Intellectual Capital of the European Universities *

Intellectual Capital of the European Universities* Constantin Bratianu Bucharest University of Economic Studies, Romania ABSTRACT Universities and Chu...
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Intellectual Capital of the European Universities* Constantin Bratianu Bucharest University of Economic Studies, Romania ABSTRACT Universities and Churches are among the oldest institutions of the world. Their longevity is a direct result of their impressive intellectual capital, mostly the spiritual and emotional intellectual capital for Churches, and cognitive intellectual capital for universities. The purpose of this chapter is to present the main issues of defining and evaluating the intellectual capital of the European universities, and what are the challenges for university leadership to transform this intellectual capital into a competitive advantage on the European and global arena. We shall present the most significant intellectual capital models developed so far and the way some of them have been applied to universities. Finally, we shall present the entropic intellectual capital model, as being the newest and the most powerful one. This model is based on a multilayer structure, and on the multifield organizational knowledge concept. The model is based on the theory of integrators, that are powerful fields of forces acting upon the organization members in order to create synergy and performance.

INTRODUCTION It is interesting to remark the fact that Churches and Universities are the oldest institutions of society. Even if they changed themselves during their long history, they prove to have some special characteristics that no other organizations may have. These characteristics come from their impressive intellectual capital. Churches have especially a huge spiritual intellectual capital, while universities have a huge cognitive and intellectual capital. Although there are no computations made so far, we may safely say that universities contain the highest density of cognitive intellectual capital among any other organizations at a given historical time. Unfortunately, most of this intellectual capital is found as a potential, and only a fraction of it transforms into operational intellectual capital as a result of the work of integrators (Bratianu, 2011a; Bratianu, 2013; Bratianu & Orzea, 2012; Bratianu & Orzea, 2013; Habersam et al., 2013; Lu, 2012; Sanchez et al., 2007). The University of Bologna, probably the oldest European university, began to shape its community of students and professors in 1088. The fame of the university has been growing continuously due to the great thinkers and scholars who came to learn and teach here, like Pico della Mirandola, Leon Batista Alberti, Paracelso, Albrecht Dűrer, Torquato Tasso, Luigi Galvani, Alessandro Volta, Benjamin Franklin and Henry Cavendish. In June 1999, Bologna University became the center of gravity of the European Higher Education due to the famous event of launching the Bologna process, aiming at the creation of the European Higher Education Area. Among the oldest European universities we have to mention also the University of Paris, often referred as the Sorbonne University, University of Oxford, University of Cambridge, University of Montpelier, University of Padua, University of Salamanca, and University of Coimbra. *

This chapter should be cited as following: Bratianu, C. (2014). Intellectual capital of the European universities. In: A.M.Dima (Ed.). Trends in European higher education convergence, pp.24-43. Hershey, PA: IGI Global.

For many of them the exact date of birth is rather unclear, but their existence in those medieval times has been attested by many documents. They were communities of professors and students who decided to create a learning framework based on knowledge transfer from those with a higher level of knowledge and understanding to those with a lower one. Their common characteristic is given by a high level of cognitive intellectual capital resulted from the integration of all individual knowledge, intelligences and cultural values of all the professors and students who enrolled in these new social institutions. The concept of intellectual capital is a semantic extension of the well known economic concept of capital. Due to its tangible (i.e. capital), and intangible (i.e. intellectual) semantic roots, its semantic dynamics, its metaphorical interpretations, and from the large spectrum of meanings attached to this concept in different organizational contexts, the concept of intellectual capital is fuzzy (Andriessen, 2004; Andriessen, 2006; Bratianu, 2009a; Bratianu & Orzea, 2013; Edvinsson & Malone, 1997; Stewart, 1997; Sveiby, 1997; Sullivan, 1998). Among the pioneers of the intellectual capital research, the names of Chamberlain, Robinson, and Penrose come frequently in the literature (Roos & Pike, 2007). However, the momentum for its significant development came with the publication of the seminal books by Brooking (1996), Edvinsson & Malone (1997), Roos et al. (1997), Stewart (1997), and Sveiby (1997). The “Intangible Asset Monitor” (Sveiby, 1997), and “Skandia Intellectual capital Navigator” (Edvinsson & Malone, 1997) became the driving intellectual capital models, reflecting primarily a static, deterministic and linear thinking patterns (Bratianu, 2007a). In these pioneering models, intellectual capital is conceived as a stock based on the metaphor of tangible assets, and having as a source domain the economic concept of capital. The deterministic characteristic comes from the operational management where decision making is based on existing tangible resources, low entropy, and well defined organizational processes. The linearity dimension comes also from the tangible world, where the original concept of capital has been defined. As demonstrated by Bratianu (2009), the defining rules of a linear mathematical space cannot be satisfied by the semantic domain of the knowledge concept, which means that the knowledge field and the intellectual capital field are strongly nonlinear. A step forward has been done by considering knowledge and the intellectual capital as flows, or as stocks and flows (Alcaniz et al., 2011; Andriessen, 2004; Edvinsson, 2002; Nissen, 2006). According to Andriessen (2004, p. 68), “The concept of intellectual capital stocks and flows creates an interesting new perspective on organizations. We can describe organizations as a dynamic system of financial, tangible, and intangible stocks and flows.” Among many attempts of developing new perspectives on the intellectual capital models, we would like to mention the works of Andriessen (2001) with his “Value Explorer”, and Viedma (2001, 2003a, 2003b) with his “Intellectual Capital Benchmarking System (ICBS)”. Both Andriessen and Viedma bring in a strategic view of the intellectual capital, that is important in the turbulent business environment. The purpose of this chapter is to analyze the way intellectual capital models developed so far in the economic business environment can be applied to universities, and to show the first phase of results in evaluating and reporting intellectual capital by some European universities. The structure of chapter is as follows: presenting and discussing the most significant intellectual capital models developed so far, presenting a new perspective on modeling intellectual capital based on energy metaphors, and discussing the main issues of evaluating the intellectual capital of the European universities.

THE STATIC INTELLECTUAL CAPITAL PARADIGM Characteristics The static intellectual capital (SIC) paradigm is based on the Newtonian static mechanical model. That means a model that does not contains time as a variable, and that reflects an inertial motion. SIC paradigm conceives intellectual capital as a stock that reflects the potential of a given organization at a certain moment in time (Chatzkel, 2000). Being interpreted as a stock, intellectual capital can be

acquired, accumulated, combined, distributed, and measured like any other tangible resources, even if the measuring systems may differ (Andriessen, 2006; Andriessen, 2008). Summing up, Stewart (1999, p. 67) considers that “Intellectual capital is packaged useful knowledge.”

Intangible Asset Monitor model Intangible Asset Monitor (IAM) has been developed by Sveiby (1997), and it is one of the pioneering SIC models. IAM is a descriptive model that contains three components: internal structure, external structure, and individual competence. The internal structure reflects the internal business environment and contains all the systems, data bases, patents, processes and routines of the organization. The external structure reflects the interface relations with the external business environment, especially with suppliers and customers. Since organizations are considered as open systems, all interactions between the internal and external business environments are vital for their existence. Individual competence refers to individual experience, knowledge, competence and skills of employees. This component reflects the contribution of the human resources to the stock of the intellectual capital.

Skandia Intellectual Capital Navigator model Scandia Intellectual Capital Navigator (SICN) has been developed by Edvdinsson, the first ever director of a company in charge with developing the organizational intellectual capital. In this model, the intellectual capital is composed of human capital and structural capital. Structural capital is composed of customer capital and organizational capital. Finally, the organizational capital is composed of innovation capital and process capital (Edvinsson, 2002; Edvinsson & Malone, 1997). SICN has been refined over time such that today it is based on a dynamic model. SICN has been used as an inspiration model for many researchers who came up with many other models, but without essential changes (Andriessen, 2004; Roos & Pike, 2007).

THE DYNAMIC INTELLECTUAL CAPITAL PARADIGM Characteristics The dynamic intellectual capital (DIC) paradigm is based on the Newtonian dynamic models, that incorporates time as a fundamental variable. The generic metaphor used to described such a model is that of stocks and flows (Andriessen, 2004; Edvinsson, 2002; Nissen, 2006; Roos et al., 2005). According to Nissen (2006, p. XX), “… organizational knowledge does not exist in the form needed for application or at the place and the time required to enable work performance, then it must flow from how it exists and where it is located to how and where it is needed. This is the concept of knowledge flows.” Thus, the change from SIC paradigm to DIC paradigm consists in visualizing knowledge as a flow through the organization. “What is important to see is that knowledge is not literally located and stored. After all, you cannot see it and you cannot grab it and put it in a container.” (Andriessen, 2008, p. 6). The knowledge flow concept is based on the metaphor of knowledge as a fluid: “Knowledge is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information.” (Davenport & Prusak, 2000, p. 5). However, we know from fluid dynamics that any flow is generated by a pressure field and a clear pressure difference between the initial location and the final one. The authors who promote the knowledge flow metaphor do not consider any pressure field and thus the metaphor is elliptical.

The Canonical Intellectual Capital model The Canonical Intellectual Capital (CIC) model represents the most known and widely used outcome of the DIC paradigm. In the knowledge management and intellectual capital literature, this model is considered almost as an axiomatic one. As a generic definition we may consider that proposed by

Roos et al. (2005, p.19): “Intellectual capital can be defined as all nonmonetary and nonphysical resources that are fully controlled by the organization and that contributes to the organization’s value creation.” The structure of the intellectual capital is given by: human capital, structural or organizational capital, and customer or relational capital (Andriessen, 2004; Roos et al., 2005; Stewart, 1999). These differences in naming the intellectual capital components are not significant. The most important is to describe clearly each component of the intellectual model. Human capital contains all the knowledge, skills, intelligences, intuitions and values belonging to the employees. “This resource includes the collective experience, skills, and general know-how of all the firm’s employees. It is a resource because it can generate value for the company, yet it would be difficult for the company to deliver value without the employees themselves” (Edvinsson & Sullivan, 1996, p. 358). The organization may use these intangible resources even if there is no full ownership over them. The most important contribution comes from knowledge that can be available in any forms: explicit, tacit, codified, cognitive, emotional and spiritual (Becerra-Fernandez & Sabherwal, 2010; Davenport & Prusak, 2000; Debowski, 2006; Geisler & Wickramasinghe, 2009; Hawryszkiewycz, 2010; Ichijo & Nonaka, 2007; Jashpara, 2010; Nonaka, 1994; Nonaka & Takeuchi, 1995; Polanyi, 1983; Zohar & Marshal, 2004). Structural capital contains intangible resources owned and controlled completely by organization: organizational structure, data bases, intellectual property, processes, organizational culture, organization history, brands, and the like. Some authors consider that structural capital has a double nature since it contains both tangible and intangible resources. Edvinsson & Sullivan (1996, p. 360) make clear this point of view: “Structural capital is the infrastructure that firms develop to commercialize their capital. It includes both direct and indirect support, and for each there are both physical and intangible elements…The structural capital is the part of the firm that remains when the human resources goes home (e.g. IT, desks, systems, customer data bases, organizational culture).” While human capital is important for being the generator of knowledge and innovations, structural capital is important for creating the necessary support and leverage for using efficiently the human intangible resources (Ali-Ali, 2003; Bontis et al., 2000; Grant, 2012; Holden & Glisby, 2010; Roos et al., 2005). Relational capital includes the whole spectrum of relations between the organization and the external business environment, especially with suppliers, customers, consumers, and partners. Any organization may be conceived as an open system with respect to knowledge transfer, and thus the relational capital represents this dynamic capability of managing interface knowledge fluxes (Bratianu et al., 2011). Relational capital contributes to the development of the absorptive capacity of organizations, and to the control of the knowledge spillovers phenomena (Cohen & Levinthal, 1990; Lichtenthaler, 2009; Senge, 1999; Vasudeva & Anand, 2011). This canonical or standard model of the intellectual capital is based on the following main assumptions: a) potential value; b) linearity nature; c) reversible processes. The first assumption comes mostly from the metaphor of intellectual capital as a stuff (Andriessen, 2008). That means that for a given organization the intellectual capital represents “a sum of everything everybody in a company knows that gives it a competitive edge” (Stewart, 1999, p. XI). The second assumption comes from the semantic extension of the economic concept of capital. As Bratianu remarks (2009, p. 417), “The economic Capital is a measurable concept, and it can be expressed in numbers. The easy way to evaluate the source domain is to consider the money metric which means to play with simple numbers.” Thus, linearity becomes a dominant property of the metaphor. The third assumption comes from the Newtonian dynamics where processes are considered reversible, which means that time has only a quantitative dimension.

The Intellectual Capital Benchmarking System model The Intellectual Capital Benchmarking System (ICBS) model has been developed by Viedma (2001; 2003a; 2003b; 2007). The ICBS model incorporates a strategic view, and it focuses on strategy

formulation. As remarked by Marr & Roos (2005, p. 38), “With the development of the resource-based paradigm, intellectual capital has become of significant strategic management of organizations. An increasing number of firms are trying to understand their resource structure, in particular their knowledge-base resource, to direct their strategy formulation and strategic decision making.” The general model is composed of two main components: a) Innovation Intellectual Capital Benchmarking System (IICBS), and b) Operations Intellectual Capital Benchmarking Systems (OICBS). The first component refers to the innovation process with its core activities and core knowledge within the firm. The second component refers to the production process needed to realize products and services in concordance with the strategy requirement in order to achieve a competitive advantage. Thus, the OICBS model refers to the core activities and core knowledge needed in the strategic business units to make up the operations process.

THE EVOLUTION INTELLECTUAL CAPITAL PARADIGM Characteristics The evolution intellectual capital (EIC) paradigm is based on the complex adaptive system theory. The main difference with respect to the DIC paradigm is that time has got two dimensions: a quantitative one and a qualitative one. The quantitative dimension is needed for describing reversible processes. The qualitative dimension is needed for describing the evolution of the irreversible processes. That means that time appears as a directional variable to give orientation to a change process. This direction is unique and is given by the past → present → future axis. Biological processes, organizational processes are irreversible and they can be better described using both quantitative and qualitative time dimensions. Organizational intellectual capital is not anymore considered as a static stuff or flowing fluid, but as a complex adaptive system able to evolve in time and to cope with complexity.

The Biological Intellectual Capital model The Biological Intellectual Capital (BIC) model is based on the living organism metaphor and the complexity theory. This model is an outcome of the research performed by academics and practitioners in the Intellectus Model Project at the Knowledge Society Research Center in Madrid’s Science Park (Bueno et al., 2004; Bueno et al., 2005). The complex adaptive systems have the following main characteristics: a) a large number of components; b) the system behavior is a result of the components aggregation behavior, and c) the system can adapt to the environmental changes. The first characteristic generates a large number of interconnections and the possible microstates of components. The microstates contribute to an increase number of macrostates of the system through their aggregation and their random behavior, which is the second characteristic. For the third characteristic it is important to underline the fact that “… the interactions evolve over time, as the parts adapt in the attempt to survive in the environment provided by the other parts. Finally, these complex adaptive systems have acquired the ability to anticipate” (Bueno et al., 2005, p. 397).

The Ecological Intellectual Capital model The Ecological Intellectual Capital (EIC) model is based on the main ideas brought from ecology, a science of interactions between organisms in nature. The new concept used in this model is that of the knowledge ecology of an organization, which means a complex combination of knowledge communities, organizational resources, and the external business environment. “These knowledge communities are built on top of organizational resources (including staff, process, structure, and culture) and they maintain a balance with the external environment to maximize its interests through four ecological mechanisms: distribution, interaction, competition, and evolution” (Chen & Liang, 2011, p. 76). Knowledge evolution reflects the strategic effort of a given organization to change its knowledge content and level in order to adapt to the changing environment. Thus, there are two types

of knowledge driven forces: internal forces and external forces. At the organization interface it is necessary to achieve in time a dynamic equilibrium between these two fields of forces.

THE ENTROPIC INTELLECTUAL CAPITAL PARADIGM Characteristics This is a new paradigm based on thermodynamics metaphors, and the theory of integrators (Bratianu, 2008a; Bratianu, 2011b; Bratianu & Andriessen, 2008; Bratianu et al., 2011). It is the only paradigm in which intellectual capital is conceived in two different instances: as a potential field of intangibles, and as an operational field of intangibles. Metaphorically, this is similar with the mechanical energy that can be either potential or kinetic. The potential energy of a body can be transformed into kinetic energy through the work of the gravity field. In the same way, the potential intellectual capital can be transformed into operational intellectual capital through the work of some organizational fields we call integrators. The performance of the organization is related to the operational intellectual capital and not to the potential one. This is the departure point of the new paradigm with respect to all the other paradigms developed so far. Because it is based on new concepts concerning organizational knowledge and organizational integrators, the entropic intellectual capital model can explain much better the relationship between the intellectual capital and the performance of a company. As Bratianu & Orzea (2013, p.135) remark, “The entropic model is able to describe and explain complex irreversible processes that are specific to evolving organizations in a strategic perspective. Their evolution is time oriented and driven by the leadership vision. Elaborating and implementing strategies leads to irreversible changes that aim at achieving a sustainable competitive advantage, in a turbulent business environment.”

The multifield structure of the organizational knowledge Going beyond the metaphor of knowledge as stocks and flows, the entropic intellectual capital model is based on the metaphor of knowledge as energy, which leads to its interpretation as a field (Bratianu & Andriessen, 2008). Since we consider that knowledge has a triple helix structure, composed of cognitive, emotional, and spiritual constituents, we shall assume that organizational knowledge has a multifield structure. That means that at any point in the organization there are three fields of knowledge that interact continuously: the cognitive knowledge field, the emotional knowledge field, and the spiritual knowledge field (Bratianu, 2011b). These fields are highly nonlinear, and they are distributed throughout the organization in a nonuniform way. This nonuniformity generates fluxes of knowledge from the higher level of knowledge toward the lower level of knowledge, in concordance with the law of entropy. The cognitive knowledge field contains all the rational knowledge, data and information bases, or any stored explicit and codified knowledge. According to many western philosophers rational knowledge is the only form of knowledge, since it is objective and not dependent of our sensory information. “It follows that we cannot know things through the senses alone, since through the senses alone we cannot know that things exist. Therefore knowledge consists in reflection, not in impression, and perception is not knowledge, because it has no part in apprehending truth, since it has none in apprehending existence” (Russel, 1972, p. 153). Cognitive knowledge is a result of thinking and contains all the analytics and logical arguments in any decision making process. Descartes used to say Cogito ergo sum!, that means that I think and therefore I exist. This conception that rational knowledge is the only knowledge we can speak of created the Cartesian dualism of mind and body, a dualism with significant impact on the development of European science, technology and education. The emotional knowledge field contains processing results of the information provided by our sensory system about our internal and external worlds. Emotional knowledge has been introduced into knowledge management by Nonaka and his co-workers through a series of papers, and finally through the seminal book published with Takeuchi (Nonaka, 1991; Nonaka, 1994; Nonaka & Takeuchi, 1995).

“Highly subjective insights, intuitions, and hunches are an integral part of knowledge. Knowledge also embraces ideals, values, and emotions as well as images and symbols” (Nonaka & Takeuchi, 1995, p. 9). In the eastern tradition, the mind and the body are integrated into a single entity, and cognitive knowledge interacts with emotional knowledge. Instead of using the dualism between mind and body, the eastern philosophy developed the oneness view of the mind and body. Moreover, this view has been used in education and in all managerial activities. According to recent results in cognitive sciences, emotions play an important role in making decisions, in many instances people becoming primarily emotional decision makers (Damasio, 1999; Goleman, 1995; Gladwell, 2005; Hill, 2008; LeDoux, 1999). The spiritual knowledge field contains meanings about our values, goals in life, and motivations. Spiritual knowledge is about our existence and work, about our happiness and achievements. Each of us is born and educated in a given culture and may be a given religion. Thus, we internalize the values of this culture, and eventually of the given religion, and try to answer the fundamental question of our existence and destiny (Zohar & Marshall, 200; Zohar & Marshall, 2004). Spiritual knowledge becomes the driving force of our work and evolution in life. Spiritual knowledge is important in developing the vision and mission of a company, and in shaping its organizational culture. It plays a major role in organizational learning, and in the decision making process. In a living company, “The values of the company coexists with the values of individuals within the corporation – and every member is aware of this coexistence” (De Geus, 2002, p.127). In any organization there is a strong dynamics of these fields of knowledge, that means a continuous interaction between different forms of knowledge at the individual and organizational levels, and transformations of one form of knowledge into another form. Metaphorically, we may conceive these transformations like in the energy domain where potential energy is transforming into kinetic energy, and mechanical energy is transforming in heat, and vice versa. Each form of knowledge is processed by a corresponding form of intelligence, and the result is a certain intellectual capital. Thus, by processing cognitive knowledge we get the cognitive capital, by processing emotional knowledge we get the emotional capital, and by processing spiritual knowledge we get the spiritual capital. Integrating cognitive capital with emotional capital, and spiritual capital at the company level we get the organizational intellectual capital. Thus, the entropic intellectual capital model is not based anymore on the human, structural and relational capital, but on the cognitive, emotional, and spiritual capital components.

The role of integrators As defined by Bratianu (2008, p. 237), “An integrator is a powerful field of forces capable of combining two or more elements into a new entity, based on interdependence and synergy. These elements may have a physical or virtual nature, and they must possess the capacity of interacting in a controlled way.” In the organizational context, we may identify as integrators the following fields of forces: technology and associated processes, organizational culture, vision and mission, management and leadership. If for tangible resources integrators may perform a linear aggregation, for intangible resources integrators perform a nonlinear action with a significant synergetic effect. The performance of any organization depends strongly on the nature and work of integrators. Introducing the concept of integrators, the entropic intellectual capital model makes the distinction between the potential intellectual capital and the operational intellectual capital. “The potential form represents a capacity of a given organization in using its intangible resources, while the operational form represents the actual level of usable intellectual capital. This idea of an organizational potential extended to all resources of the firm can be found mostly in the works dealing with the ResourceBased-Theory of the firm” (Bratianu & Orzea, 2013, p. 137). The potential intellectual capital is a result of considering all inputs of the organization that have an intangible nature. All the intellectual capital models developed so far consider only the potential value of the intellectual capital. According to this view, two different companies having approximately the same potential intellectual capita should obtain approximately same business results. However, in practice, this situation almost never

happens. The explanation comes from the fact that integrators transform partially the potential intellectual capital into the operational form, and only this last form is related to the company performance. The more effective are the integrators, the higher is the level of operational intellectual capital, and the higher is the company performance. For instance, a company may have excellent resources, and thus a higher level of intellectual capital potential. If the management and the organizational culture are not able to stimulate workers and to use efficiently their knowledge and skills, the operational intellectual capital will be low, and the company performance will be also low.

The Gordian knot of the university intellectual capital There is a paradox of the European universities, especially of the continental universities: although they are among the oldest universities in world, being models for the American and Japanese universities, they are not anymore the dominant group in the academic ranking of world universities. For instance, in the famous Shanghai Ranking for the year 2012, there are only 30 European Universities in the top 100, by comparison with 53 American universities. If we consider only the 50 top world universities, then there are only 10 European universities, by comparison with the 36 American universities. In the Time’s Higher Education university reputation ranking for the year 2012, in the top 100 world universities there are only 30 European universities, by comparison with the 44 American universities. In the same ranking, in the top 50 world universities there are only 8 European universities, by comparison with the 30 American universities. In both rankings, in the top 10 best world universities, from Europe there are only two universities: University of Cambridge, and University of Oxford (UK). The performance of the European universities can be analyzed from many other perspectives, but the final result is about the same: these universities have by far the highest density of intellectual capital by comparison with any other organizations, yet their performance is not at the level of their potential intellectual capital. Their operational intellectual capital is rather low, and the Gordian knot of this situation is the quality of their integrators, and their restrictive structural capital (Bratianu, 2009b; Bratianu, 2011a; Bratianu & Orzea, 2012; Dima et al., 2012; Jongbloed et al., 1999). The governance of the continental universities is characterized by an important state control, and thus an incomplete autonomy in the decision making concerning their financial resources and human resources. This control is more powerful in the former socialist countries, due to the inertia of their history of a full centralized higher education system when all decisions were made at the governmental level. From this point of view we agree with the remark of Lazzaretti & Tavoletti (2006, p.21), “Universities are so linked to their countries that the examination of their governance structures cannot leave aside the governance structures of national higher education systems. Apart from particular characteristics, in fact, throughout Europe, universities are steered and coordinated by central states, directly or through the national university system.” Based on the American universities experience, and on his own experience as the former president of the University of Michigan, Duderstadt (2000, p. 239) stresses the fact that “The increasing intrusion of state and federal government in the affairs of the university, in the name of performance and public accountability, can trample on academic values and micromanage many institutions into mediocrity.” The Gordian knot is made of the most important nonlinear integrators: management, leadership, and organizational culture. University management and leadership is by definition a real problem whenever people involved in the university positions are elected based on the democratic vote. They may be very good professors in their field of expertise, but they lack in most of cases the knowledge and skills required by an efficient management. “In fact, the entire notion of academic self-governance has rested upon the claim that scholarship is the primary source of authority within universities, if only because no other source is as firmly rooted in the very essence of universities. For ages, academic communities have argued over the legitimacy of these competing sources of authority” (De Boer & Denters, 1999, p. 217). With some exceptions of the British universities, these professors elected as rectors, presidents or chancellors of universities have almost no training programs in academic management and in strategic thinking, and thus their power of transforming the potential intellectual capital into operational capital is rather low. As Niland (2007, p. 69) underlines, “It is

understood that a truly eminent university will excel in teaching and research. But paralleling and supporting those core activities will be an excellence in management driving first-rate administrative system.” Unfolding the Gordian knot means first of all to create a full university autonomy, and to change the elective system of voting the university managers with a more competitive one based on the experience of the corporate governance. In Japan this idea has been transformed into legislation, and called the corporatization of national universities that started on April 1, 2004 (Bratianu, 2007d).

REPORTING ON INTELLECTUAL CAPITAL Challenges As demonstrated by Bratianu (2009a), while the concept of capital reflects a linear semantic domain that allows linear metrics in its evaluation in different practical contexts, the concept of intellectual capital is highly nonlinear. Thus the extension of linear metrics based on financial accounting cannot be a solution of evaluating the organizational intellectual capital. If some intangible assets like patents can be evaluated using financial metrics, this approach cannot be extended further to the fields of cognitive, emotional, and spiritual knowledge. According to Roos et al. (2005, p. 285), “The intellectual capital perspective is about value creation, thus intellectual capital disclosure must take a form that enables reporting on value creation. This may seem obvious, but the standard form of corporate reporting of today, namely financial accounting, only measures value realization. The challenge then lies in creating a way to measure and report on value creation (i.e., on value that is available for realization).” It is clear that reporting on intellectual capital does not replace the traditional way of reporting. It enhances the already known disclosure approach with new dimensions. This conclusion is important especially in the case of universities since they are knowledge-intensive organizations, focused on knowledge creation, transformation, and transfer to the students and society according to their mission. The accounting of metrics are used for structuring data of the past and present, but not for the future. The intellectual capital reports have incorporated the future dimension through strategic intention, that means vision, mission and strategic objectives. Also, reporting on intellectual capital reduces the information gap between the organization and the external stakeholders, since disclosure is about the knowledge transfer to them, without compromising the security and the competitive position of the organization. Reporting on intellectual capital is a complex process that brings together operational management and strategic management on a continuum time spectrum (Roos et al., 2005):  The past – past financial performance, financial policy, accounting changes, corporate governance history, management experience and track record.  The present – current results, strategic changes, communication skills.  The future – management vision and promises, perception of risks and challenges, match between management quality and contingencies. From another perspective, an Intellectual Capital Report (ICR) has got two functions: a) an internal function as a management tool, aiming at improving the performance of the management process, and b) an external function as a communication instrument, linking the internal business environment to the external business environment in order to enhance the interface relationships. “Benefits of IC Reporting, externally and internally, are diverse. Internally, an ICR can facilitate management decisions by improving understanding of the university’s activities and goals, by identifying intangible resources and capabilities and improving investments and capital allocation. Externally, it helps to improve transparency and to attract new employees, partners and collaborators” (European Commission, 2006, p. 135). In many European countries universities have an increasing autonomy concerning their organization structure, management, and budget allocation. Since they are mainly funded by the public sector, they are faced with an increased demand for transparency and accountability. Thus, reporting on their intellectual capital becomes important for the university external stakeholders (Habersham et al., 2013; Leitner, 2002; Leitner, 2005; Sanchez et al., 2007).

Intellectual capital reporting for the Austrian universities The Bologna process and the globalization phenomena created strong incentives for changing the higher education landscape in many European countries. Moreover, universities are an integral part of the science, education, and innovation system of a nation, and their mission is interlinked with all the other research technology organizations. Universities are knowledge producers and transformers, and thus their ratio of intangible resources and capabilities with respect to tangible resources are very high by comparison with any other organization. However, “As organizations which are mainly financed by public funding, universities are also confronted with an increased demand by the owners and citizens for transparency regarding the use of those funds. This call for public accountability requires the disclosure about the social and economic outcomes of universities” (Leitner, 2002, p. 2). In this context, reporting on intellectual capital could be a new instrument to fulfill these requirements. In 2001, the Austrian Ministry of Education and Science started to prepare a new university law in order to implement the changes driven by the Bologna Declaration, and new public management perspective, changes aiming at increased university autonomy, output orientation and funding based on performance indicators. The new legislation provides the new governance, management structures and organizational evaluation, and accreditation of all public Austrian universities, and their funding framework (University Act, 2002). The experts preparing the new legislation for higher education considered that reporting on the intellectual capital could be the adequate system for the new evaluation requirements, since universities will have greater autonomy in decision making with respect to allocating efficiently their tangible and intangible resources. According to Leitner (2002), Austria has been the first European country where reporting on intellectual capital has been developed for the research organizations and universities. For instance, the Austrian Research Centers (ARC) in Seibersdorf was the first European research organization to publish an intellectual capital report. The ARC intellectual capital model has been developed by Leitner, Ohler, and Schneider (Leitner, 2005). Based on the ARC experience and worked done by Leitner and his colleagues, the Austrian Ministry of Education and Science drafted the purpose and the content structure of the ICR within the new university law (2002). The University Act 2002 defines that the ICR explicitly has to show: “Each university shall submit an intellectual capital report for the past calendar year to the Minister, by way of the university council, by 30 April of each year. This shall, as a minimum, present in itemized form: (1) the university’s activities, social goals and self-imposed objectives and strategies; (2) its intellectual capital, broken down into human, structural and relationship capital; (3) the processes set out in the performance agreement, including their outputs and impacts.” The conceptual model for ICR is based on the canonical intellectual capital structure, the driving forces of the political and organizational goals, performance processes, and the impact of university outcomes on the internal and external environment. That means that intellectual capital main components are: human capital, structural capital, and relationship capital. The core processes for which performance indicators must be defined are: research, education, training, commercializing of research, knowledge transfer to the public, services and infrastructure. Impact should be considered on the most significant stakeholders: students, professors and researchers, Ministry of Education and Science, industry, business community, and science community. This model considers the intellectual capital potential as the input for the knowledge creation and transfer process within universities. Since universities may have different strategic objectives, focused mainly on research or mainly on education, reporting on intellectual capital should have some flexibility for each university. That means that ICR will contain some obligatory indicators, and some optional indicators, such that each university can adopt the most adequate set of indicators in concordance with its profile, vision and mission. According to Leitner (2002, p. 7), “The design and selection of indicators was based on: i) the set of measures used in the past within Austrian universities, ii) proposed indicators within the intellectual capital literature, and iii) the findings of the evaluation research. A list of 200 indicators was proposed, whereas 24 indicators will be obligatory for universities. Even though most indicators are non-financial by nature, some indicators are financial figures.”

In February 2006, the Federal Ministry of Education, Science and Culture published the 63 rd Regulation, on Intellectual Capital Report – The Intellectual Capital Act (ICRA). According to ICRA, “The intellectual capital report aims at presenting, evaluating and communicating intangible assets, performance processes and their consequences and services as a qualitative and quantitative basis for generating and entering a performance agreement.” The intellectual capital report includes the following sections (§ 3):  I. Scope of application, objectives and strategies.  II. Intellectual property: 1) Human capital, 2) Structural capital, and 3) Relational capital.  III. Core processes: 1) Education and continuing education, and 2) Research and development.  IV. Output and impact of core processes: 1) Education and continuing education, and 2) Research and development.  V. Summary and prospects. ICRA goes then into details defining the specific set of indicators for each section mentioned above. Although it is a very complex system of evaluation, the main difficulty in interpreting such a report on intellectual capital is that it contains indicators for both tangible and intangible resources, using only linear metrics. For instance, in section II.2 Intellectual property – structural capital, there are only indicators for tangible resources expressed in terms of number of people, financial values and even square meters. The indicator II.2.11 is defined as the “Floor space in m2 ”, that has nothing to do with the essence of intellectual capital. That means that ICRA must be re-considered such that indicators are defined according to the intangible and nonlinear nature of the intellectual capital. Also, structural capital in a university must reflect the essence of its governance and specific integrators, and not numbers of different categories of people, costs per different items or surface area of the university. The Austrian universities experience could be a lesson for developing new reporting approaches for the intellectual capital able to reflect much better the intangible and nonlinear nature of resources and capabilities specific to any university. As we demonstrated in the previous sections, the entropic intellectual capital model can satisfy much better the university requirements than the canonical model, due to its complexity and dynamics that incorporates the transformation of the intellectual capital potential into the operational intellectual capital, the basic input and support of all knowledge creation and transformation processes within a university.

Intellectual capital reporting for the Spanish universities The Spanish experience is based on the research performed by the Autonomous University of Madrid (AUM), as a pilot university within the PRIME Network of Excellence and the Observatory of European Universities (OEU). Fifteen universities and research institutes from eight European countries (Germany, Spain, France, The Netherlands, Hungary, Italy, Portugal and Switzerland) have worked together during two years “to develop a common framework and build a battery of indicators to measure and compare the intangible elements related to research activities. Its main objective was to provide universities and research centers with the necessary tools for the governance of research activities” (Sanchez et al., 2007, p. 5). The starting conceptual model was the Strategic matrix, designed to link interactively five main dimensions of the academic and research processes: funding, human resources, academic outcomes, third mission, and governance, with five dimensions of the institutional profile: autonomy, strategic capabilities, attractiveness, differentiation profile, and territorial embedding. The experts working on the Intellectual Capital of University (ICU) model suggested to transform this Strategic matrix such that the ICU Report to be structured into three main sections:  The vision of the institution. This section contains strategic objectives, strategic capabilities and key intangible resources that are the driving forces of any enterprise.  Summary of intangible resources and activities. This section contains the intangible resources the institution can mobilize and the different activities undertaken to increase the value of those resources.



A system of indicators. This section contains o series of indicators able to characterize the three main components of the intellectual capital, according to the canonical model: human capital, structural or organizational capital, and relational capital. The indicators reflect both tangible and intangible resources: “Regarding the system of indicators, we consider it crucial to note that financial and non-financial indicators are included and that most of them are not self-explanatory. Consequently, the descriptive or narrative elements become crucial to contextualize and better understand the information provided by the indicators. This narrative complements the quantitative information and is essential to accurately assess the meaning of each indicator” (Sanchez et al., 2007, p. 8). Implementing the ICU model to the AUM and analyzing final results with the other universities members of the PRIME Network of Excellence, some conclusions could be discussed (Sanchez et al., 2006; Sanchez et al., 2007). Thus, the model includes too many indicators. That means a real difficulty in gathering data for their evaluation, and costs that are not justified by their relevance in the overall analysis. Many of these indicators have confused formulations. That means difficulties in interpreting their meaning and in comparing results between different universities. A clear definition of each indicator becomes a necessity for the ICU Report. As a general conclusion, we may say that the Spanish experience in implementing ICU Report revealed similar difficulties and vulnerabilities of working with the canonical model of the intellectual capital. Changing the paradigm and working with the entropic model of the intellectual capital could open new perspectives on developing better reporting approaches for universities. Comparing the Spanish experience with the Austrian experience in reporting university intellectual capital, we may conclude that the main difference comes from the fact that in Austria reporting on intellectual capital has been enforced by law, with the ICRA legislation. In this context, in Austria the model for intellectual capital and the structure for the ICR have been imposed by law for all universities, while in Spain the AUM implemented experimentally a model developed within the PRIME European Project. In both countries the canonical intellectual model based on human capital, structural or organizational model, and relationship model has been adopted for reporting. Limitations came mostly from including both tangible and intangible resources, and using linear metrics. The solution of this problem may be to change the Newtonian paradigm of the intellectual capital model with the entropic paradigm based on cognitive capital, emotional capital, and spiritual capital.

CONCLUSION AND FUTURE RESEARCH DIRECTIONS Universities are knowledge intensive organizations that have a high ratio of intangible resources over the tangible ones. They create, transform and transfer knowledge in concordance with their vision and mission. Their institutional longevity by comparison with all other organizations with the exception of churches can be explained by considering their huge intellectual capital. In the last decade, due to the Bologna process and the globalization phenomena, the European universities undergone important changes. Evaluating their intellectual capital becomes a necessity as a result of the social need for more transparency and public accountability. The purpose of this chapter is to analyze the ways in which some European universities experienced already the implementation of evaluating and reporting their intellectual capital, and the models used in this process. We performed a comparative analysis of the main intellectual capital models, from the pioneering ones developed by Sveiby and Edvinsson, to the canonical model accepted almost by all researchers, and from the dynamic models developed by Nonaka and Nissen to the entropic intellectual capital developed by Bratianu. The main limitation of the static and dynamic models developed so far come from the fact that intellectual capital is considered by definition as a potential. The entropic intellectual capital is the first to introduce the concept of intellectual capital transformation from its potential stage to its operational stage through the action of the organizational integrators. In our view, an integrator is a powerful field of forces capable of combining two or more elements into a new entity, based on interdependence and synergy. These elements may have a physical or virtual nature, and they must

possess the capability of interacting in a controlled way. The Gordian knot of the university intellectual capital is the structural capital that reflects the work and the efficiency of these integrators. In the last part of our chapter we discuss about the reporting of the intellectual capital done by some European universities, and what are the main limitations of intellectual capital models used for that. Reporting on the university intellectual capital is basically an optional decision, with the exemption of Austrian universities that are requested to report annually on their intellectual capital as a result of their new Law of education (2002), and their Intellectual Capital Act (2006). The model used in this legislation for the intellectual capital is based on the canonical paradigm with its main components: human capital, structural or organizational capital, and relational capital. Unfortunately, the structure of the ICR imposed by law contains indicators for both tangible and intangible resources, and uses linear metrics for their evaluation. These are severe limitations of understanding and reporting the university intellectual capital. the Spanish experience with reporting intellectual capital comes mainly from the Autonomous University of Madrid, a pilot university in the PRIME European Project within the Network of Excellence established by 15 universities and research institutes from eight European countries (Germany, Spain, The Netherlands, Hungary, Italy, Portugal and Switzerland). Future research directions result mainly from the limitations of the models used so far for evaluation and reporting the university intellectual capital. The first challenge is to change the intellectual capital paradigm, from the Newtonian dynamics to the thermodynamics metaphor. This new entropic intellectual capital model introduces the concept of integrators and the transformation of the intellectual capital potential into its operational capacity under the forces of these integrators. Moreover, the evaluation of the intellectual capital is not anymore done using the human capital, structural capital and relational capital components, but using the cognitive capital, emotional capital, and spiritual capital components. This new paradigm can reflect much better the university intellectual capital than any other simpler models developed so far. The second future research direction should be that of defining new indicators able to reflect the intangible nature of the intellectual capital. It is not adequately to use in ICR indicators like “university surface area” measured in square meters for demonstrating the value of the university intellectual capital, as does happen in the Austrian universities case. The concept of the intellectual capital has been developed as a result of separating intangible resources from the tangible ones and to reflect its intangible nature we must search for new indicators. The third future research direction should be in developing new metrics for evaluation of the intellectual capital, metrics able to reflect the nonlinear nature of the knowledge and intellectual capital. Linear metrics have been heavily used in accounting for evaluation of tangible resources, but they are not appropriate to be used for evaluation of the intangible resources. It is a great challenge for all researchers in this field of knowledge management and intellectual capital, but it is essential.

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KEY TERMS AND DEFINITIONS Static Model: A model based on variables that have no variation in time. Dynamic Model: A model based on variables that have variation in time. Intellectual Capital: All nonmonetary and nonphysical resources and capabilities that are fully or partly controlled by the organization that contribute to the organization’s value creation. Canonic Intellectual Capital Model: A conceptual model that considers that the main components of the intellectual capital are the following: human capital, structural or organizational capital, and relational capital. Entropic Intellectual Capital Model: A conceptual model that considers that the main components of the intellectual capital are the following: cognitive capital, emotional capital, and spiritual capital. Integrator: A powerful field of forces capable of combining two or more elements into a new entity, based on interdependence and synergy. These elements may have a physical or virtual nature, and they must possess the capability of interacting in a controllable way. Intellectual Capital Dynamics: The transformation in time of the potential intellectual capital into the operational intellectual capital, under the influence of the organizational integrators.