19.1 Managing in the knowledge economy

The competitive position of economies – in particular of the highly industrialized countries – is already or will be determined by their capacity to create value through knowledge. This structural change is reflected in theories of endogenous growth, which stress that development of know-how and technological change are the driving forces behind lasting growth. Knowledge is increasingly recognized as the principal source of value generation (see figure 19.1). The most recent economic growth comes not just from general advances in knowledge and the state of technology, but also from intangible financial products, entertainment, and computer software. Quah calls this “the weightless economy”, which he defines as not just more and better technology, but a reduction of distance between knowledge production and consumers, removing the intermediaries of traditional intellectual property protection and manufacturing. With fast interactions across countries, international learning processes become faster, and new competitors enter traditional businesses. The newest technologies – computers, the Internet – also allow consumers to get closer to knowledge production. The traditional tradeoff between reach and richness of interactions between producer and consumer seems to be no longer valid.1 The newest technologies produce new weightless goods – software, video entertainment, and health and financial consulting services – that can be considered as if they were knowledge. Little sits in the chain between knowledge production and final consumption. As information and communication technologies are the main drivers of this new economy, authors talk about the digital or information economy.2

Despite the preponderant contributions of intellect and services in creating value and growth of modern companies, current management control systems, economic models and social measurement devices focus on physical assets and physical or physically measurable outputs. It is only recently that organizations have started to become aware of their intellectual capital such as the competencies and capabilities of employees, the company’s relationship with customers and