University of South Wales

Business School

Strategic Systems Thinking (ST4S39-V1)

Lecturer: Angeliki Papasava

Literature Review & Critical Discussion Paper

“Before we measure something we must ask whether

we understand what it is we are trying to measure.”
(Gray et al, 2015)

Leonidas Stergiou

16 July 2017
1
Continents

Introduction 2

Analysis 3

Aspects of Knowledge Management 3

Categories of Intellectual Capital 5

Communities of Practice 8

Performance Management 9

Theoretical Challenges in Business Process Measurement 11

2
Introduction

The purpose of this paper is to discuss the validity of the claim that “before we measure

something we must ask whether we understand what it is we are trying to measure,” in

relation to management information systems theory and the measurement of business

processes (Gray et al., 2015). The paper will consider the theoretical aspects of

management information systems in terms of four basic areas of inquiry: (a) important

aspects of k​nowledge management, (b) categories of intellectual capital, (c)

communities of practice, and (d) the challenge of performance measurement. The paper

will rely upon the literature of management information systems theory, with a firm focus

on theory as opposed to reporting case studies. A few brief, practical examples will be

used’ however, the premise of the paper is that, ultimately, management information

systems theory must always wrestle with the double-bind of measuring business

processes by simultaneously attending to the formal properties of a computerized

information system, and the subjective properties of business employees cooperating as

a community of practice to engineer the performance of an information system

Analysis

According to Gray et al. (2015), businesses are comprised of business processes.

These are the sets of activities that produce the company’s deliverables. What becomes

of immediate importance is business process management. What is particularly

challenging is the notion that most business process management involves

cross-functional processes because there is usually not one single functional area in a

business, but rather there are many functional areas of a business typically working

3
together to produce deliverables. In the last half of the twentieth century, the work of

Herbert Simon to develop a process model of decision-making is credited with the

beginning of the scientific study of decision support systems (Filip, Zamfirescu and

Ciurea, 2017). This is arguably the beginning of establishing a theoretical framework for

contemporary management information systems.

Aspects of Knowledge Management

In the contemporary information age, the ability to gain knowledge and manage its

application strategically is now seen as the most important component of an

organization’s capital ​(Rosenberg, 2001). What knowledge is, and how it is used, has

now become the single most important aspect of virtually all contemporary business

processes. The employees in a business cannot be relied upon to assess knowledge,

retain it, and perform with it, all on their own. Thus, knowledge management becomes

an idea of key importance.

K​nowledge management is a broad concept addressing and encompassing the multiple

areas of business processing in any company.

KM engenders and encompasses a dynamic nexus of organizational learning,

innovation, skills, competencies, expertise and capabilities. It evolves and graduates

toward the development of a company’s intellectual capital (IC). The latter is defined

here as the holistic meta-level capability of an organization to generate creative and

effective responses to extant and emerging, present and potential challenges facing it,

in an ongoing manner. ​(Rastogi, 2000, p. 39)

4
In this sense, helping to structure and develop the intellectual capital of every employee

is a primary concern. Employees must know how to operate computers and how to

understand the business well enough to use computers properly for optimal business

processing. The knowledge management system of a business will create a way of

sharing information among all the employees, and this immediately implies the concept

of a community of practice. It is understood that on the surface level employees use

computers to execute the business policies of a company, to access and implement

important documents and forms, and essentially to coordinate all business processes

among all employees. However, it is this interface between computers, and the

community of practice that develops around the computers, that requires information

management techniques, as well as measurement of management information systems

performance.

This issue of the measurement of the management information system performance

seems to rest on the execution of the computer systems being used. However, the

measurement itself is not an assessment of the computers as much as it is an

assessment of the efficiency attained by the employees operating as a community of

practice. In other words, one can measure (a) the performance of the computers, (b) the

performance of the people using the computers, and (c) the results of (a) and (b) in

terms of overall company performance toward achieving goals, and in comparison to

past performances.

The actual measurement of a community of practice operating within an organization’s

management information system is ultimately based on subjective aspects of

5
organizational success that are determined by management. In this way, the

measurement of management information systems is fraught with the difficulties and

challenges arising from the interface of humans and computers: the measurement of an

information system is a product of subjective, objective, and formal logical processes,

yet there is no formal logical process for ensuring success. This is the double-bind of

measuring management information systems.

Categories of Intellectual Capital

The categories of intellectual capital are the subject of extensive literature. According to

Tseng and Goo (2005), in considering a theoretical framework for intellectual capital,

“​human capital, organizational capital, innovation capital and relationship capital are four

constructs of intellectual capital” (p. 191). ​This framework is based on the idea that

humans operating with a computerized information system need to make internal

judgements and external judgments relative to company business processes. The

approach to measuring the subjectivity of humans utilizing a management information

system is necessarily complex. This comprises the effectiveness of human subjective

processes in utilizing a computerized information system to attain company goals. The

implication is that, in the process of attaining the goals, one must be able to measure

how well the employees and management, operating as a community of practice,

understand the computerized information system itself, understand the goals of the

company, and understand the best ways to utilize the information system to attain the

goals. In other words, the more one looks into measuring the effectiveness of the

management information system, the more one is faced with measuring the subjective

6
perceptions and understandings of a community of practice. What must be measured is

how well the community of practice utilizes the management information system.

Normally, a scientific measure of relations of difference would be comprised of

pre-test/post-test measurements and a comparison of the difference to a ground state of

performance. However, the measurement of processes is challenged by the introduction

of measuring human subjectivity (Ming and Stewart, 2017; Dymond and Barnes, 1995).

For example, in a management information system, we are required to measure the

subjectivity of employee experience and employee understanding of the information

system itself. This suggests we must have a reliable way of measuring subjective

perceptions of information systems, business processes, and how to execute for

success. It also implies we must have some ground state of reference for assessing

these measurements. So far, there is no widespread consensus regarding the

development of these subjective measurement processes in relation to a management

information system. This is, therefore, the central challenge to optimizing these systems

in any company.

Marr et al. (2003) set out to investigate the epistemology of an information management

system, asking how one can relate the individual employee’s philosophical perception of

truth and knowledge to the optimal performance of an information system. They

compared the perceptions of individuals with the knowledge management practices that

were being utilized in their organizations. According to Marr et al. (2003), “the results

highlight significant misalignment between knowledge management requirements in

epistemological terms and individual’s perception of organizational knowledge

7
management activities” (p. 771). The authors argued that this disjunction or mismatch

between personal subjective perception and protocols for management information

systems may actually be a central problem issue for the optimization of management

information systems (Marr et al., 2003). This is a clear assessment of a core

management information system issue as resting in the contrast between human

subjectivity and the formal nature of computerized information systems.

Working on the assumption that the creation of value is the chief goal and the primary

advantage of the managers of any business, Nahapiet and Ghoshal (1997) claim that

“the source of this advantage […] lies in their ability to develop dense social capital

which facilitates the creation of intellectual capital and, therefrom, of new value” (p. 35).

In other words, if information is the chief product and advantage represented by a

business, then the development of a community of practice that lies at the heart of a

company’s information system, and its intellectual capital, is the most important

business process area of any business. Intellectual capital must now be understood as

the amalgamation of people and computers to reveal, organize, and utilize knowledge. It

is the way employees and managers process, evaluate, and perform—in conjunction

with an information system—that will reveal the collective information base and its utility.

There is nothing that could be more important to the development and sustenance of

any business. Once again, it is the human subjectivity of employees working together in

a community of practice, which ultimately harvests knowledge and executes business

processes, that is the core of a business value proposition in this day and age.

8
Intellectual capital now relies on an ephemeral, cybernetic combination of human capital

and management information systems.

Communities of Practice

It is commonly assumed that communities of practice will find ways of developing

knowledge, but this is perhaps best conceptualized as a central challenge to the

management of information systems. How it happens, and how efficiently it continually

happens, are central issues now for every business. ​Lave and Wenger (1991) discuss

legitimate peripheral participation and situated learning as components of learning that

were not studied actively until the present day. The idea is that in the process of

establishing a community of practice, when humans operate within a management

information system, there must be a continual level of interpersonal collaboration and

learning that always takes place efficiently.

This is distinct from traditional academic concepts of learning, which distanced the

learner from what was being learned. According to Lave (2009), “traditionally, learning

researchers have studied learning as if it were a process contained in the mind of the

learner and have ignored the lived-in world” (p. 202). In business, there is now a

dynamic quality of a community of practice that must be considered the most important

aspect of human capital in a management information system, and that is the quality of

situated, collaborative learning. ​Smith (2003) writes about Lave and Wenger’s concepts

concerning communities of practice in ​The Encyclopedia of Informal Education​, and

discusses the nature of communities of practice as residing in a cultural membership

domain, the community within that domain, and the shared routines the members use

9
and develop. ​This article serves to emphasize that the subjectivity of humans involved in

operating a management information system is actually an issue that lies in the domain

of informal education. It also emphasizes the fact that a community of practice is a

culture existing within a business.

Performance Management

The concept of business performance measurement is discussed by Marr and Schiuma

(2003​), and they claim the balanced scorecard is the best way to measure ​performance,

so far. They claim that what is needed now is for business scholars and practitioners to

create “a cohesive body of knowledge in the field of BPM” (Marr and Schiuma, 2003, p.

680). However, ​Franco-Santos et al. (2007) argue that “s​cholars in the field of

performance measurement tend to use the term business performance measurement

(BPM) systems without explaining exactly what they mean by it,” and that “this lack of

clarity creates confusion and comparability issues, and makes it difficult for researchers

to build on one another's work​” (p. 784). The fact that different definitions of ​business

performance measurement exist further constrains the practical potential of arriving at

consensus regarding exactly how to measure the particularities of business

performance within a management information system.

These are not small or incidental issues. In terms of theory, a framework for the

measurement of business performance within a management information system is

currently missing, for all practical purposes. It is actually disturbing that we have

witnessed the development of decision support systems, the development of

management information systems, and the development of business performance

10
measurement as a field, yet we have somehow neglected to arrive at any consensus on

exactly how to define and measure the most important aspects of a management

information system and the success of its business processes.

A forthcoming publication by ​Jordão and Almeida (2017) in the ​Journal of Intellectual

Capital explores ways of measuring intellectual capital as it impacts competitiveness

and sustainability. By performing a longitudinal study of companies on the Brazilian

stock exchange, the authors claim to have discovered new, more precise statistical

measures of business performance: “​Considering that previous studies have not been

able to explain the role of IC in financial sustainability (measured by long-term corporate

performance), this paper attempts to fill this gap by means of a quantitative, descriptive

and applied study” (p. 643). This actually serves to emphasize that (a) in 2017 we are

still very much at the beginning of the science of business process measurement, (b)

normal science will attempt to make large-scale quantitative assessments of business

performance using statistics, and yet (c) we still have no principled way for organizations

to measure their own internal business performance beyond the balanced scorecard.

According to Kao et al. (2017), there are still many challenges in business process

measurement from both a theoretical and a professional standpoint. These challenges

are “mainly the evaluation principles, the method used to derive the evaluation items,

and the techniques used to determine the importance of evaluation items to formulate

the evaluation model” (Kao et al., 2017, p. 625).

Another recent publication by ​Cooper, Ezzamel and Qu (2017) emphasizes the

processual and qualitative nature by which the balanced scorecard approach has been

11
developed over the time. While the balanced scorecard approach represents

state-of-the-art performance management measurement techniques, it is nevertheless a

collection of ideas and assumptions for making systematic comparison of business

processes over time, which delivers statistical output, but requires an enormous amount

of qualitative and subjective assessment to derive the inputs for the system and the

interpretation of the output of the system.

Theoretical Challenges in Business Process Measurement

Nonaka (2008) highlights the difference between tacit knowledge and explicit

knowledge. Tacit knowledge is subjective, even intuitive. Tacit knowledge is the

baseline of subjective perception that every employee brings to the community of

practice. Yet, business process measurements seek to yield explicit knowledge about

performance. Therefore, ultimately, the challenge to measuring business processes in a

management information system is one of measuring how tacit knowledge becomes

explicit knowledge, and how efficiently this has taken place in terms of business

success. Although there will be universal components of interest and relevance, there

will also be customized perspectives and applications required for individual businesses.

Consider the performance management framework introduced by Marr (2015) for the

Essex Police. This is a beautiful and thoughtful approach to ensuring maximum

efficiency of business processes. Yet, it is ostensibly more of a consultant’s instrument

as opposed to a measurement methodology. This serves to emphasize the qualitative

and subjective components of evaluating business performance. Marr (2015) mentions

that one of the challenges of designing such a performance methodology is the fact that

12
there are potentially thousands of KPIs to be considered. It is one thing to address the

performance of a business as being evaluated by a methodology for measurement like

the balanced scorecard, and another thing to implement procedures for optimizing

strategic performance through instruments such as that developed by Marr (2015)—but

it is yet another thing altogether to imply that we understand the internal machinations

and dynamics required and implemented every day in every community of practice in

order to realize the goals of its management information system and its business

processes in general.

Even the discussion of implementing performance management and measurement

techniques at Skandia is not an offer of a cookbook recipe that may be replicated by any

business, as much as it is an example of the customization required to properly optimize

and measure business performance (Edvinsson, 1997). Similarly, I could discuss the

virtues and vicissitudes of measuring business performance in the publishing house I

studied, but that discussion would only apply to that particular publishing house, and

perhaps each publishing house needs to undertake to discover its own optimal situated

techniques for business process measurement.

Peter Drucker (1974), arguably one of the great business theorists of our time,

addressed a crisis of understanding in organizational management as “simultaneously a

crisis of organization theory and of organization practice” (p. 45). Writing in ​Management

Challenges for the 21st Century​, Drucker (2007) says we need to develop new ways of

measuring business performance, however performance will have to be defined

“nonfinancially” in order to account for the nuances of each business organization (p.

13
54). Drucker is hitting the nail on the head, so to speak, by pointing out that the financial

bottom line has been assumed to be the universal reference point for business

performance measurements, though that is not an accurate assessment of how well the

community of practice is implementing and executing through the management

information system on a daily basis.

Conclusion

This paper has argued that ​the central tension in knowledge management today is how

to organize humans collectively for the most efficient use of computers to aid in the

management of business processes. Although computers seem capable of almost

anything, the fact that they are entirely reliant upon human intelligence forces issues of

how computers can be used to execute knowledge management, how intellectual

capital resides in people versus computers, how communities of practice must

collaborate to construct customized information management systems for each business

application, and how new types of performance management must be measured.

So far, scholars have tended to treat business performance measurement as an

abstraction from the amount of profit earned and the methods that may be employed to

optimize employee performance, but there is still a huge gap in our understanding of

exactly what needs to be assessed and measured internally—within every community of

practice—to ascertain how efficiently the organization is attaining its goals by using its

management information system.

Yet, the central challenge to business performance measurement lies in the interface

between human subjectivity and the goals of measurement objectivity. The problem of

14
measuring business processes efficiency in management information systems lies in the

double-bind faced by all business performance management: People perceive, learn,

and think subjectively, but measurement is assumed to reveal objective, explicit

knowledge. How does one yield the other? What is not clear is exactly how each

individual business should implement its own business process measurement, as the

claim to standardized inputs falls short of everyday reality—no two businesses are the

same, and a standard way of measuring success is probably not going to take into

account all the nuances of each particular organization.

The development of the balanced scorecard is widely touted as a universally successful

methodology for business process measurement, but this assumption is illusory. In other

words, the successes of the balanced scorecard in the world of performance

management may be a double-edged sword: Using one excellent method of calculating

performance is the sine qua non of performance management. The notion that every

employee, every manager, every community of practice, each using their own

management information system, will be fulfilled by one measurement method used for

all businesses, is actually covering up the weaknesses in our theoretical understanding

of performance management measurement, as much as championing it.

15
REFERENCES

Cooper, D. J., Ezzamel, M., and Qu, S. Q. (2017) ‘Popularizing a management

accounting idea: The case of the balanced scorecard.’ ​Contemporary Accounting

Research​,​ 34​(2) [Online]. Available at: ​doi:10.1111/1911-3846.12299​ (Accessed: 11

July 2017).

Drucker, Peter F. (1974) ‘The crisis is simultaneously a crisis of organization theory and

of organization practice.’ ​Harvard Business Review​, January [Online]. ​Available at:

https://hbr.org/1974/01/new-templates-for-todays-organizations ​(Accessed: 11 July

2017).

Drucker, Peter F. (2007) ​Management challenges for the 21st century​. Abingdon:

Routledge.

Dymond, S., and Barnes, D. (1995) ‘A transformation of self-discrimination response

functions in accordance with the arbitrarily applicable relations of sameness, more than,

and less than.’ ​Journal of the Experimental Analysis of Behavior​, ​64​(2) [Online].

Available at: doi:​10.1901/jeab.1995.64-163​ (Accessed: 11 July 2017).

Edvinsson, L. (1997). ‘Developing intellectual capital at Skandia.’ ​Long Range

Planning​, ​30​(3) [Online]. Available at:

http://capitalintelectual.egc.ufsc.br/wp-content/uploads/2016/05/7-edvinsson.pdf

(Accessed: 11 July 2017).

Filip, F. G., Zamfirescu, C. B., and Ciurea, C. (2017) ​Computer-supported collaborative

decision-making​. Zürich: Springer International Publishing.

16
Franco-Santos, M., Kennerley, M., Micheli, P., Martinez, V., Mason, S., Marr, B., Gray,

D., and Neely, A. (2007) ‘Towards a definition of a business performance measurement

system.’ ​International Journal of Operations & Production Management​, ​27​(8) [Online].

Available at: ​doi.org/10.1108/01443570710763778​ (Accessed: 13 July 2017).

Gray, B. D., Micheli, P., Pavlov, A., Gray, D., Micheli, P. and Pavlov, A. (2015)

Measurement Madness: Recognizing and Avoiding the Pitfalls of Performance

Measurement​. John Wiley & Sons, Ltd. doi: 10.1002/9781119960522. [Online].

Available at: ​http://onlinelibrary.wiley.com/book/10.1002/9781119960522​ (Accessed: 13

July 2017).

Kao, S. C., Kao, S. C., Wu, C., Wu, C., Huang, C. L., and Huang, C. L. (2017)

‘KCEBSA: Development of online knowledge community evaluation model using the

balanced scorecard approach.’ ​Journal of Enterprise Information Management​, ​30​(4)

[Online]. ​Available at: ​doi.org/10.1108/JEIM-12-2015-0123 ​(Accessed: 13 July 2017).

Lave, J., and Wenger, E. (1991). ​Situated learning: Legitimate peripheral participation​.

Cambridge: Cambridge University Press.

Lave, J. (2009) ‘The practice of learning,’ in Illeris, Knud (ed.) ​Contemporary theories of

learning. ​Abingdon: Routledge, pp. 200-208.

Marr, B., Gupta, O., Pike, S., and Roos, G. (2003) ‘Intellectual capital and knowledge

management effectiveness.’ ​Management Decision​, ​41​(8) [Online]. Available at:

doi.org/10.1108/00251740310496288​ (Accessed: 11 July 2017).

17
Marr, B., and Schiuma, G. (2003) ‘Business performance measurement–past, present

and future.’ ​Management Decision​, 41(8) [Online]. Available at:

doi.org/10.1108/00251740310496198​ (Accessed: 12 July 2017).

Marr, B. (2015) ​Implementing a performance management framework at Essex Police.

Available at: ​https://www.ap-institute.com/perfomance-management-case-studies

(Accessed: 12 July 2017).

Ming, S., and Stewart, I. (2017) ‘When things are not the same: A review of research

into relations of difference.’ ​Journal of Applied Behavior Analysis​, ​50​(2) [Online].

Available at: ​doi:10.1002/jaba.367​ (Accessed: 11 July 2017).

Nahapiet, J., and Ghoshal, S. (1997). ‘Social capital, intellectual capital and the creation

of value in firms.’ ​Academy of Management Proceedings​, ​1​ [Online]. Available at:

doi:10.5465/AMBPP.1997.4980592​ (Accessed: 10 July 2017).

Nonaka, I. (2008) ‘The knowledge-creating company.’ ​Harvard Business Review​,

July-August [Online]. Available at:

https://hbr.org/2007/07/the-knowledge-creating-company (Accessed: 11 July 2017).

Rastogi, P. N. (2000) ‘Knowledge management and intellectual capital–the new virtuous

reality of competitiveness.’ ​Human Systems Management​, ​19​(1) [Online]. Available at:

http://content.iospress.com/articles/human-systems-management/hsm416 (Accessed:

10 July 2017).

Rosenberg, M. J. (2001) ​E-learning: Strategies for delivering knowledge in the digital

age​. New York: McGraw-Hill.

18
Smith, M. K. (2003) ​Communities of practice.​ ​Available at:

http://infed.org/mobi/jean-lave-etienne-wenger-and-communities-of​-practice/ (Accessed:

12 July 2017).

Tseng, C. Y., and Goo, Y. J. (2005) ‘Intellectual capital and corporate value in an

emerging economy: empirical study of Taiwanese manufacturers.’ ​R&D

Management​, ​35​(2) [Online]. Available at: ​doi:10.1111/j.1467-9310.2005.00382.x

(Accessed: 10 July 2017).

19