Knowledge ManagementProf. Lucia MarchegianiRoma Tre University

THE RISE OF THE KNOWLEDGE ECONOMYCLASS ONE

The Internet revolution

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• Informatics boom Heavy impacts on society and individual lives besides economics

• PC and mobile devices serve multiple purposes: typewriters, archives, libraries, post offices, banks, supermarkets, newspapers, weather forecasting, TV, cinemas, games, financial markets, videoconferences….

• Technologies that drive information and knowledge are at the roots of values:• Industrial capitalism Cultural capitalism• New renaissance: man&technology at the core• Innovation and creativity: reinventing goods and

services, new businesses

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The Internet Revolution• Time is key (and no longer

space): speed; real time• E-commerce: Web revolution =

Railways : Industrial revolution• Clients at mouse lenght:

opportunity but also risk (competition at mouse lenght)

• Closer relation between industry and finance:• Expectations drive value• Value propositions drive

expectations• ICTs raise total factor productivity

• E.g. P&G savings 20%-30% due to the intensification of Internet usage

• Debate about sustainability of this system: • Security issues• Privacy issues

• Digital divide

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Global Information Infrastructure

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Video

Voice

Books

Film Documents

PicturesCommercial transactions

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EDigitalization and convergence

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EContext

Globalization

new economy

post-industrial society and economy

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Which innovations for firms?

• New technologies• New managerial cultures and styles• New organizational principles• New internal relations

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Firms change

organization culture

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New economy changes

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Economic relations

Customers’ lifestyle

Firms’life

Goods manufacturing Ideas generation

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New economy changes

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FORDISM POST - FORDISM

Heavy manifacturing Intangibles

Intellectual capital

Quality in work

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Timeline

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Definitions• The essential difference is that in a knowledge economy,

knowledge is a product, while in a knowledge-based economy, knowledge is a tool. This difference is not yet well distinguished in the subject matter literature. They both are strongly interdisciplinary, involving economists, computer scientists, engineers, mathematicians, librarians, geographers, chemists and physicists, as well as cognitivists, psychologists and sociologists.

• Various observers describe today’s global economy as one in transition to a “knowledge economy,” as an extension of an “information society.” The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalized economy where knowledge resources such as know-how and expertise are as critical as other economic resources. According to analysts of the “knowledge economy,” these rules need to be rewritten at the levels of firms and industries in terms of knowledge management and at the level of public policy as knowledge policy or knowledge-related policy.

• Source : http://en.wikipedia.org/wiki/Knowledge_economy

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The turning point

• Crisis of Fordism

• Productive knowledge, once based on rationality, starts to be socially distributed

• The knowledge of a single firm sums up with the one of its suppliers, customers, workers. They all share the productive chain and knowledge

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KNOWLDEGE AS A STRATEGIC ASSETCLASS TWO

Knowledge as a strategic asset: characteristics and anomalies• Why has knowledge become the first productive asset?

• Knowledge as an asset does not obey the traditional economic laws

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Find the differences

• First Anomaly:• For traditional factor, the cost of re-producing

is similar to that of the first production• If the product is sold, it is possible to

recombine the factors to produce it again

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Knowledge economy• Knowledge does not deteriorate with the use

• Knowledge multiplies when shared• When the traditional factor (work and capital) have

produced knowledge, they have been radically transformed

• Irreversible change• Knowledge re-production (e.g. copy, imitation) is a

completely different process than the one of producing it

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Knowledge as a strategic asset 2• Hyp: Knowledge is an intermediate factor

• Ex: use of work and capital in R&D activities produces knowledge and skills that can be applied to a new product/process

• This would make knowledge comparable to other factor

• Traditional economy = Knowledge Economy

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Find the differences 2

• 2nd anomaly• For traditional factor, the diminishing return

law applies• Knowledge is not “consumed” with the single

use, it is renewable at very limited costs

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Supply and demand• The quantity of goods or services

demanded and subsequently supplied determine the price of goods or services. • The laws of supply and demand dictate at

what price and quantity the economy operates most efficiently – the point of equilibrium.

• In a true knowledge economy, knowledge and information are demanded and supplied. The economic system finds equilibrium.• The shape of the knowledge demand

curve follows the same path as the manufacturing demand curve. The more one piece of information is demanded, the more value the market will place on that knowledge asset (directly proportional).

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Supply and demand 2• The shape of the knowledge supply curve, on the other hand,

does not follow the same principles as the manufacturing supply curve.

• For a manufacturing supply curve, the price of a physical asset decreases as its supply increases (inversely proportional).

• For a knowledge supply curve, the price, or value, of a knowledge asset increases as its supply increases (directly proportional).

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Equilibrium in the knowledge economy is achieved when the supply curve perfectly overlays the demand curve. As a result, an infinite number of equilibrium points occur

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Basic concepts• Information

• Information goods• Value of information to different customers

• Entertainment/business value

• Knowledge• Cost structure of information providers

• High fixed costs, low marginal costs• Value-based pricing -> differential pricing• Versioning

• Delay

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Information

• Information as experience good• The economics of attention

• Simon “a wealth of information creates a poverty of attention”

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Knowledge• The more information on a subject that exists, the more it

is valued.• Knowledge follows a law of conservation. As knowledge is

consumed, it does not disappear as a physical asset does. Rather, knowledge has infinite duration. • Side note: In physics, this law is known as the conservation of

information. There also exists the information paradox which some physicists have argued exists at the singularity of a black hole. As matter collapses in a field of infinite gravity, does the information stored in atoms disappear?

• As knowledge is utilized, more knowledge is generated. Two pieces of knowledge come together to form new knowledge. The production of knowledge is an infinite, self-perpetuating process.

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Technology• Infrastructure is to information as a bottle is to wine

• Store, search, retrieve, copy, filter, manipulate, view, transmit, receive

• Systems competition• Different components are madeby diffeent

manufacturers• Different production and business models• Complementary produts -> complementors

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Technology and barriers to enter

• Lock-in and switching costs• Once you have chosen a technology, or a format for keeping

information, switching can be very expensive• Own experience?

• Positive feedback, network externalities, and Standards• Positive feedback makes large networks get larger• Demand-side economies of scale: the key challenge is to

obtain critical mass• Self-fulfilling expectations• Timing of strategic moves

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The Digital Divide• The Digital Divide refers to the gap between

those who “have” access to the Information and Communication Technology (ICT) and those who “have not”

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Digital Divide

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Digital Divide

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The Digital Divide

• Richness: • Quality of information• Interactivity, cost, relevance, security, accuracy…

• Reach: • Dimension of the population of users that can

be reached by the information

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Digital Divide

The Richness-Reach Tradeoff

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Digital Divide

IBC_DD

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Usage of social media• Not always good for companies

• Epic fail

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