The myth that is the Knowledge Economy

Many, including myself, argue that we're living in a knowledge economy. But we're not. 

At least: not yet.

There is no question that knowledge is or has become a major driver for our economy: many business models are clearly based on knowledge, rather than for instance the exploration of raw materials or the production of goods out of such raw materials. Still, even in those latter examples knowledge cannot be taken out of the equation.  One can argue - but this is not the purpose of the present discourse - that knowledge has always been, since  the beginning of commerce, a key component in any successful and sustainable business model: knowledge to grow crops or raise cattle, knowledge to drill for oil or mine for ore, knowledge to design goods or adverts aimed at specific market segments, knowledge to convince customers to buy your goods or services.

But today perhaps more that any ever before, knowledge can be the sole driver of a business activity: today's social media and tsunami of apps for our mobile communication devices exemplify our ability to turn streams of information into something valuable for hundreds of millions of people.

Yet therein lies the conundrum: in spite of generating value for so many, the current business models manage to capture but a fraction of that value. The reality is that most social media are used for free by a majority of its members; that the only value captured is through revenues generated from selling information regarding social media users (to potential advertisers or marketing agencies tracking consumer preferences, etc.). This has no relation to ...

how a knowledge economy actually works!

Since 'knowledge is in the eye of the beholder" - and this depends on the context of the beholder -  the value of knowledge cannot be determined removed from the context in which it is to be used. In fact, if and as long as knowledge remains idle, unused, its value is effectively nil!

Moreover, since knowledge is an intangible and as such not bounded by scarcity (in the way that tangibles are), knowledge cannot be consumed but instead may be used again and again, in many different contexts, until such time it has lost its relevance and/or is superseded by other knowledge. One can even say that the more one uses specific knowledge, the more it becomes valuable - which stands in sharp contrast to how the value of tangibles depreciates with usage!

As a consequence the value of knowledge cannot be determined at the time it is shared on a marketplace but only as and when it is used - every time it is used, in whichever context. And so, payment for sharing one's knowledge should be made at the time of use, not of exchange.

Current information and communication technologies have reached a point of maturity and cost, where it becomes possible and practical to log and keep track of who shares what knowledge, with whom, and when and how it is used. That makes for a way to ensure payment reaches those that shared their knowledge with others, in proportion to the value it eventually creates. In effect, the sharing of knowledge earns a share of any and all future value it helps create, an option if you will on future revenues. (And these options may be traded in their own right, but more on that later).

Consider how this could work in the world of consulting or training, both knowledge-based businesses by excellence: Currently they sell knowledge (in the form of advice or presentations and exercises) but only charge for the time spent in sharing that knowledge. That they may charge different rates for their time has no direct bearing on the value that their knowledge holds for the receiving parties. Nor do the receiving parties have the possibility to resell or indeed return what they bought in case it does not meet their purpose. What should happen instead, is that consultants and trainers ought not only sell their time - indeed a scarce resource - but also, and separately, their knowledge.  If the knowledge thus shared fails to yield added value to the client, no additional payment should be due; conversely, if added value is indeed realised, whether in terms of additional revenues, higher margins, higher productivity, cost savings, or other means, then the provider(s) of that knowledge should get a proportional and thus fair reward.

What would remain to be negotiated is of course the size of that proportional reward, i.e. the percentage of added value realised.

Knowledge Market Risks

It is important in this discussion to consider how risk is distributed among both parties in an exchange of knowledge: Information asymmetry makes that at the time of the exchange  the receiving party has little or no idea of how valuable that knowledge will eventually be. This puts downward pressure on what the receiving party should be willing to pay for that knowledge at the time of the exchange. In contrast, the selling party has no way to demonstrate or prove the true value of the knowledge in the context of the receiving party, short of already making that knowledge available. At the time of the exchange of knowledge the risks are therefore significant for both parties: the buyer bears the risk of paying for "a cat in a bag" with uncertain benefits, whereas the seller runs the risk of not getting a fair reward for all future value his/her knowledge helps generate (including, by the way, that the buyer may cut short the period over which future benefits are taken into consideration for the purpose of determining what for them is fair payment).

If instead payment for knowledge is made contingent on future benefits as and when those are realised, then effectively the risk on the shoulders of the buyer (that the knowledge bought may not bring added value) have all but disappeared, and will be limited to the payment of the consultant's or trainer's time. Conversely, the risk on the seller is limited to the buyer not actively putting the knowledge to work and therefore realising much fewer benefits than perhaps anticipated; but the upside is unlimited and at any rate the time spent will be paid for.   

Watch this space ...

A project is currently under way, supported by the European Commission's Horizon 2020 programme, to create a market for knowledge, where knowledge can be shared but paid for as and when it is used. In essence, create what Performance Rights Organisations do in the entertainment sector: collect royalties from users of knowledge and distribute these to its authors.

Interested? Contact me on philippe.leliaert@telenet.be.

The (in)capacity to Follow

A new season of 'The Apprentice (UK)' has started (BBC One, Wednesdays 9-10pm GMT). While I do not care much for reality TV, I find this one to be compulsive viewing. And one I would definitely recommend any student of organisational dynamics to watch.

Here is how it works: Around 20 candidates start an elimination process, whereby one will get a "six-figure salary job" working for Lord Sugar (in the US version, the employer is Donald Trump). The process is a series of tasks or challenges, in which the candidates, split in two teams, compete against each other. For every task, each team has to select one of its members to be project manager, and lead the team. These tasks can be about developing an advertising campaign for a new type of fizzy drink, organising an auction for a charity, selling works of art by budding new artists, making and selling soup from a market stall, and so on. Typically, the team that generates the most profit wins and is safe for another week, but from the losing team one candidate will be fired - meaning: has to leave the show. After 19 weeks, the last man or woman standing gets the job.

There is a paradox in the show's title: although Lord Sugar is deemed to look for a new 'apprentice', someone to whom he can be mentor and coach, in reality he invariably tests leadership skills, the ability to convince others, to sell, to graft. Which is clearly understood by the candidates, a motley crew of alpha males and females who all think themselves to be the best thing since sliced bread, the kind of innate leader Lord Sugar is looking for to head up one of his business units; by definition second to none of the other candidates.

As a result they're constantly jockeying for position, especially when the task at hand is something they have had some remote experience with, which then leads them to claim unquestionable expertise - and hence leadership - in the matter. And here is where it all gets interesting: The candidates' inflated self-image (and obvious self-interest relative to the final outcome of the entire process) usually results in some subversive behaviour on the part of team members relative to their project manager. Which eventually turns to bad-mouthing and backstabbing and on occasion into open conflict. Even though they must realise that such behaviour puts the team result in jeopardy, and therefore puts themselves at risk of being fired.

Why is it that people applying themselves to be leaders, have such difficulties at following someone else's lead?

For all the wisdom in books, courses and workshops on leadership, there are literally but two handfuls of books - and zero courses - on followership, even though it must be clear to all that without followers there can be no leaders! 

In the words of Derek Sivers: "the first follower is what transforms a lone nut into a leader".

My research into followership styles and behaviours (subject of my doctoral thesis) reveals that these are not but effects of leadership styles and behaviours - a widely made assumption in leadership theories and models. Instead, followership styles and behaviours may be developed and nurtured in their own right, independently from leadership!

Watching programs like The Apprentice, I'm certainly encouraged by the apparent need for training and development of follower skills.

Why we're not (yet) living in a Knowledge Economy!

You've probably heard (of) the story of Charlie and the Chocolate Factory. Here's my version: 

Charlie had already retired from the local chocolate factory, when the machine he had operated for over 30 years broke down. No one could figure out what the problem was, let alone fix it. So they called in Charlie, to come and have a look. He duly obliged, and spent about five minutes assessing the situation. He then produced a piece of chalk, and drew a cross on a panel at the side of the machine. "Get a hammer", he said, "and hit it here". So they did, and lo and behold, the machine started working again.

"Great!" the operations manager said, and he asked Charlie what he wanted in payment for his troubles. Charlie thought for all of 3 seconds and said: "that'll be €10,000"! 

The manager managed to hide his surprise and asked whether Charlie could break that down somewhat. "Sure", said Charlie: "that's €1 for the chalk, and €9,999 for knowing where to put the cross."

If selling knowledge were only that simple!

The reality is that, today, no-one is selling knowledge.

In case you're wondering about that, just have a look at what it says on consultants', trainers', or doctors' invoices: you'll find what's being sold is TIME.

The laws and dynamics of our economies are based on the utility of scarce goods, and are as yet unable to deal with the boundless supply that is inherent to intangibles. Time is most often used as a proxy for knowledge, because time is (i) scarce and (ii) objectively measurable; two valuable characteristics that prevailing market dynamics just love.

But as the story of Charlie shows, time spent has actually no bearing on the value of the knowledge that was put to work.

ROI of Olympic Gold ??

We've just seen a great Olympics. Granted, us Belgians did not have much to cheer about, but given that half my family is British, we still had plenty to celebrate. 

The question needs to be asked, though: was it all worth it?  

A couple of news articles caught my eye in this respect: First there was this report by Richard Anderson of the BBC, focusing on what each gold medal cost the nation. And we're not talking about the value of the gold that makes up the medal - an estimated GBP450. It concerns the investment (funded about 60/40 by the National Lottery and by the UK Exchequer, i.e. tax contributions) in elite training programmes. 

Of course, the funding is not equally spread across all individual sports. It's a "chicken-and-egg story" where funding is awarded on the basis of (past) successes.

Let's have a look at the table (data courtesy of UK Sport, based on a study by prof. David Forrest of the University of Salford):

Bottom line: each medal cost on average GBP5.9 million.  As Richard Anderson pointed out: "you won't find too many Britons complaining" since that works out as less than 10p per UK taxpayer.

Now, contrast that with this, and other similar stories on what olympic success will bring to the likes of Jessica Ennis and Mo Farah: sponsorship deals valued at up to GBP5 million per year!

"Fair enough" you say? 

Consider the following: Would a government invest taxpayers' money in building a bridge to a scenic island and then let a privately-owned company charge access fees to visitors without having to pay anything back to the government (other than taxes)? Or would a company invest shareholder equity in developing a brand or an invention and then allow one of its employees or business partners commercialise that brand or invention, without having to pay a royalty or commission? No way, indeed. It just doesn't make sense for one to bear the costs (and risks) of such investments if the rewards will go to someone else anyway. On any investment, there has to be a fair return - commensurate with the risks taken.

My contention is: if money is invested in making people successful as athletes (and by extension: as researchers, tv-celebrities, craftsmen, etc.; see also my earlier blog) then they owe a dividend out of their future earnings to those investors. 

The investments made by UK taxpayers (as well as sponsors) into Team GB constitute a shareholding into their future commercial success, which obviously includes individual sponsorship deals. In that way, the athletes would also become accountable - to their shareholders - regarding how they perform both on and off the field! 

And even when top-earning talents were to move to Monaco at the soonest opportunity to minimise their tax-bills (effectively obliterating any investors' ROI from taxes in their home country), their home nations could and would still benefit - as shareholders.

Corporate Governance in Belgium: painfully missed opportunities

Over the past few months and years there have been several instances where executive (and non-executive) remunerations have been criticised for being out of touch with the economic reality; cases like Dexia, BNP Paribas Fortis, Belgacom, Bekaert, to name but a few, have resulted in headlines that are reminiscent of those in the late eighties and nineties, where much focus was given to executive remuneration in the wake of the corporate governance movement (cf. Cadbury Report and Greenbury Report in the UK). 

Such cases furthermore demonstrate that these instances are not confined to the banking sector, widely blamed for triggering the recent worldwide economic troubles, nor to the private sector.

What's interesting, however - and perhaps rather unfortunate - is that the Belgian codes of corporate governance happen to be named after Baron Lippens and Baron Buysse, two protagonists in the aforementioned companies ! 

Interesting because they do not appear to know - or want to apply - what's in 'their' codes.
Time and time again the chairmen of the respective boards stressed that their "executive remuneration was perfectly and scrupulously in accordance with the law", and could not understand nor agree with the public backlash. But time and time again they chose to miss an essential cornerstone in any code of corporate governance: namely that such code aims to address accountability and (socially) responsible behaviour on the part of corporate officers well beyond their legal obligations. Codes of corporate governance always complement the law, especially where additional legal restrictions or obligations would be difficult if not impossible to draft, let alone implement. As the Code Lippens says, in relation to CEO's 'golden parachutes'  "which are very difficult to regulate through legal initiatives due to their impact on other remuneration systems": a code of corporate governance can be more effective (than the law) and offers the necessary flexibility to make appropriate recommendations on a case-to-case basis.

It is therefore but a diversionary tactic, to claim that everything was done within the law: Of course it was! But was it in accordance with good corporate governance, or with socially responsible behaviour? 

What causes people to perform BELOW their capabilities when in teams ?

I've been reading a most interesting book: Images of Organization, by Gareth Morgan. One of the chapters explains dialectics - "the study of opposites" - as a way to understand how both positive and negative feedback phenomena shape the nature of stability or change in an organisation.  It has given me new insight into why it is that some people appear to perform below their individual capability, when operating in the context of a team (and perhaps in particular circumstances). Such is evident not only in sports teams, but also in companies !

Positive feedback loops result in 'virtuous circles' or 'self-fulfilling prophecies'. One example is the success of the football competitions in the UK and Spain: exciting games combined with supporter fanaticism result in high attendances, which attracts high media interest, which leads to high revenues for the clubs (and the league association), which allows them to attract the best players for top wages, which eventually leads back to exciting games.

But there are clearly also negative feedback phenomena, which provide counterbalance to such positive feedback. For instance the sometimes excessive behaviours of some top players (who cannot handle their fame, their wealth, their god-like status, etc.) putting negative pressure on their market value; excessive players' paychecks putting clubs in financial distress, which in turn has already resulted in some clubs resorting to game-fixing, with catastrophic (albeit not unsurmountable) impact on the game's reputation and consequent revenue potential.


I'm particularly interested in similar positive and negative feedback phenomena within teams.

Especially in sports it seems that team performance more often than not depends on the heroics of individuals. For instance in football (soccer) it is the strikers and goalkeepers who usually take up (or are given) that role of 'hero'. But that then puts them in a paradoxical situation: do they take up their team role (eg. strikers defending when their opponents have the upper hand) or do they save their energy for those few occasions when they're in a position to shine as 'heroes' ? 

The dilemma extends to your role as team manager: Do you criticise a striker for taking a shot at goal - which is his role - rather than passing the ball to a better positioned teammate ? Does it depend on whether or not he actually scores ? Should it matter whether he scores ? And, crucially, how does this affect the behaviour among the other team members, since individual heroics, especially when they do not have the desired outcome, could well increase individualism and/or indifference among the others and thus have a negative impact on team performance ?


Similar dynamics and dilemmas are present in companies, where some have let's call it "more visible" roles than others, and perhaps are given the credit for what, ultimately, an entire team has achieved. Like the conductor of a symphonic orchestra getting all the credit for a beautifully executed piece of music even though he or she has not produced a single note ! 

Of course one can think of situations (i.e. context) where this is entirely appropriate. And much will have to do with organisational culture, too, and with personalities. As is demonstrated in sports, different teams can follow different strategies - and be successful - according to where their respective strengths lie and what their team values are.

The bottom line for me is the following: notwithstanding the saying that "there is no 'I' in 'team' ", team performance still very much depends on the performance of individuals - and on some individuals' performance more than that of others. It is important to understand the relative strength of positive and negative feedback loops between team and individual performance to understand how this will affect individuals' attitudes and behaviours, and how this will ultimately make or break the team.  

Thus it could well be that team performance is best served when some members perform below their individual capabilities! And that it is best served when everyone contributes to the heroics of a few team members, where such individual heroics contribute to team performance. But what you do not want to see, is that individual team members pursue individual heroics at the expense of team performance. 

The New Venture Capitalists of the Knowledge Economy

Bart De Wever's column in today's De Standaard touched on a number of relevant issues: since Flanders has few, if any, natural resources and most of its traditional/historical manufacturing industry (iron & steel, non-ferrous metals, industrial machinery, wool & cotton, glass, ...) has scaled down, been taken over by foreign corporations and/or been off-shored, the only 'resource' it has left to export is its knowledge, i.e. brainpower. Which leads Mr De Wever to discuss the current state of education in Flanders, and in particular the need to adjust the education system to the changing demands of society. 

It reminds me of one of several amazing quotes in the series of YouTube clips "Did You Know?" (for instance this one focused on Technology): "We are currently preparing students for jobs that don't yet exist,... using technologies that haven't been invented... in order to solve problems we don't even know are problems yet." It strikes me that the real venture capitalists today are in fact our student generations: taking considerable risk in choosing to specialise in a given discipline to become a knowledge expert in that area, in the hope but without any certainty that this investment of time and money will provide for a decent income (the ROI).

It all used to be so different, when diplomas were an entry ticket to almost-sure jobs (often: jobs for life)!

My point here is: Don't we also need to change the way we treat (and reward) these new venture capitalists in the knowledge economy ? 

Consider in that context what Drucker said: "the assumption on which all organizations have to conduct their affairs is that they need the knowledge worker far more than the knowledge worker needs them" ! How long before these new venture capitalists will say - in true Dragons Den style - "I will come to work for you, but I want (double the) equity" ?