Economic Roulette

Lucardie

When asked, any random manager will confirm that knowledge is ‘very important’ for the sake of stability and expansion of a business. Yet when

you look at strategic decision-making, the value of knowledge diminishes. However, without knowledge no single business process can deliver any real added value. What is going on?

Transitions are visible within any economy: from an agricul-tural economy via an industrial economy to a knowledge-driven economy. The recurring pattern is that, at the start of a new phase, the current dominant production factor is mo-nopolised. This initial focus remains, up to the moment when the inefficiencies accumulate to unacceptable level and the production factor is released on the market out of necessity. To illustrate, in an agricultural economy land became com-mercially tradable after a period of foreclosures in the feudal system; and in the industrial economy, mercantilism realised its monopolising tasks for countries with respect to capital.

Within the knowledge-driven economy, typified by complex and therefore knowledge-intensive processes, knowledge is the object of a delicately orchestrated monopoly. Knowledge is made invisible within an expensive and extensive produc-tion, and in roll-out, usage and maintenance of information: with regard to processes, products, legislation, work instruc-tions, scripts and software specifications. This information is often incomplete, inconsistent and incorrect; and the manner in which it is conveyed is also not always understandable - an example of this is unclear product information. The current and most obvious example of such is the usury policy affair, where products turned out to be more expensive and revenue was much lower than what we were initially led to believe. At present, the lack of transparency on policy fees can even result in the postponement of compensation, which was previously promised by insurers to disadvantaged usury policy holders. For the present, complexity protects the product provider.

The mechanism of the knowledge monopoly keeps many people in their jobs, but eventually reduces the productivity of businesses. The continuing financial crisis and the connected non-transparency of products make it clearer that this is not a sustainable approach. Only when complexity and short-comings are brought into the public eye, when highlighted in TV-programmes such as Tros Radar and in publications in the

paper Financieele Dagblad, the need for transparency is raised: drowning in information, thirsty for knowledge. Regarding people as knowledge workers represents a form of knowledge monopoly. Individual knowledge is barely scalable and moreover it is expensive. Knowledge building through training courses at call centres leads to decapitalisation: within a period of 1.5 years an entire population can be diverged. Furthermore, many applications are not suitable for captur-ing knowledge. This materialises in extremely high costs for production and maintenance which cannot be compensated by outsourcing. Research even shows that there is no significant relationship between the level of the expenses for IT and the profitability of a company.

Knowledge has unprecedented economic value. However, it is becoming increasingly clear that we, in this knowledge-driven economy, do not understand the importance nor the imple-mentation of knowledge; making us act like economic cheats who do not grasp the rules of the roulette game. The financial crisis is not an isolated phenomenon, but a manifestation of a structural problem. Knowledge is the ability to realise goals, and this requires an alternative method of defining concepts. Taking the goal as a starting point ensures that concepts are defined differently. This will help reduce the abundance of information and to clear away complexity as much as is pos-sible, as well as to achieve more transparent structures in, for example, product information. In addition, people can be knowledge holders if this is the only or the most useful option. Software will have to become a transparent and flexible knowl-edge holder.

Key definitions from economic models, such as investments, labour and productivity should undergo a gradual adjustment as well. Investments are still seen as an activity aimed at mate-rial assets, and investments in knowledge are still perceived as an expense. Labour is implicitly defined as physical labour - in a time when people work with definitions, models and knowl-edge and often hardly put any physical effort in the working process.

IK, ninth volume, number 1, 2010 13

Prof. dr. Larry Lucardie is CEO ofKnowledge Values(Larry.Lucardie@knowledge-values.com)