Knowledge+Capitalism

= Introduction = toc In another page 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 =


 * [[image:newtrendsinmanagement/it.jpg]] ||
 * it.jpg ||

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 ||
 * <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Unskilled industrial workers || <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Knowledge workers ||
 * <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Skills – brawn based || <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Skills – brain based ||
 * <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Hierarchical organisations with inflexible boundaries and rigid roles for workers || <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Flat and boundaryless organisations with flexible roles for workers ||
 * <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Massification || <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Demassification ||
 * <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Key challenge – the management of things || <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Key challenge – the management of knowledge and creativity ||

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">According to Olssen and Peters (2005) the knowledge economy differs from the traditional economy in several key respects:


 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Knowledge enhanced products or services can command price premiums over comparable products with low embedded knowledge or knowledge intensity.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Pricing and value depends heavily on context. Thus the same information or knowledge can have vastly different value to different people at different times.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Knowledge when locked into systems or processes has higher inherent value than when it can ‘walk out of the door’ in people’s heads.
 * <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Let me given you just two clear indicators of the emergence of knowledge capitalism:

=<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">The shift from brawn to brains =

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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):

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">'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.’

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.

=<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">‘Stealth Assets’ and ‘Book Assets’ =

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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:

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">"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".

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">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.

=<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">A Word of Caution... =

<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Some commentators have argued that knowledge capitalism is now stifling innovation, arguing that intellectual property, which is very important in a knowledge economy, is now being overprotected, and that many companies are 'overzealous' when it comes to defending their products. An example of this would be the recent court case in which Apple sued Samsung for $1 Billion. **Andersen (2013) Guardian.** This in turn may dissuade smaller companies from using similar but different ideas as they simply cannot compete in the courts.

<span style="background-color: #ffffff; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;">Despite the emergence of the knowledge economy, we still live in an economy that produces material things

<span style="background-color: #ffffff; color: #4f81bd; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;"> <span style="background-color: #ffffff; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;">‘The digital economy, broadly defines represents $20 trillion of revenues /…/ The economy beyond the Web, by the same estimate, is about $130 trillion. In short, the world of atoms is at least five times larger than the world of bits.’ <span style="background-color: #ffffff; color: #4f81bd; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;"> <span style="background-color: #ffffff; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;">Anderson (2012) __Makers: The New Industrial Revolution__

=<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 16px;">Questions =


 * 1) <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Does this model of knowledge capitalism over-emphasize the importance of knowledge in the contemporary business environment?
 * 2) <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Can you identify businesses that are largely creators and managers of knowledge?
 * 3) <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Who are the knowledge workers of knowledge capitalism?
 * 4) <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">What are the key skills and capabilities that knowledge workers need to possess?

=<span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Sources = Andersen, B (2013) //Knowledge capitalism gone wrong//, Guardian, [] Accessed 10th November 2013. <span style="background-color: #ffffff; color: #4f81bd; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;"> <span style="background-color: #ffffff; font-family: 'Trebuchet MS'; font-size: 16px; vertical-align: baseline;">Anderson (2012) __Makers: The New Industrial Revolution__ <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">, London: Random House <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Burton-Jones, A (2001) Knowledge Capitalism, Oxford: OUP <span style="background-color: #ffffff; font-family: Arial,Helvetica,sans-serif; font-size: 12pt;">Kotler, P., Wong, V., Saunders, J., Armstrong G. (2005) __Principles of Marketing__, London: Prentice-Hall Leadbeater, C (2000) __Living on Thin Air__, London: Penguin Peters, M.A. & Olssen, M. (2005) “‘Useful Knowledge’: Redefining Research in the Learning Economy”. In Ronald Barnett (Ed.) __Reshaping the University: New Relationships between Research, Scholarship and Teaching__. SRHE & Open University Press