) in its IV Directive on Company Law and has also been incorporated into the national laws of the European Union member countries. References Almqvist, R. and Skoog, M. (2007), “Colliding discourses? New public management from an intellectual capital perspective”, in Chaminade, C. and Catasus, B. (Eds), Intellectual Capital Revisited: Paradoxes in the Knowledge-intensive Organization, Edward Elgar, Cheltenham. Altenburger, O.A. and Schaffhauser-Linzatti, M.M. (2006), “The order on the intellectual capital Statements of Austrian universities”, paper presented at the IFSAM – International


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