Accounting and HR dynamic tensions in the recognition and management of intellectual capital

The emergence of the knowledge economy has given prominence to IC as a vital contributor towards organisational performance and value. Within this context a number of gaps in the literature were identified including the need for research at organisational level to enable a greater understanding of the dynamics of IC recognition and management, and the need for cross-functional knowledge exchange and interdisciplinary research. Subsequently, a review of the literature suggested that there was no consensus as to which of the HR and Accounting/Finance disciplines is best positioned to manage or champion IC. Similarly, there was conflicting evidence as to the role of the Management Accountant in relation to IC management. Furthermore, there is a need to access the nature of the inter-relationship between HR and Accounting/Finance Teams and its impact on IC management as there is a potential tension based on the different focus and priorities of these professional disciplines. A qualitative descriptive case study research method within an interpretivist research framework was adopted for this study. Epharm, a subsidiary of a multinational company and one of the leaders within the global pharmaceutical industry, was selected for this purpose.

This study highlights the seminal role of culture in contextualising the extent to which IC is recognised and managed. It, also, demonstrates that IC exists in Epharm in its own unique way and is portrayed as being complex, dynamic and interconnected. The findings imply that Structural Capital is at least on par with Human Capital in contributing to organisational value and performance. This study found that the HR Team are more receptive to this IC phenomenon and are more actively involved in the management of IC in comparison to their Finance (Accounting) colleagues in Epharm. Although HR understands the importance of IC and accommodates it extensively, it is from a predominantly qualitative perspective, thus highlighting a limitation to their approach. This study found that the Finance Team in Epharm including the Management Accountant do not have a developed understanding of IC as a concept and, consequently, do not explicitly recognise and manage it. Essentially, the Finance Team’s involvement in IC management is on HR’s terms. The role of corporate headquarters is acknowledged in facilitating this diminished view of IC by the Finance Team. This study is significant, therefore, in providing an illustration of the gradual sidelining of the accounting function in a strategically important area. Although the relationship between HR and Finance was generally positive, overall the dynamic tensions identified impede a coherent approach to IC recognition and management.

Overall, the findings strongly suggest that neither HR nor Finance should have exclusive responsibility for IC recognition and management as both teams’ approach is suboptimal. This conclusion is arrived at as giving responsibility to the HR Team may result in quantitative factors not receiving sufficient consideration while giving responsibility to the Finance Team may result in IC not receiving adequate attention, as the Finance Team does not appear to be sufficiently motivated to develop and manage IC. Additionally, qualitative factors may not receive optimal attention from Finance for effective IC management. Ultimately, IC recognition and management should be driven at headquarters level with HR and Finance being involved as part of a structured IC strategy. Additionally, this study recommends a more holistic team-based approach by establishing an IC Committee/Team to more strategically align the objectives of these disciplines. This would permit the expertise of HR and Finance to be drawn on to devise a coherent strategy on IC management. It is imperative that the Finance Team take an active role in this effort and not leave it to HR’s direction. Otherwise, this may change the trajectory of IC development in a way that is not optimal for the organisation. Consequently, having conducted research at organisational level, a significant contribution of this study is that research in IC should focus on maximising the comparative advantages of both the HR and Finance functional areas, rather than focusing on which of the two areas should take on responsibility for IC recognition and management.