Idea 26 - The knowledge economy
As usual,
Peter Drucker was on the case before anyone else. In the late 1960s he coined
the term 'knowledge economy', predicting that the spread of information would
cause major changes in society. What management had to do, he said, was to
boost the productivity of 'knowledge work' and the 'knowledge worker'.
Academics and statisticians - who want to measure it - have
yet to agree on exactly what the knowledge economy is. Some say it is a group
of specific industries, such as high-tech manufacturing, computing and
telecommunications. Others argue that knowledge permeates all industries. The
Organisation for Economic Cooperation and Development (OECD) takes the middle
road with a definition that includes high- and medium-tech manufacturing,
knowledge-intensive service industries such as finance, insurance and telecoms,
followed by business services, education and health.
The layperson could do worse than the following definition,
offered by the Work Foundation, a British NGO: 'The knowledge economy is what
you get when you bring together powerful computers and well-educated minds to
meet an expanding demand for knowledge-based goods and services.' However you
define it, the developed world is clearly turning into one. Economists, taught
that labour and capital were the principal factors of production, will tell you
that knowledge is replacing labour as a major wealth creating asset. As an
asset, it has the attractive benefit of not deteriorating in value when it is
used. In fact, sharing it can enhance its value.
OECD economies are almost all seeing rising shares of
national income produced by knowledge-based industries, alongside a higher
proportion of the workforce in knowledge-based jobs and companies using
technology to innovate. Depending on your definition, the knowledge economy
already accounts for more than half of the economy and employment in many of
these countries.
Knowledge has always been an economic force, but its power
has been leveraged by information and communication technologies (lCT) that can
slice it and dice it, extrapolate it and move it around very quickly.
Knowledge-based firms, in the narrow sense, are combining the new lCT with new
science and technology to create new products for more affluent, more educated
consumers.
Adding
value Knowledge - the right kind of knowledge - adds value. It can
lead to better decisions, encourage insight and innovation, and raise
productivity. In innovation, it can create competitive advantage in various
ways - knowledge networking can help to speed up and improve new product
development, for example. Sharing best practice around the company can cut
costs and raise quality. So in a globalizing and increasingly competitive
economy, with fragmented and dispersed know- how, there is a growing need to
husband and manage this elusive resource.
Even in businesses that don't see themselves as particularly
knowledge- intensive, knowledge is becoming a strategic issue - how to acquire
it, develop it, share it and keep it. The result is the relatively new
discipline of knowledge management (KM). More companies are appointing chief
knowledge officers, particularly in the US, where every government agency has
had to appoint chief information officer (who performs a similar role) since
1996. Knowledge management is careful to distinguish between knowledge and
information, pointing out that not all information is knowledge and not all
knowledge is valuable. Some consultants distinguish between 'explicit' and
'tacit' knowledge. Explicit knowledge is found in databases and filing cabinets
- it can be captured, documented and stored away. Tacit knowledge is inside
people's heads, and involves intangibles like experience, judgement and
intuition. People are the key to KM - knowledge creation depends on human
interaction - and IT-led KM projects tend to fail.
Valuable knowledge resides in different parts of the
organization. There's vital knowledge of customers, of processes and products,
as well as knowledge in relationships and in organizational memory. There is
also the creation of new knowledge. KM uses various methods to create,
organize, share and use all of this, including training and the company
intranet, alert systems and creativity tools.
There is a steely side to this. If knowledge is inside
people's heads, it can walk out of the door and not return - and it does this
all the time. Talented employees may be lured away by competitors; older staffs
retire. In a downsizing world, people are shown the door. So a KM priority is
to extract knowledge from those heads and preserve it within the organization
somehow. One of KM's tensions is how to encourage knowledge to flow freely
while controlling and securing it at the same time. The knowledge economy and
its moving parts will be getting more attention from the business improvement
industry in future. For much of the second half of the 20th century, the bulk
of management's effort to improve focused on manufacturing. Managers and their
consultants worked hard and inventively to make things more efficiently. They
have been so successful at this that there is not much left to do. All those
years of experience and of adopting best practice means that the chances of
sustaining competitive advantage through manufacturing efficiency are virtually
nil.
More
efficiency The next phase was to look for greater efficiencies in
services and business processes. This led to techniques like business process
reengineering and enterprise resource planning, supported by heavy doses of
information technology. Here too the spread of best practice has limited any
future potential for competitive advantage. So
attention has finally turned to knowledge.
Management consultants McKinsey & Co have drawn a
distinction between transformations (making or growing things) and transactions
(services, trade, most knowledge work). The firm then subdivides transactions
into routine transactions and tacit interactions, which rely heavily on
judgment and context. It believes that few companies have yet done much to
differentiate themselves by increasing the productivity of those tacit
interactions.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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