New Economy - Knowledge Economy
Today, we are living in a chaotic transition period to a new age defined by global competition, rampant change, faster flow of information and communication, increasing business complexity, and pervasive globalization. The pace of change has become so rapid that it took a different type of firms to be dominant and marked entirely new era of business. This new environment is also characterized by "more far-reaching technological advances, and a consumer who has adjusted to this quicker pace and whose fickle preferences are revised with the speed of a television commercial" ( "The Centerless Corporation", Bruce A.Pasternack and Albert. J. Viscio, 1998 ).
Three Forces Driving the New Economy
Knowledge – intellectual capital as a strategic factor; a set of understandings used by people to make decisions or take actions that are important to the company
Change – continuous, rapid and complex; generates uncertainty and reduces predictability
Globalization – in R&D, technology, production, trade, finance, communication and information, which has resulted in opening of economies, global hypercompetition and interdependency of business
Customer-driven Economy
New economy is rather customer power economy then supplier-driven one. Customer power surged as a result of the convergence of several long-developing trends. First, product and service scarcity gave way to abundance. A key reason for this is that advancing technology has dramatically increased manufacturing productivity and thereby reduced costs of entry to and expansion of many industries. "Globalization led to more companies pursuing the same customers. At the same time, customers have become more sophisticated and informed buyers. Information technology enabled them to find and analyze competing products and to make intelligent choices. Customers discovered they had options and the power to exploit them. Customers now aggressively seek alternatives, compare offers, and hold out for the best option."7 Further, many products became virtual commodities and rapid changes in technology have dramatically shortened product life cycles. The result is a lot of similar offerings that make it very difficult for you to differentiate yourself from your competitors; this further empowers your customers. In combination, these phenomena transformed supplier-dominated economies into ones ruled by customers ("Agenda", Michael Hammer, 2001).
In old industrial economy key economy drivers were large industrial firms, but now kew economy drivers are innovative entepreneurial knowledge based firms.
A knowledge-based enterprise
derives knowledge from various sources that include:
Customer knowledge: customer needs, perceptions, and
motivations, who to contact, customer buying power, what
differentiation strategy and customer services need to be
developed to win and retain customers, etc.
Competitor knowledge: what competitors are selling now and
what they are planning to sell in the future, what is their
strategic intent, what competitive strategies they use to win
in the marketplace.
Product knowledge: the products in the marketplace, who is
buying them and why, what prices they are selling at, and how
much money is spent on such products now and may be spent in
future.
Process knowledge: best practices, technology intelligence and
forecasting, systemic innovation, cross-functional synergy
opportunities, etc.
Financial knowledge: capital resources, where and how to
acquire venture capital and at what cost, and the integrating
in financial practices.
People knowledge: knowing people and what motivates employees,
obtaining feedback, the expertise available, and how to go
about finding experts.
"Smart Business", Jim Botkin, 1999
In the information economy (1970 to
1995), the best strategy was to overinvest in crunching power.
Competitive advantage accrued to those who invested more than
their competitors to process more data and information more
quickly.
In the knowledge economy (1995 to date), the best strategy is
to invest in connecting power. Competitive advantage accrues to
those who invest more than their competitors to connect to more
people and share knowledge faster and farther.
In the information economy, Moore's Law was the operating
rule. Moore's Law says that the price/performance of computing
doubles every eighteen months.
In the knowledge economy, Metcalf's Law is the operative rule.
Metcalf's Law holds that the value of a computer is
proportional to the square of the number of connections it
makes.
While most managers agree that managing knowledge is important, few of the can articulate what the value is or how to become a learning, teaching, or coaching organization. The majority of companies have their knowledge embedded in people and organizations. It is often intuitive, tacit, rather than explicit, and is rarely detailed enough to be especially valuable. Such knowledge often gets lost when someone leaves the company. "All too often, knowledge exists with multiple points of view instead of the collective best thinking. It is occasional but not integral to the business. And, most important, it is available but not used very much." - "The Centerless Corporation", Bruce A.Pasternack and Albert. J. Viscio, 1998
While most managers agree that managing knowledge is important, few of the can articulate what the value is or how to become a learning, teaching ( "Teaching Organization is one in which everyone is a teacher, everyone is a learner, and reciprocal teaching and learning are built into the fabric of everyday activities." - "The Cycle of Leadership", Noel M. Tichy with Nancy Cardwell, 2002.) , or coaching organization. The majority of companies have their knowledge embedded in people and organizations. It is often intuitive, tacit, rather than explicit, and is rarely detailed enough to be especially valuable. Such knowledge often gets lost when someone leaves the company. "All too often, knowledge exists with multiple points of view instead of the collective best thinking. It is occasional but not integral to the business. And, most important, it is available but not used very much." - "The Centerless Corporation", Bruce A.Pasternack and Albert. J. Viscio, 1998
Real Value of Knowledge
The value of knowledge is measured in its application. Knowledge has no intrinsic value of its own - it is only relevant when it is used. "The real value of it is only real if you change the way business is done."7
Knowledge Management versus Information Management
"Knowledge management" is different from "information management". While the former targets collecting and distributing knowledge - both explicit and tacit one - throughout the organization, the latter deals mainly with documented explicit knowledge - or information - only.
Most companies create, have access to, and use plenty of bits of knowledge, but neither efficiently, nor effectively.
The increased emphasis on knowledge management is attributed to recent rapid developments in the following areas:
On a practical level:
Shift to the new knowledge-driven economy dominated by knowledge-based enterprises and information-intensive industries
Rapid advances in information technology.
On a theoretical level, increased emphasis on knowledge in the strategic management literature, in particular:
Popularity of the new resource-based view of the company
Postmodern perspectives on organizations
Idea management systems and process can help your company make innovation a discipline. They can help make the hunt for new possibilities each and every department's business, as well as involve broader and more enthusiastic participation among managers and employees.
Tacit Knowledge as a Source of Competitive Advantage
Tacit knowledge, or implicit knowledge, as opposite to explicit knowledge, is far less tangible and is deeply embedded into an organization's operating practices. It is often called ' organizational culture'. "Tacit knowledge includes relationships, norms, values, and standard operating procedures. Because tacit knowledge is much harder to detail, copy, and distribute, it can be a sustainable source of competitive advantage... What increasingly differentiates success and failure is how well you locate, leverage, and blend available explicit knowledge with internally generated tacit knowledge."3 Inaccessible from explicit expositions, tacit knowledge is protected from competitors unless key individuals are hired away.
The Starting Point: Changing Behavior
The primary obstacle to knowledge transfer are people themselves. Thus, an effective knowledge initiative should include a comprehensive behavioral change program with all its components (top-management sponsorship; communication; sponsor-agent-target effort; and incentives).
The Process
The process component is the most commonly overlooked in knowledge management programs. Many knowledge initiatives are started at the grass-roots level with the expectation that people will automatically create and use knowledge. It takes a process however. "The most difficult process in many ways is the use process itself. This has to be engineered directly into everyday work process. On top of the work process, you must actually engineer the creation process."7
Case Study: General Electric (GE)
With Work-Out as part of its DNA, General Electric (GE) has become one of the most innovative, profitable, and admired companies on earth. At its core, Work-Out is a very simple concept based on the premise that those closest to the work know it best. When the ideas of those people, irrespective of their functions and job titles, are solicited and turned immediately into action, an unstoppable wave of creativity, energy, and productivity is unleashed throughout the organization. At GE, Work-Out "Town Meetings" gave the corporation access to an unlimited resource of imagination and energy of its talented employees.
Managing Knowledge Workers
To lead knowledge workers effectively and unlock their true potential, you need to define:
What knowledge work professionals do?
How they do it best?
What drives them to do it?.