Food For Thought #15: The Knowledge Economy: Your Opportunity Or Your Missed Moment?

We’ve all seen/heard the media reports about the demise of industries and jobs that require only medium or low levels of skill: the closure of steel production; the loss of call centres (some going overseas); the incipient decline in manufacturing; the increasing demands from industries under threat and unions for greater and greater protection; the development of automated mining trucks (no driver required); increasing roboticisation of production lines.  And the change continues apace.  Since the 1970’s the Australian economic base has been shifting from primary and secondary based industries to those which are service based.

This little graphic is illustrative of such a shift.

Back in 1997 Thomas A. Stewart (Intellectual Capital: The New Wealth of Organisations) was discussing this change but focussing more on what was driving the shift (excluding cheap labour) – the rise of the knowledge economy.  So we can’t really say that we haven’t seen it coming!  Nor why we appear to be doing little to address what’s happening now.

We are in the midst of a transition.  The development of human society has seen the passage from one that was predominantly agriculturally based to one that was industrially based.  It is now entering a stage where the capacity to generate and apply knowledge is replacing capital as the driver of enterprise.  We are becoming a knowledge based society and so are our businesses.

It’s suggested that a knowledge based society is identifiable by the key features of:

  • knowledge (in its many meanings) becoming increasingly important, not only as production factor but also a commodity which can be traded.  Knowledge is no longer power but also wealth
  • an on-going explosive growth in scientific knowledge with rapid advances made possible by information sciences
  •  job specific knowledge increasing and those in less intellectually demanding jobs needing more knowledge to work effectively
  • knowledge multiplying at high rates forcing the more rapid transformation of society
  • the ready availability and use of information technology tools giving more people than before the ability to access more information than before, and
  • new basic practical skills are required in the society.

Even a cursory evaluation of these features demonstrates that Australian society is becoming increasingly knowledge based.  Additionally, an evaluation of  Australian businesses, leads to the inevitable conclusion that despite significant investment in capitalised infrastructure, successful businesses are also becoming knowledge based organisations.  In fact more and more businesses are becoming entirely knowledge based.  With time it will become even more so in both developed, and developing, economies.  The race is truly on!

How then do businesses, and you and I as workers, take advantage of the changing circumstances and maintain economic viability during such societal changeOne way is by effectively managing all our assets (including the knowledge assets) and by investing in the acquisition of knowledge that will benefit us over the long term.  The other is to recognise that change is happening and adapt to it.

Why do I include people in the equation?  When you think about it pretty much the same issues face homo sapiens ssps Australis as those faced by a business.  You have to run your little enterprise (your life) in the same economic and societal climate as others and Australian business.  So from this point on, the comments made refer equally to a business, and to your life.  From now on I’ll use ‘enterprise’ to refer equally to Australian businesses and to homo sapiens ssps Australis.

In many enterprises it can be extremely difficult to provide estimates of the true cost and the value added when asked: “How much of your enterprises costs and benefits related to the delivery of products and services are associated with capturing, storing, processing and using information about employees, customers, service providers, infrastructure, operations?”

Any enterprise consists broadly of three types of assets which, when appropriately used, can generate success.  These are its:

  1. Monetary Assets (net working capital) [For Little Old You think ‘savings’]
  2. Tangible (Hard) Assets (anything valued with physical dimensions that is traditionally accounted for in the balance sheet), and [LOY: house, car, etc]
  3. Intangible or Intellectual Assets (anything valued without physical dimension that is embedded in people (employees, customers, suppliers) or derived from processes, systems and culture associated with the enterprise.  Along with goodwill and Intellectual Property, Research and Development is also recognised as an Intangible Asset. [LOY: intellect, education level, particular expertise, experience, etc]

Depending on the type of enterprise the ratio of the different assets will vary.  For example: A bank might have the bulk of its assets as Monetary; a manufacturer as Tangible; a software company as Intangible.  What might be the ratio in the LOY enterprise?

There will always be a component of any enterprises’ assets which are Intangible.  However, management of this knowledge has, until recently, been an “ad hoc” affair.  Increasingly enterprises are improving their abilities to manage and maximise the leverage of their Intangible Assets.  I suspect we can’t say the same for homo sapiens ssps Australis.  To put it crudely:  ‘Adapt or die!’

Intangible Assets are being recognised as large contributors to an enterprises’ market value and the renewal and effective deployment of Intangible Assets is emerging as a critical competency.  This leveraging of Intangible Assets is being seen as a way to develop and maintain competitive advantage.  Both for businesses, and for homo sapiens ssps Australis!

Intangible Assets are increasingly being referred to as Intellectual Capital and enterprises are now beginning to focus on managing this capital more effectively, both in improving overall performance and in delivering competitive advantage.  This is because Intellectual Capital is overtaking financial holdings, real estate, inventories and other Tangible Assets in reflecting the most valuable part of many enterprises.

Taking some industry examples:  In 2006, General Motors (symbolising the industrial era) with considerable Tangible Assets had a market capitalisation of around $US40 billion.  Microsoft (symbolising the knowledge era) with few Tangible Assets had a market capitalisation of around $US70 billion.  How things have changed.  GM filed for bankruptcy and was bailed out by the U.S government.  It now appears that GM will file for bankruptcy again.  Microsoft?  It still remains solvent.

One of the major proponents of the value of Intellectual Capital management, Thomas A Stewart (1997), made the following remarks:  “Systematic management of Intellectual Capital creates growth in shareholder value [LOY think ‘you and your family’].  This is accomplished, among other things, through the continuous recycling and creative utilisation of shared knowledge and experience.  This, in turn, requires the structuring and packaging of competencies with the help of technology, process descriptions, manuals, networks, and so on, to ensure that the competence will remain with the enterprise when the employees go home.  Once packaged, these become part of the enterprises structural capital–or more precisely, its organisational capital.  This creates the conditions for the rapid sharing of knowledge and sustained, collective knowledge growth.  Lead times between learning and knowledge sharing are shortened systematically, human capital will also become more productive through structured, easily accessible and intelligent work processes.”

Thanks Tom!  All very nice for a company but it raises some interesting issues related to LOY and the real value of your Intellectual Capital.  But more of that hot potato another time!

So Intellectual Capital is knowledge that can be converted to profit.  This definition encompasses, inventions, ideas, general know-how, design approaches, computer programs, processes, and publications.  Note: LOY plays a pretty significant role in the creation of this stuff!  And gets paid for doing so.  There are three broad categories of Intellectual Capital:

Human Capital comprising the collective expertise, creative capability, leadership, entrepreneurial and managerial skills embodied by the employees [that’s LOY] of the enterprise;

Structural Capital comprising technologies, methodologies and processes which enable the enterprise to function, basically those elements which make up the way the organisation works [LOY (and others) helped create these]; and

Customer Capital comprising the ongoing relationships with people or organisations to which the enterprise sells its products and services [LOY sells your product/service to your employer/contractee].

Note how easily such definitions can transpose from a business enterprise to your life enterprise.

So what am I trying to say here?

Firstly.  Any enterprise (including Little Old You) is an expression of its knowledge and intellectual activity, and this is intrinsically valuable.  You function as an entity, you provide for yourself (and perhaps others).  Your creativity improves your life in some way and, coincidentally, the Intellectual Capital you have (and create) is/can be of value to others.

And, secondly.  If you are interested in a productive and rewarding future then your Intellectual Capital represents your competitive advantage.  This is how you sustain yourself in a modern society.  As modern society is increasingly driven by knowledge economics more so that by industry or agricultural economics, acting in ways to create, update, and improve your intellectual capital seems to be a logical and sensible way to proceed.  Ensuring that your offspring get the best opportunities in education also seems logical.

These are also very good reasons why Australia should have the very best in education and training, retraining opportunities that are not solely accessible based on the ability to pay.

So where do you want to be?  In the parade – or standing on the sidelines watching it pass you, and your little enterprise, by?  And if you’ve stood on the sidelines, don’t be too disappointed when the parade has passed.  After all, it was your choice!  And that really is food for thought . . . . . . . .!

About deknarf

Australian born and bred who has spent most of his working life in R&D and IP management with earlier forays in the newspaper industry and martial arts. Fortunate enough to be living in one of the best countries in the World, even though I might get grumpy with it from time to time.
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5 Responses to Food For Thought #15: The Knowledge Economy: Your Opportunity Or Your Missed Moment?

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  2. Sax says:

    Why, in Australia’s case, don’t you think protectionism will work ?

    I am not talking about total protection, but every country protects themselves, why should we be any different ?

    Our primary produce is amongst, if not the best quality, in the world, and yet we allow inferior produce from all over the place come in, and kill our local producers who couldn’t in a lifetime, ever compete with the farms of Asia. Hell the OJ concentrate industry of the late last century, should remind everyone of the dangers of cheap imports to local industry ?

    I think you are right though, when you say that our economy should be refocussed. For example, we are now one of Asia’s leaders in Tertiary Education providers.
    Leaders in primary produce, quality and volume.
    Leaders in tech and computer education, innovation and implementation etc.
    So the list goes on.
    The US is beginning to learn the same lessons we are. We can no more compete with manufacturing coming in from Asia, as they can competing against manufacturing coming in from Mexico ?

    The problem is the same as it has always been. The solutions have to be implemented by our pollies, but the typical don’t have to fix it, until an election relies on it ! (ie their jobs)

    IMHO, neither party, at the moment, has the balls, or the knowledge, to do what needs to be done. As to what that is, in a nutshell, who knows what combination of policies will achieve that. The first thing we have to do, is protect our own industries to a certain degree, to keep our population employed, and our economy growing.


    • deknarf says:

      Protected industries ultimately become unproductive and just cost more and more to support against external competition. We had far too much protectionism in the 50’/60’s.
      I’ve always held the view that perhaps we should indulge in ‘tit for tat’ protectionism by whacking large tariffs on goods/services which are being protected in their producer country, and we also produce.
      I object to underwriting companies like Ford, GM, Toyota when most of the $$$$’s provided filter back to their home countries. I know that we need to protect our support industries that feed off these but we should be doing so as a transitory measure while they work towards finding new markets or changing what they do.
      Australia needs to shift towards more elaborately transformed manufactures for example similar to Sweden, Germany etc.
      Certainly maintain our agriculture and mining but these won’t recast (bad pun) our economy over the long term. We need to leverage knowledge to build the great empire of Oz!


  3. deknarf says:

    I’ll agree with you on 3 Sax but not on the others. Especially, protectionism — it just won’t work.
    The whole economy needs to be refocussed away from industries that we can no longer compete in, and those that take taxpayers money so that they can be propped up.
    The refocus will take time and it will take years, and we should have started years ago.
    Your dead right about fifties thinking. This is the 21st century, not the 1900’s.
    And Phoney Tony and his NO Coation are talking about taking us back to the Howard era — spare me! That would have to be the most retrograde step this country could ever take!


  4. Sax says:

    Tough article to read, but will see if I have your point.

    Automation, for want of a better term, has been on the cards since ww2. We all knew, that with the advent of newer technologies, and sciences, higher educational standards et al, that eventually, with the inevitable automation, that would result from these, people’s economic well being would be affected ? Even tongue in cheek, ol George Jetson told us that, with his classic line Geez, these three hour work days are going to kill me that things are going to have to change.

    What has changed though ?
    IMHO bloody nothing.
    We are still running this society, as we did in the fifties.
    Under the b/s guise of supposed full employment, and limitless resources. It doesn’t, and can’t work like that anymore.
    Gone are the days, of 8 hour work days, and limitless employment opportunites. With over a million argumentedly unemployed, we have to shift the way we do things. The ever increasing pace of introduced automation, means that now instead of say 10 people required to complete a task, computerisation and other automation has reduced that to 3, and even then, at half the time, and cost. We have all seen the programs, on the effect of the production line on employment ?

    So what do we do ?
    We started to, but government sh*t themselves, over supposed lost revenue, and uncompetative production preached to them, by the industry lords of power and money.
    That is where the problem is, that is where the problem as always been. There has never been the ‘sharing of wealth’ promised in this country. This includes not only the average worker, who has more than his fair share of wealth, and working rights stolen from him in the last liberal era, but also to the massive shift of wealth back to the wealthy. Instead of wealth sharing, we again have wealth domination, and an even wider class split between the haves and have nots than we have ever had before.

    The only serious solutions are pretty simple really, and they have been bandied about for decades.

    1. Job splitting/sharing, allowing more people to enter into the workforce. This to be paid for by the massive profits that our larger companies are, and have been enjoying for the last n years.

    2. The gradual increasing of our kids educational standards. Keeping our kids at school longer, giving them wider employment opportunities once they exit. As the old expression used to promise ?
    The more you learn, the more you earn !

    3. The successive federal governments that haven’t shown enough balls to protect our industries, from cheap and inferior imports.

    There are many more, but that may be enough to prove my point.
    The only way we are going to successfully employ millions of new people in this country in the future, is to change the way we do things. No more Sol Tojillo’s at $100m or so a year. We have to cut people’s work hours, without loss of pay to them, and these two plans immediately will cure the unemployment problem. Admittedly, there will always be that portion of the population that will refuse to work, no matter what you do, and they will be left behind, but we have to get out of this “fifties thinking” thrown at us by a regime that is out of date, and even more dangerous, out of touch !


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