...suitable for organizations dominated by tangible assets, are not appropriate for a knowledge-based project organization. Metrics--quantitative measures of the degree to which a system or process possesses a given attribute--must be developed to compare various measures. The balanced scorecard, starting with strategy maps, can help an organization develop useful metrics that align intangible assets with goals.

Introduction

Strategic assets

The resource-based view (RBV) of management argues that a firm's advantage over its competitors originates from the use of valuable, hard-to-imitate and hard-to-substitute assets. The main prescription of this asset-based theory of the firm is that strategic assets are crucial determinants of sustainable competitive advantage and, therefore, firm performance. Its main prescription is that only resources with certain characteristics are capable of generating and sustaining high levels of economic rents. Such resources are called strategic assets because they are simultaneously valuable, rare, and non-substitutable. RBV proponents assert that ownership or control of strategic assets determines which firms earn superior profits through the use of these heterogeneous, valuable, and inimitable resources (Michalisin, Smith and Kline, 1997; Wu and Cavusgil, 2006).

Intangibility of strategic assets

According to RBV logic and the definition of strategic assets, the latter are intangible. Intangible assets can be categorized as assets or skills. Examples of the former include trademarks, patents, copyrights, trade secrets, reputation, and networks. These are considered assets because the firm owns and often legally protects them. Examples of skills include employee know-how (distinctive competencies) and culture (Michalisin, Smith and Kline, 1997). Scholars supporting the RBV consider the firm as a bundle of resources or assets in which the different assets depend on each other to create value (Marr, Schuima and Neely, 2004). These assets must be bundled and aligned to form critical internal processes (Kaplan and Norton, 2004a).

Knowledge-based view of an enterprise

Ultimately, managing intangible assets depends on finding rigorous ways to track their value to the project or to the organization's overall strategic goals. Financial measurements were adequate in an economy dominated by tangible assets, but today's economy, where intangible assets and skills have become major sources of competitive advantage, calls for tools that can measure knowledge-based assets and the value-creating strategies they make possible. Lacking such enhanced metric capabilities, companies have encountered difficulties managing what they could not describe or measure (Kaplan and Norton, 2001; Stewart, 1997).

According to the knowledge-based view, the uniqueness of a firm's knowledge plays a major role in its sustained ability to compete. Knowledge and information are among the important resources at a firm's disposal. The challenge is how to acquire new knowledge and diffuse it through the organization so it can enhance productivity and effectiveness. To assess the contributions made in this regard, specific measurements and identifiable metrics must be utilized (Hesig, Vorbeck and Niebuhr, 2001; Turner and Makhija, 2006).

Knowledge-based project organizations

Today all companies depend more than ever on projects for growth. However, the knowledge revolution is making conventional project management obsolete. Under conditions of rising uncertainty, bureaucratic organizations simply do not have the requisite learning and information technology (IT) capabilities to cope with the accelerating rate of change in project management environments. Today's integrated project team (IPT) managers must now devote a more significant amount of their resources to apprehending, thinking, learning, and innovating--the basic elements of knowledge work (Davenport, DeLong and Beers, 1999; Purser and Cabana, 1998; Schulz, 2001).

Knowledge management (KM) has increasing become an acceptable way for domestic and international business firms to establish a basis for differentiation in the marketplace. Knowledge is recognized as the key to determining competitiveness, and both tangible or explicit knowledge and tacit or intangible knowledge assets must be properly managed. Because knowledge, especially tacit knowledge, is difficult to imitate or adopt by competitors, intellectual property (IP) or intellectual capital (IC) is the main asset of production. Among forward-looking enterprises, it creates a definitive basis for sustaining competitive advantage (Bhat, 2002; Lee and Gibson, 2002; Smith and McKeen, 2005).

Generally, the productivity of a firm lies more in its IC and systems capabilities than in its hard assets--raw materials, land, plant and equipment. A company's physical assets accounted for 62% of its market value 25 years ago, but today they account for only about 25% (DeBusk, 2005). Yet few firms, until recently, have systematically attacked the issues of developing, leveraging, and measuring the intellectual capabilities of their organizations. Indeed, most firms have only a dim notion of their IC assets and investments, and there is growing recognition that companies are not good at KM (Earl and Scott, 1999; Hansen, Nohria and Tierney, 1999; Hatten and Rosenthal, 2001; Hoffmann, 2001; Quinn, Anderson and Finkelstein, 2005).

Effective management of critical knowledge requires an organizational strategy, processes to carry out that strategy, and measurements to evaluate how well these processes are working. To improve, an organization must have baseline data on how well it is currently performing (i.e., using performance metrics, benchmarking, or any number of organization-wide assessment tools). A firm's prerequisite when working to make use of its knowledge to achieve a competitive advantage is to locate, share, and disseminate the knowledge within the organization (Anantalmula, 2004; Elefant and Lochhead, 2002; Okes, 2005; Tjaden, 1996).

Previously, many organizations built their business objectives almost exclusively on financial targets (Olve, Roy and Wetter, 1999). But in recent times financial measures as stand-alone performance indicators have been criticized for a number of shortcomings: they are "lagging" indicators...

NOTE: All illustrations and photos have been removed from this article.



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