Introduction

In an earlier part of the module we explored some of the principal developments in the contemporary business environment – or what I earlier referred to as the ‘Apple economy.’ You will recall that one of these developments is the huge importance of knowledge – or intangibles – in this environment. Indeed, many commentators argue – when exploring what they refer to as the ‘knowledge economy,’ ‘knowledge capitalism’ or ‘cognitive capitalism’ – that knowledge and its management in the principal and most significant trend in this brave new world. Here I want to say a something about the development and characteristics of knowledge capitalism.

Knowledge Capitalism


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Many commentators have argued that over the last couple of decades in the developed world knowledge capitalism has increasingly replaced industrial capitalism. This perspective is ably summarised by Burton-Jones (2001) when he writes:

‘The balance of economic activity is shifting from manufacturing and production of physical goods to information, knowledge accumulation, and the production of knowledge goods – or as Negroponte put it, ‘from atoms to bits’.’

He therefore is advocating that we have moved from an era dominated by the manufacturing of things to a new era dominated by the creation and management of knowledge.

This table, which draws on a number of different sources, identifies what I see as the most prominent characteristics of this transition:

Industrial Capitalism
Knowledge Capitalism
1800 to 1990
1990 onwards
Use of physical factors of production – materials, machines, labour, land and money
Knowledge is the key factor of production
Tangible products
Intangible or symbolic products
Wealth and power through control of physical resources
Wealth and power through control of knowledge
Unskilled industrial workers
Knowledge workers
Skills – brawn based
Skills – brain based
Hierarchical organisations with inflexible boundaries and rigid roles for workers
Flat and boundaryless organisations with flexible roles for workers
Massification
Demassification
Key challenge – the management of things
Key challenge – the management of knowledge and creativity

According to Olssen and Peters (2005) the knowledge economy differs from the traditional economy in several key respects:

  • The economics is not of scarcity, but rather of abundance. Unlike most resources that deplete when used, information and knowledge can be shared, and actually grow through application.
  • The effect of location is diminished. Using appropriate technology and methods, virtual market places and virtual organisations can be created that offer benefits of speed and agility, of round the clock operation and of global reach.
  • Laws, barriers and taxes are difficult to apply on solely a national basis. Knowledge and information ‘leak’ to where demand is highest and the barriers are lowest.
  • Knowledge enhanced products or services can command price premiums over comparable products with low embedded knowledge or knowledge intensity.
  • Pricing and value depends heavily on context. Thus the same information or knowledge can have vastly different value to different people at different times.
  • Knowledge when locked into systems or processes has higher inherent value than when it can ‘walk out of the door’ in people’s heads.
  • Human capital – competencies – are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports. In contrast, downsizing is often seen as a positive ‘cost cutting’ measure.


According to commentators, this is a transition that is occurring in a huge number of different sectors - education, advertising, R&D, media, architecture, selling, accountancy, banking, law, entertainments, the public sector, management and publishing. Thus, knowledge management accounts for a very significant proportion of the wealth created in the UK and other developed capitalist economies.

Let me given you just two clear indicators of the emergence of knowledge capitalism:

The shift from brawn to brains


National employment statistics for the UK and the other developed nations demonstrate a sizable shift away from manual and low skilled employment towards high-skilled, high technology service based employment. Even in the manufacturing sector, employment is no longer low skilled and requires a significant input of thinking work. The essence of these changes is captured perceptively by these observations by an American Ford executive in the late 1980s (from Leadbeater 2000):

'We used to tell people to leave their brains in the car park before they came to work, to make them more compliant. We cannot afford that any more /…/ The car industry will not be a major employer of unskilled and semi-skilled labour in the future.’

During time there has been increase in human capabilities, the demand for jobs and skilled people out of work is high, due to innovation in new products and time moving on people are expected to show initiative and drive in the work force no matter what line of work is expected.

‘Stealth Assets’ and ‘Book Assets’


In accountancy, book assets are those tangible resources of a business that appear on its balance sheet, whereas its stealth assets are those intangible assets – such as, its brands, R&D skills, patents and intellectual property – that generally do not appear on its balance sheet. A noteworthy trend for many businesses is that the size of their intangible stealth assets has increased significantly in comparison to their tangible book assets. This is tracked by means of ‘market-to-book ratios’ for businesses that compare their market (or real) values to their book values. For example, this ratio for Microsoft is something like 13, which suggests that the true market value of the business is thirteen times great than the value of its tangible assets. A rather famous statement made by John Stuart the co-founder of Quaker Oats (As cited in Kotler, et al., 2005: 555) helps to characterise this:

"If this business were split up, I would give you the land and bricks and mortar, and I would keep the brands and trademarks, and I would fare better than you".

I think it is reasonable to assume that it is largely different forms of knowledge work that produce these stealth assets and are responsible for increasing their value. Since these stealth assets are increasingly important for many businesses, this fact indicates the importance of knowledge work to them.

The UK Knowledge Economy


This section aims to provide insights in to the state of the UK knowledge economy. It also aims to display how the government needs to adapt its policies and procedures in order to yield better results for different regions of the UK. All research and statistics have been taken from a government report by Mark Hepworth and Greg Spencer who work for the department of trade and industry.

Currently in the UK, “London dominates the British knowledge economy, accounting for around 30 per cent of its ‘knowledge-intensive’ business employment – private sector-led industries where graduates make up at least 25% of the workforce”. The report also states that “London is an economic ‘powerhouse’. Around a third of Londoners have degrees” (Department of Trade & Industry, 2001).

However in the majority of regions, for example the North East and East Midlands, “the business drivers of the knowledge economy are relatively weak, and the public sector (education, health etc) plays the central role in knowledge-driven development”. (Department of Trade & Industry, 2001).

The two statements show evidence that businesses (unless public sector) are doing very little to develop knowledge and skills in northern regions. Whereas London is at the heart of Britain’s knowledge economy and businesses are making progress towards increasing knowledge and skills available in the area.

“In the face of the ‘massive paradigm shift in the economic balance of power which is occurring’ governments will need to ‘develop a vision of what the knowledge economy means and communicate that vision to industry and to society, along with economic and social policies that provide a new sense of direction and purpose” (Blumen, 2003:59).

Problems with the UK ‘Knowledge Economy'


The term ‘knowledge economy’ refers to the overall economic structure that is present and yet still emerging in the UK. The report argues that there is need for a more in depth analysis of the UK knowledge economy.

The writers suggest that an in depth analysis is needed which looks closely at regions and their current knowledge and skills level, rather than a holistic view. As a result “policies and procedures implemented by the government can be adapted for specific areas of the UK” (Department of Trade & Industry, 2011). This is because a policy may show statistical evidence that it is successful in one area of the UK. However in another area the policy may have yielded small gains and been largely unsuccessful. Tailoring policies and procedures to specific regions will then yield an increase in skills and knowledge that is available to organisations.

A link to the report is provided below.

http://www.bis.gov.uk/files/file11034.pdf

YouTube Videos


Here are two videos which relate to this subject (I think) maybe worth a watch/listen sometime.

http://www.youtube.com/watch?v=OCLufY6BV38
http://www.youtube.com/watch?v=M2dgpCuPGBI

The Knowledge Economy in Qatar


Qatar is building its knowledge economy as part of its 2030 vision. Their programmes include the School Knowledge Network, Global Gateway and model e-school that will ensure they instill and encourage the necessary skills to become a knowledge economy. Qatar have realised the importance of transferring from ‘brawn’ to ‘brains’; however they still intend to maintain their traditional values and beliefs. In addition to their programmes, Qatar have attracted foreign companies and also used business incubators to create “knowledge in” projects. “Through sustainable development and education it aims to transform itself into one of the world’s most advanced economies within two decades.” (J.W.A., 2009).

Uses of Knowledge

Knowledge as a weapon


An extreme example of the power of knowledge is the threat of Anonymous (an online hackers group) to expose details of a drug cartel in Mexico, if they do not release one of their members. With this example you can see how knowledge can be used to threaten and manipulate one of the world’s most dangerous organizations.

http://www.computerworlduk.com/news/security/3314441/anonymous-threatens-to-expose-mexican-drug-cartel/

Knowledge as a tool


‘Knowledge based companies are organisations whose success derives from their ability to create new knowledge and use this as a basis for new products and services.’ (Heery 2001). It can therefore be said that knowledge can be used as a tool for the benefit of all within an organisation. Enabling growth, diversity with the development of additional products and services and, thus, providing a future.

Questions


  1. Does this model of knowledge capitalism over-emphasize the importance of knowledge in the contemporary business environment?
  2. Can you identify businesses that are largely creators and managers of knowledge?
  3. Who are the knowledge workers of knowledge capitalism?
  4. What are the key skills and capabilities that knowledge workers need to possess?

Sources


Blumen, R. (2003) ‘Knowledge capitalism: business, work and learning in the new economy’. Economic Affairs, 23 (3) pp. 58-59

Burton-Jones, A (2001) Knowledge Capitalism, Oxford: OUP

Heery,E., Noon, M (2001) A Dictionary of Human Resource Management: Oxford, Oxford University Press

J.W.A. (2009) ‘Building a knowledge economy,’ OECD Observer Issue, 275 p. 37

Kotler, P., Wong, V., Saunders, J., Armstrong G. (2005) Principles of Marketing, London: Prentice-Hall

Leadbeater, C (2000) Living on Thin Air, London, Penguin

Neef, D (1998) The Knowledge Economy, Woburn: Butterworth-Heinemann

Olssen and Peters (2005) full reference needed