The Economics of Knowledge

What’s the Business Rationale?

Knowledge has emerged as a critical factor of production co-existing and often substituting for land, labor and capital

What’s currently causing attention to knowledge:

Sustainable Advantage	many of the solutions companies have grabbed onto have proven of to have much less impact than the initial promise.
Growing Market Volatility	Globalization of the economy has intensified competition and accelerated the required speed of response.
Cheap Computing	The PC has brought ubiquitous computing away from the main frame.
	The mystique has been taken out of computing
	Cheap computing makes the large scale processing of knowledge economically feasible.
New Business Model	The new model is of a non-industrial nature
	Intangible outputs
	Network infrastructure
	The firm now functions on the basis of networks of know-ers
	Knowledge dependent

The systematic leveraging of knowledge throughout the firm will provide sustainable competitive advantage by:

increasing effectiveness and productivity
accelerating the acquisition of capability at the individual and organizational level
enhancing the value of solutions provide to customers
increasing the business value of the firm

The belief that, in the knowledge era, the successful organization will leverage its capabilities and speed through

systematically building knowledge flows
increased effectiveness at developing expertise in critical areas
the acceleration of change in terms of customer preferences and resulting markets shifts

Knowledge is the basis for learning and learning must occur before deliberate and consequential change occurs to match the rapid shifts in the market place.

For knowledge to count, it must be:

competitively valuable
scarce or proprietary

Sustained advantage comes from the ability to invent beyond the boundaries of existing possibilities. As a result, the new business model is based on “knowledge value creation” where:

there is an unprecedented dependence on knowledge
value creation is based on intangible inputs and outputs
speed and value is achieved through network infrastructures
effective knowledge management can accelerate the pace of innovation

As firms look beyond downsizing and cost reduction, knowledge points to the strategic renewal of organizations to create new opportunities for growth.

The basic motivation for making knowledge work:

if we knew what we know as a firm...
if we could apply what we know faster and more efficiently...
if we could generate more and better knowledge faster…

The business problem that knowledge management is designed to solve is that knowledge acquired through experience doesn't get reused because it isn't shared in a formal way. Whether it's how to avoid remaking mistakes, to assure the reuse of proven best practices, or simply to capture what employees have learned about suppliers, customers, or competitors, knowledge management is the concept under which information is turned into actionable knowledge and made available effortlessly in a usable form to the people who can apply it.