The knowledge economy revolution [EKM series]

Editor’s note: This is a continuing serialisation of edited portions of Andre Saito’s PhD.

In the economies of most developed countries, knowledge has already supplanted capital, land and labor as a factor of production. In a knowledge economy, value is created mainly through new ideas on how to arrange resources, and knowledge and technology are more relevant than raw materials and cheap labor. This introduces fundamental alterations such as:

• Changes in economic structures
  • the establishment of a knowledge sector in the economy, responsible for the continuous production and dissemination of knowledge (Machlup, 1962; Bell, 1973)
  • the consolidation of technology-based and other knowledge-intensive industries (Stehr, 2002; Foray, 2004)
  • the prominence of knowledge work compared to more traditional forms of labor (Drucker, 1993; Reich, 1991)
• New competition dynamics
  • accelerating pace of innovation in products, services and organizational practices
  • “creative destruction” as a succession of more effective technologies and practices destroy previous arrangements¹
  • new firms with new ideas, changing the definition of products and markets and not simply lowering prices of commodities, are the driving force behind economic change²

In this knowledge economy we see the rise of knowledge workers, whose autonomy, distinct interests and motivations, and considerable independence and mobility require a different approach from a conventional workforce.

Knowledge work and knowledge workers

Knowledge-based organisations face the challenge of handling distributed knowledge, that is, knowledge not completely available in any single mind. Valuable knowledge results from contributions of many people, and a critical management task in a knowledge-based firm is to integrate knowledge from a range of specialists. A variety of coordination mechanisms is necessary to facilitate collaboration and knowledge sharing, and to promote the collective knowledge creation process. Such coordination must balance a series of trade-offs, like that between the need for common knowledge for better communication and diverse knowledge for deeper innovation, and that between the need for exploitation of existing knowledge and exploration of new knowledge (Grant, 1996; Nonaka and Takeuchi, 1995).

The distributed nature of knowledge also manifests itself at higher levels of organization. Very few firms can independently master the wide range of knowledge needed to compete in ever-changing innovative contexts. Thus, firms need to constantly scan the environment for valuable knowledge and develop agreements and partnerships to have access to it (Almeida et al., 2003).

This requires the improvement of their absorptive capacity, or the ability to recognize the value such knowledge, to assimilate it, and to apply it successfully (Cohen & Levinthal, 1990). Also, as the complexity and required resources for innovation continue to increase, such alliances progress to interorganizational networks, where knowledge emerges and flows through myriad modes of cooperation (Rosenkopf, 2000).

People doing knowledge work are usually characterized by high degrees of expertise, education, or experience, and their work is commonly associated with problem solving, judgment, and creativity. The uncertainty and variation involved in such work makes it difficult to control and supervise them directly (Newell et al., 2002; Alvesson, 2004).

Furthermore, knowledge work cannot be forced, it must be contributed willingly. Knowledge workers tend to be motivated by intangible factors, like challenging work where they can learn and develop their skills or peer recognition for their expertise. Also, they are usually committed more to their professional network and personal career than to the employing organization. Thus, they tend to be more independent and show a higher degree of job mobility, posing challenges regarding knowledge retention and protection (Davenport, 2005).

All of these challenges to improve the utilization, transfer and creation of knowledge in these organizations directly inspire the discipline we call knowledge management (KM) today.

Next edition: What is the scope of knowledge management?