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.

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" ?

The end of intellectual property is nigh… and not too soon !

note: this article was first published as a newsletter in January 2004

Many years ago members of the British Parliament were invited at one of the Royal retreats. Mrs Glenys Kinnock, spouse of the then-leader of the Opposition and erstwhile Member of the European Parliament, when in the drawing room noticed various works of art by famous painters stacked back to back in a stand. She reflected, noticeably annoyed, on why these were not being made available to the public given that ostensibly they were not even being enjoyed by the royals themselves. And she had a point.

Of course, having purchased something with one’s own money should mean that one can do with it whatever one damn well pleases. That is the prerogative of "ownership". In this case, however, it meant that the general public was being deprived of enjoying something that was part of their cultural heritage. And given that “enjoyment” is something of value to people in general, it also meant that in this instance value was being destroyed!

In the wider context of Intellectual Property the world applauded Napster and KaZaA for facilitating the free sharing of music, flying in the face of the Music Industry who saw their royalties dwindle. Napster in the meantime has lost its battle against the Industry, interestingly not for copyright infringement - which it did not do - but for effectively “aiding and abetting” such infringement since the files where shared via Napster-operated servers [1].

Several global events then triggered discussions with regard to Intellectual Property that were morally more challenging: the South-African government passed legislation to allow for the purchase of cheaper generic versions of anti-aids drug cocktails to combat the AIDS epidemic in Africa – and were sued by some forty pharmaceutical companies claiming infringement of US patent rights [2]; and the Canadian government was similarly challenged by Bayer [3] when it ordered anti-anthrax pills from Apotex Inc, Canada's largest pharmaceutical company, in response to the terrorist attacks in the USA.

The arguments in favour of Intellectual Property Rights (IPR) are well understood: without legal protection against unauthorised and uncontrolled copying companies would be unable to charge the higher margins needed to cover the research & development costs that copycats do not have. For pharmaceutical companies these R&D costs clearly are significant.

There is however an alternative: given that IPR are increasingly challenged not just by rogue operators but even by governments looking after the social interest, and given that the protection of IPR becomes increasingly difficult – and costly – perhaps IPR are just no longer a basis for sustainable competitive advantage!

IPR should be recognised for what they are: a relic of the ‘old’ Industrial Economy, where ownership is exclusive and business focus is on “I win, you lose” (or: “it’s mine, not yours”) in a zero-sum game conducive to corporate expansionism measured by market share. But in the Knowledge Economy it is no longer possible to “be everything for everyone”. Instead there is increasing talk and interest in collaborative commerce and open innovation models where business success is measured by the agility to combine one’s strengths with those of partners. This is in fact a search for the “win-win” combination where both parties trustingly contribute to each other’s success. Instead of hoarding one’s strengths they are being made available for others to in fact expand the application areas. This is called creating leverage: maximising value while minimising costs (at the very least avoiding lawyers’ fees for patent filing & protection).

Intellectual Property has its place in business: it is a form of Intellectual Capital that sits at the core of Human Capital (sprung from people’s creativity), Customer Capital (valued and coveted by customers) and Structural Capital (belonging to the organisation). But "Rembrandts in the attic" [4] – or in the Queen’s castle - are of use to no-one! Business today is based on knowledge, and the value of knowledge increases with use. So let knowledge be used – the more the better. Realise that the value of one’s Intellectual Capital assets increases the more they are accessed and used. Realise also that other forms of Intellectual Capital besides Intellectual Property can bring in revenues.

Linux proves that success can be achieved without resorting to secretive and protective measures against IPR infringement. Everyone is invited and positively encouraged to contribute to the improvement of the product, making it better for all to enjoy. No “not invented here” nonsense! Interestingly, the number of upgrades and new versions is now very limited – which cannot be said about certain other operating systems.

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[1]     see for instance http://abcnews.go.com/sections/scitech/DailyNews/napsterruling010212.html

[2]     see for instance http://www.observer.co.uk/business/story/0,6903,421887,00.html

[3]     see for instance http://news.bbc.co.uk/hi/english/health/newsid_1610000/1610036.stm 

[4]     A reference to the book with that same title by Rivette K and Kline D