(1) VMRC's "New Paradigm Initiative"(NPI) has been created to explore value and performance measurement approaches that extend beyond the traditional accounting paradigm.

(2) Over the past 15 years, a consensus has emerged in the business community about the importance of intellectual capital and intangibles, and the need for broader measures of corporate performance than are provided through traditional accounting.

(3) In response to this demand for alternative measures of value and performance, innovators have developed more than 80 new approaches, ranging from highly specialized techniques for valuing specific classes of intangibles, to broad frameworks for reporting on corporate performance. These approaches can be classified into into five categories, based on whether they are primarily concerned with: Intangibles; Indicators; Market Capitalization; the Capitals, and Value Streams. Some of these approaches have become widely adopted, and have stimulating the desire in the business community for enhanced disclosure of information useful for evaluating corporate performance and value potential.

(4) Traditional accounting has evolved over hundreds of years. Over the past forty years or so, this evolution has been guided by rigourous formalized standard-setting processes operating both at the national level in a large number of countries around the work, and increasingly at a global level through the activities of the organizations such as the International Accounting Standards Board (IASB).

(5) By contrast, the focus of the innovators who have developed the alternative measurement approaches that have appeared over the past 15 years has been to respond to the needs of users for new insights and perspectives. While "best practices" are emerging, the alternative measurement approaches have not so far been subjected to formalized standards processes.

(6) The new measurement approaches differ widely in objectives, inputs and outputs, and methods, both from traditional accounting, and from each other. Given these differences, it has until now been difficult to assess individual approaches or compare one approach to another, relative to such characteristics as: the user needs each approach is designed to address; what objects and properties each approach actually measures; the overall validity of the approach; and other technical attributes.

(7) One focus of VMRC's New Paradigm Initiative is to assemble a set of measurement concepts and criteria that can be used to "profile" value and performance measurement approaches, in such a way that each approach can be compared with others in a meaningful way. We build on the foundation provided by an important paper published by the Fédération des Experts Comptables Européens, which offers a compilation of concepts and criteria drawn from measurement theory, information theory, and the conceptual frameworks of accounting and auditing standard-setters. These concepts and criteria have been organized into a practical framework and online system that can be used to visually show the similarities and differences among measurement approaches relative to the concepts and criteria.

(8) What becomes apparent from the initial trials of the online measurement profiling system is that the leading approaches in each of the five categories referred to in (3) above, and described in more detail in Section 3, have fundamentally different profiles. NPI's online system for analysing "measurement profiles" serves a number of purposes for users, practitioners, the innovators of new measurement approaches, and those interested in the technical aspects of measurement.

(9) A second focus of this Discussion Paper is to lay some groundwork for considering the degree to which these alternative measurement approaches may point toward a new measurement paradigm, that extends beyond, but complements, the traditional accounting paradigm.

(10) Section 2 of this Discussion Paper suggests that the situation of traditional accounting is much like that of physics a century ago. At that time, it was clear that while Newton's equations still worked to explain the movement of objects and planets, scientists were increasingly aware of phenomena that could not be explained by Newtonian physics. Einstein's work on relativity, published in 1905, presented an alternative way of understanding some of the workings of the universe.

(11) Similarly, traditional accounting still works well to measure the performance of organizations, as long as what we want to measure is measureable as a real (historical) or hypothetical (fair value) transaction. The transaction-centric nature of accounting is arguably its greatest strength, but is also the source of its inherent limitations. If what business decision-makers want to know about cannot be measured by a transaction -- such as the future value creation potential of the enterprise, or the contribution to that value potential of knowledge and ideas -- then traditional accounting will not be able to help. However, there has as yet been no accounting Einstein to point us toward a new paradigm. We are beginning to understand the problem: but we do not yet have a comprehensive solution.

(12) When viewed through the lens of measurement concepts and criteria, it becomes easier to understand what are the boundaries of the traditional accounting paradigm, and to begin to imagine what might lie beyond those boundaries. It can be argued that accountants take measurement for granted. The key questions that arise in measurement theory Ð such as, what are the properties of the objects we want to measure, and what scale and units of measure do we need to measure them Ð are not matters of debate in accounting. Answers to these questions are implicitly embedded in accounting concepts such as "the lower of cost or market value", and in accounting standards that build on those concepts.

(13) Even if it were appropriate to take measurement for granted with respect to traditional accounting, it is not appropriate to do so when it comes to the alternative measurement approaches that are the stimulus for the New Paradigm Initiative. It is clear, for example, that performance indicators, such as those used in a Balanced Scorecard, measure different properties of different objects, using different units of measure and a different measure scale, when compared to traditional accounting. The question of whether users are in a position to appreciate the significance of these differences -- when, for instance, performance indicators are presented alongside traditional accounting information in an corporate annual report -- has not yet been thoroughly debated.

(14) The New Paradigm Initiative has been launched in the conviction that meeting the needs of decision-makers for better ways to measure value and performance is an important and urgent task. We can learn a great deal from the innovators who have developed and enhanced the new value and performance measurement approaches that have appeared in the past 15 years.

(15) Building on these measurement innovations, while collectively re-discovering some of the fundamentals of measurement, NPI intends to open a debate on what lies beyond the boundaries of the traditional accounting paradigm, in the expectation that doing so will stimulate further innovation and experimentation, and ultimately lead to a new global consensus on concepts and criteria for measuring value and performance.