The briskly developing world economy is transforming into one that relies more on intellectual capital and skills and less on the manufacturing process. The rapid spread of knowledge and the growing reliance on computerisation, big data analytics, and automation drive this colossal change in the business landscape as the need for updating management strategies grows.
Peter Drucker, a management consultant, developed the concept of a “knowledge economy” in the 1960s. Drucker coined the term to characterise the transition from economies based on manual labour and primary production to those that are knowledge-based and require higher levels of education and training. The knowledge-economy is a structure of production and consumption of knowledge-intensive operations, such as data gathering, analysis, and synthesis.
The rapid pace of this transformation can be attributed to the widespread adoption of ICT, Big Data, and automated processes across industrialised economies. Greater numbers of highly educated workers requiring specialised knowledge or expertise are a hallmark of knowledge-based economies.
Human expertise is the business product or productive asset in a knowledge-based economy which can be traded for profit and these intangible knowledge-based assets are called intellectual capital. The innovation, research, and rapid technological advancement that underpin a knowledge economy allow it to function largely independently. There is a high level of computer literacy among workers, and efforts are being made to advance AI and algorithmic developments that will allow for more precise financial and business forecasting.
Michael Porter, a professor at Harvard Business School, argues that for a business to gain competitive advantage in today’s knowledge-based economy, businesses must be responsive, adaptable, and innovative. Furthermore, it needs to invest a considerable percentage of its resources toward research and development.
Early on, many manufacturers noticed issues in their supply chains, but they needed more understanding and insights to implement effective solutions. While there are other contributing factors, it became clear that a lack of ownership was often at the heart of businesses’ inability to achieve operational goals. No one at the company was in charge of the logistics of supply. Now, if you work for a company that relies heavily on its employees’ knowledge, ask yourself: Who within your company is in charge of creating company-wide knowledge? This is where the Knowledge Supply Chain comes into the picture.
Knowledge Supply Chain
Typically, the physical “tangible aspects such as the raw materials, trucks, and storage facilities associated with supply chains are the first things that come to mind when the term is mentioned. However, supply chains encompass more than just the transformation of raw materials and the distribution of finished goods; they also include the “knowledge supply chain.”
“Knowledge workers” are those whose jobs require them to “plan, acquire, search, analyse, organise, store, programme, distribute, market, or otherwise contribute to the conversion and trade of information.” Those in the knowledge economy are those who put their own and others’ expertise to good use.
The information and knowledge management roles are filled by individuals who, in most cases, need more authority to coordinate the many, often competing, activities that take place across the many, often autonomous, groups that make up an organisation. If the manufacturing industry is any indication, the worst case scenario is when you have multiple independent groups reporting directly to the CEO, who is not the right person to run your knowledge supply chain. One more thing to take away is the importance of working together on a project. Companies with efficient supply chains often employ cross-departmental teams.
The Knowledge Economy in Force – A few live cases
The influence of the knowledge economy is visible in virtually every sector of the economy that you think of. Automation and “just-in-time” inventory management systems and the crusade toward developing driverless cars are all examples of how the knowledge economy is impelling traditional manufacturing sectors like the automotive industry to transform.
The healthcare sector is an important contributor as well as a major primary beneficiary of the knowledge economy. The growth of telemedicine services, widespread use of 3D and robotic surgical aids, and accelerated research and development of new medicines result from the information economy.
An excellent illustration of the knowledge economy is the ICT (information and communications technology) sector, which is concerned with the convergence of communications services and IT, as well as the development of an information infrastructure. Connecting data storage facilities like computer servers with the means of transmission, like cell phones, is a primary goal of the ICT industry to maximise the usefulness of the information.
Since the turn of the century, companies have raised their IT spending by more than 50%, a figure that reflects the technology’s centrality to the success of modern enterprises. Companies working on developing cutting-edge technologies like AI and robotics are currently experiencing the fastest expansion rates in the IT/ICT sector.
Challenges of the Transformation into a Knowledge Economy
The process of shifting from an industrial to a knowledge-based economy gives rise to numerous challenges. Many workers lack the knowledge and abilities to do their jobs effectively in today’s knowledge-based economy.
Companies can help employees adapt to the transformation by providing them with more opportunities for on-the-job training and offering financial assistance to pursue additional education and training outside of work.
What does it mean for Businesses?
- If you feel that, in your organisation, information management (and implicitly knowledge management) is treated as a cost centre rather than a profit centre then the concept of KSC may help you position information management as a source of strategic advantage rather than a necessary nuisance.
- The innovation of R&D-heavy companies is increasingly dependent on their ability to cultivate a wide range of external relationships to foster innovation. Organising complete business processes throughout a value chain of multiple companies is a crucial benefit of thinking about these networks in terms of a supply chain.
- The focus can easily be diverted from the careful thinking and design of a solution to the business problem and technology when managers, whether in IT or any other department, place too much emphasis on the technology itself (such as this deep learning technology or that blockchain technology, or whatever the hype du jour happens to be).
- While data and the quality of data are crucial to success in the knowledge era, other factors such as cultural shifts, business process changes, and operational adjustments must also be carefully considered and accounted for in the overall ROI evaluation.
References
- Knowledge Economy. (n.d.). Retrieved December 10, 2022, from https://corporatefinanceinstitute.com/resources/economics/knowledge-economy/
- The Concept and Importance of Knowledge Supply Chains. (2019, August 21). Retrieved December 10, 2022, from https://www.copyright.com/blog/the-concept-and-importance-of-knowledge-supply-chains/
- Cuofano, G. (2022, January 2). What Is The Knowledge Economy? The Knowledge Economy In A Nutshell – FourWeekMBA. Retrieved December 11, 2022, from https://fourweekmba.com/knowledge-economy/
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