The Knowledge Economy

The source of economic value and wealth today lies less in the production
of material goods and more in the creation and manipulation of
information, knowledge and ideas.

 This new era, which some call the Knowledge Economy, is rewriting the rules of business and forcing a radical rethinking of corporate value. The industrial era enterprise models are no longer adequate to meet the dynamic conditions of an ever-changing world market. Knowledge intensive enterprises are calling forth a new approach to work, organizations, accounting, and business.

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This emerging economy goes by many names. People have suggested that the new economic base is ideas, information, attention, knowledge, and experience. By whatever name it goes by, it is clear that the underlying dynamics of wealth generation are changing. The rules of the knowledge economy will be fundamentally different than those in the industrial era. Increasingly, the economic landscape is being molded not merely by physical flows of material goods and products, but more importantly by intangible value and streams of data, images, and symbols. This is ushering in a quantum leap in the order of enterprise complexity. Interwoven exchanges of material goods, strategic and tactical knowledge, and exchanges of intangible value and benefits are becoming the source of value and wealth creation. Currencies of exchange are no longer just money, but also knowledge and intangible value such as prestige and customer loyalty. In this environment, the old accounting, enterprise and economic models no longer capture current reality.

The focus on knowledge is actually the current phase, possibly only a transitory one, in the evolution of Western thought from the Cartesian mechanistic worldview based on Newtonian physics to a more dynamic interconnected view that corresponds to insights gleaned from quantum physics, complexity theory, behavioral science, and living systems. Leaders can play a powerful role in helping the economic and business world translate this new understanding of life that has emerged in recent years in terms of what this means for the way we do our work and how we manage organizations.

At the enterprise level this shift to new fundamentals is causing a reevaluation of virtually every aspect of organizational and economic life from how we define value to questions of ownership through the quest to find meaning in our work and even “spirit” in the workplace. Consider though that almost every analytical method and tool used in business and economics came out of the old industrial model and its underlying Newtonian worldview. Too often in exploring these very new ways of looking at the world, we fall back on mechanistic analogies and production line tools such as flow charts. How many consultants, I wonder, eagerly tell their clients they are going to help them “do” knowledge management and then begin with a flow chart -- a tool that originated to address linear, mechanistic processes? This dynamic new world of knowledge and value will require a very different new generation of tools and lenses.

©1998-2009 Verna Allee