Driving Growth: Economic Value Added Versus Intellectual Capital
Posted: 3 Nov 1998
Abstract
This paper compares and contrasts Economic Value Added (EVA) and Intellectual Capital (IC) as two technologies of managing oriented towards encouraging growth. The analysis suggests that EVA and IC contrast greatly. EVA is a financial management system based on radical delegation and 'empowerment' and which therefore directs attention to the results created by managers. Based on financial micro-theory, EVA is a performance measure that attempts to account more properly for the cost of capital, but more than that, it is also a management control system which seeks to create radically independent business units and minimise corporate staff. IC is a different control system concerned to encourage endogenous growth implemented via loosely coupled sets of non-financial measurements that become strong when attached to organisational knowledge and competence development, emphasis is put on mobilising white collar productivity and creativity based on some form of evolutionary economics or resource-based theory. While EVA looks to managers as the movers of change, IC seems more systematically to promote the creativity possessed by employees.
JEL Classification: M40, M46, D23
Suggested Citation: Suggested Citation