I have been researching the knowledge economy, as I choose to call it and its impact on different aspects of business and governance, since early 2006. It’s for a new book I’ve been working on. I included some aspects of the book in my previous published articles. It is an interesting world we now live as I always say. I first noticed this change in human nature when my wife and I were still making babies many years ago. Oops! How time flies. I observed in the labor room after the birth of each of my many children that they could see slightly almost immediately unlike in the past. When some of us were born, it took days before we began to see a little bit.
I did notice also when my children were growing up that they seemed in a hurry to become adults because of their reasoning and the kind of questions they asked which I had to contend with. At a very little age these kids were already computer buffs which made me to buy a unit before I was ready for it. In fact, they were always handy to help me whenever I experienced a hiccup working on the computer. They sometimes call me ‘’old school’’ each time I said something or did something that they considered not in sync. It then began to dawn on me that it is either I was getting old or I was not in tune with the new real world. So I began to pay more attention to my environment and the changes happening around me and around the world. It is this curious search that led me to my current work on the knowledge economy.
The inspiration for this piece came from a statement credited to Alan Greenspan, renowned former U.S. Federal Reserve Chairman. He posed this question: ‘’how much does the new economy weigh?’’ in a speech he made in Dallas, Texas, USA. He concluded by saying that the U.S. economy is ‘’proportionally lighter, in literal sense, than at any time in this half-century.’’ According to him, the size of the U.S. GDP is five times more than it was about 50 years ago, but ironically its physical weight only grew slightly (Richard Boulton et al, 2000). This was because the industrial revolution produced physical goods. Today America has moved from production economy to service economy and the rest of the world has followed. The service economy is a weightless economy, and it’s knowledge-based.
This is a new world and a new economy where the speed of change is unimaginable. In the words of Alan Greenspan (as in Boulton et al), ‘’virtually unimaginable a half-century ago was the extent to which concepts and ideas would substitute for physical resources and human brawn in the production of goods and services.’’ Today’s world is a world of intangible economic output. We have come to realize the importance of intangibles in our organizations. You find that in today’s organizations, the intangible constitute seventy-five percent of the assets. The focus in the past was on the physical assets. But the new focus is on the intangibles. Corporate success is now hinged on the intangible assets.
Growth in this knowledge economy is exponential, not linear. Many thanks to the Internet which has aided the fast-paced change being experienced in the world as well as the increase in information. This has also brought about the change in the cost structure of goods and services at the same time. Some managers and leaders in certain organizations in Nigeria are not awake to the accelerated change happening around them, and therefore are not yet responding to these changes. Some bank chief executives are still carrying on as if they are not aware of what is happening. May be they are not aware or maybe they are just playing ‘’Ostrich.’’ The times we are in are real and not fluke or hype.
In some of these so-called big companies you find that the top management is preaching change but they at the top refuse to change. They pay lip service to change just to hoodwink the board of directors and the investing public but refuse to change. They are comfortable with the status quo for as long as it serves their purpose. To buttress, one of the banks, I wouldn’t say ‘’major’’ because since the consolidation ‘’all’’ the banks are now major, engaged the services of a multinational consulting firm to restructure the bank to enable it withstand the competition shocks both in the domestic market and the international markets. This was in 2006. The consultants carried out several analysis and investigations to identify the problems and recommend solutions.
One of the fall outs of the consultants work was the setting up of a committee comprising mostly the middle managers to monitor the process. For the committee to be able to carry out its assignment the members were sent off on training on process improvement in one of the global top 40 business schools. After three days of intense drilling on process improvement, they excitedly went back to work hoping to begin to apply what they learned from the business to their work so as to transform the bank to be more profitable. But unfortunately they met a brick wall. The people that sent them to learn new techniques in running a new economy organization were not ready to change. Frustrations then set in and quite a few of them started sending their resumes (CVs ) in search of other jobs. Invariably this bank has at the top old economy leadership and management. Unfortunately they are not in tune with the new management reality.
To borrow from a 1995 article in Fast Company, a business magazine published in the U.S, (as in Boulton et al, 2000) “a global revolution is changing business, and that business is changing the world. New rules of business, and a new breed of company that will challenge the corporate status quo are emerging (italics my own addition). No part of business will be immune. The structure of the company is changing; relationships between companies are changing; the nature of work is changing; and the definition of success is changing. The result will be a new world order representing unparalleled opportunity and unprecedented uncertainty.’’ This was as far back as 1995 that the editors of the magazine made the above statement. We are all witnesses today on the reality of the statement.
Vincent Nwanma, a former Wall Street Journal reporter in Nigeria and the author of the 2008 book DO IT WELL, stated: ‘’the economy of the 21st century has been appropriately described as a Knowledge Economy. What this means, in practical terms, is that the current economic system has acknowledged the value of knowledge, and therefore has raised it to a higher pedestal on society’s hierarchy of values.’’
‘’Knowledge has become a valuable asset and anyone who possesses it can distinguish himself by putting the knowledge to appropriate use. Just like any other asset, knowledge can now be converted into cash in the same way that a company’s projected cash flows or earnings are converted into cash through securitization which is the process by which a company’s projected output are converted into monetary values.’’
The fact is that the tools used in managing in the old economy have become obsolete or near obsolete. New tools have emerged and manager and leaders have to adapt to these new tools or they become obsolete. Hierarchies have given way to flat and now horizontal management. Most work has become knowledge based and therefore managers need to learn how to manage knowledge workers. For your organization to succeed in this dispensation of the knowledge economy you need new tools and processes. What rules today’s corporate world are intangibles such as brands, relationships, distance learning, knowledge, people, and systems.
The new global knowledge economy is based on innovation, mobility of labor and material, and the creation of a new set of attitudes. It has given us new ways of measuring the value of our organizations and people that work therein. The conventional ways organizations are usually measured, including EVA, are fast giving way to new methods that place greater emphasis on the intangible assets rather than tangible assets. People now matter very much to organizations and they are being measured differently too. Smart organizations hire people for possessing the right work attitude first and foremost and then train them for skills required to do the job. To succeed, organizations must develop both their people to possess quantum of both executive intelligence and emotional intelligence. These are what managerial leaders need to make rational decisions in the knowledge economy.
A company’s value is now measured by new sets of variables including brand, customers, management and employees’ quality, and what the company is expected to produce using all the resources available at its disposal now and in the future. The management of nations’ economies is based on new knowledge, not the way we used to manage the old economy, in order to deliver value.
The Knowledge Economy has brought with it new wealth creation strategies through mining of information. Knowledge Economy companies are valued higher than brick and mortar companies. Microsoft Corporation, an information based and information mining company is valued at over $609 billion while General Electric (GE) a much older and larger company that manufactures products and provides financial services is valued less than Microsoft. Google, another Internet company has experienced tremendous growth beyond analysts’ expectation within a short period of its existence. Such is the nature of the Knowledge Economy.
Businesses are experiencing transformations. Some are intentional and some others are forced by the ever changing competitive business environment. Organizations are constantly defining redefining their businesses to go with the flow of the new dispensation. Koulopoulos and Roloff in their 2006 volume stated: ‘’today, every industry is experiencing a similar transformation as our definition of enterprise radically changes from an isolated collection of tasks to one that cuts across all dimensions of an organization’s structure and geography. With the ability to capture, store, retrieve, and distribute vast amounts of information across the globe, we are pushing the limits of existing technology infrastructure and challenging current models of enterprise. We are faced with a fundamental challenge and a basic question: what will best define us, the factors that separate us or those that connect us?’’
The new Knowledge Economy is interlinked to the extent that what happens in one economy affects other economies of the world. The subprime crisis recently experienced in the U.S. mortgage sector spread to Europe and other parts of the world. Globalization has opened up several economies that were hitherto closed. Every political, economic and social foundation has been and will be shaken by globalization. Any country, any economy, any company, or any individual that tries to isolate itself or herself is in danger of being extinct or disintegrated.
Let’s refer back to Koulopoulos and Roloff argument. They argued that ‘’the political and social rift that will surround this new age are already at full throttle. Globalization is a nemesis to as many it is a savior… Globalization is an evolution, it is survival, and it is the necessary counterbalance to the power of disruption now vested in the networks we are building civilization upon. Globalization creates mutual reliance, security, tolerance, and prosperity. It promotes values that dignify humanity through great access to economic resources.’’
The history of economic growth, right from the Industrial Age, has shown that businesses are constantly searching for new ways using new technologies to survive and thrive or remain competitive. At that period growth was general came through farming. Wealth creation and improvement in the quality of life of people began during the industrialization era by mid 1700s.
If you are a good student of history you will remember that we have experienced several eras of change. We have moved from the Stone Age, Iron Age, Agricultural Age, Industrial Age, Technological Age and then to the present Knowledge Age. Don’t ask me the next era we will enter after this knowledge age since we just entered this era. I will tell you when we have gone half way into this new era. If you watch the transitions so far you will observe that technology has been instrumental to these changes. In this knowledge age it’s either you adapt, innovate or die. It’s that simple.
A good example of this is the story I read recently about the famous Andrew Carnegie and his father, William Carnegie. The elder Carnegie, William, was in the textile manufacturing business. He was weaving his damask on four looms operated by hand. Then power-driven equipment was introduced (a new technology) that would make it easier and probably more efficient but he refused to adapt to the new technology. He invariably preferred the old way of producing his textile material. The consequence of that decision was quite obvious. Though he did not expect or even anticipate it but it did happen. His business folded up. Andrew, his son, learned from his father’s mistake. He embraced technology and made a fortune. He was among the richest in the world, in the league of John D. Rockefeller. In his biography, Andrew Carnegie said: ‘’my father did not recognize the impending revolution and was struggling under the old system.’’
Boulton et al captured it aptly when they stated that the rewards go to the organizations and individuals that have the foresight and the ability to create business combinations that have not been tried before. These new combinations carry new set risks with them which can also contribute to new levels of economic volatility and equally new opportunities. They continued: ‘’those companies that win the race to capture the new assets succeed in the marketplace, often assuming powerful ‘’first mover’’ advantage. But they have another far-reaching effect – they eventually make commodities of old assets like physical goods, once scarce, but now abundant. Then, gradually, the new assets of one period become abundant and are themselves commoditized.’’
Let me at this point reference a 2001 research paper by Beth Ahlering and Clive Smallman of University of Cambridge on Altered States: the impact of the new economy on sustainable development in South East Asia. The authors wrote that almost anything can be made almost anywhere and sold almost everywhere. The result they said is that the prospects for developing countries look very encouraging. The implication, therefore, for organizations of the shift towards knowledge-based industries are that it will become increasingly difficult to gain a competitive advantage as we know it today.
Ahlering and Smallman further wrote that there are clear differences in the underlying economies of processing bulk goods and crafting knowledge into products. This, they say, the economics of mass production are such that these ‘’congealed resources with little knowledge’’ are sold according to the principle of diminishing returns. Furthermore, knowledge based products, they argued, are ‘’congealed knowledge with little resources’’ the production and sales of which operate under the principle of increasing returns and its associated characteristics. You can see the difference knowledge makes in this new era. This emerging organizational structure has given birth to the virtual corporation and the trend toward outsourcing or virtual integration.
Dr Austin Nweze is of the Lagos Business School, Pan African University
