Various management experts have for several years highlighted the role of knowledge or IC in business and the need to leverage them to bring about tangible organizational benefits. The value of high-tech companies such as software and biotechnology companies lies not in physical assets that is measured by conventional accountancy techniques, but in their intangibles such as knowledge and patents. The last few years have witnessed a growing recognition by accounting bodies and international agencies that knowledge is a crucial factor of production. The current global economy has been described by most of the industry observers as a one in transition to a knowledge economy.
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 marketplaces and virtual organizations 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 capitals – 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.
These characteristics, so different from those of the physical economy, require new thinking and approaches by policy makers, senior executives and knowledge workers alike. To do so, though, requires leadership and risk taking, against the prevailing and slow changing attitudes and practices of existing institutions and business practice.