Get your organization ready for new economy

Jeffrey Deckman

04/09/2011

Organizations have two basic types of capital available to them: Financial capital and knowledge capital.
To date, financial capital has been treated as the more important of the two. That is now changing because our economy is transitioning from one that is industrial and manufacturing based, to one that is being driven by information and knowledge.
Since the beginning of the Industrial Revolution, and the economy it brought forth, financial capital has been the primary resource that organizations have leveraged to beat their competition and to produce great wealth. As a result, the need to become highly proficient in the various methods and means that measure, preserve and produce more of that capital have been of paramount importance to businesses for the past 250-plus years.
The advent of telecommunications, the Internet, information technologies, Googling and multiple social media platforms, coupled with the modern work force they helped to create, has resulted in America’s industrial economy being supplanted by the highly networked and energized knowledge economy.
Just as those who came to dominate in the industrial economy used financial capital, instead of land ownership, as their primary tool to gain competitive advantages, those who will dominate the new economy will use knowledge capital as their primary tools. Financial capital, while still very important, is now second to knowledge capital.
To help prove this point, look first at the DotCom bust of 2000 and the recent real estate bust.
Those industries did not lack financial capital. Billions of dollars were lost. And you can’t lose what you don’t have. So they had plenty of money. What bankrupted them was an absence of knowledge capital. They lacked discipline, experience, wisdom and maturity to overcome the self-destructing greed and blind emotion that access to, or the promise of, great amounts of financial capital can create. Another unfolding scenario is what is happening with the exploding government debts at the local, state and federal levels. Our problems are not due to a lack of financial capital, we are taxed trillions of dollars. These problems are the result of a tremendous lack of discipline, wisdom, maturity and intelligence by those making the decisions. The lack of sufficient knowledge capital is bankrupting us.
For more proof, let’s look at what the psychologists are telling us. Studies after study over the past 20 years are disproving the long-embraced myth that money is the main motivator for people. So overwhelming is the data that it is no longer being disputed.
These same studies also define the top motivator for people as a sense that they can contribute their thoughts and ideas in a meaningful way to their organizations. In other words, people are happier when they get to give their knowledge capital to their companies than if they only get to take the company’s financial capital. These stats speak volumes.
So the winners in this new economy will be those who best learn to leverage their knowledge capital and the intellect, innovations, efficiencies and energies it possesses. They will win because they will use this capital to beat their competitors to the financial capital and profits that reside in the marketplace and are available through investors and lending institutions.
To make things even better for the new winners, and much worse for the new losers, is the fact that a very interesting dynamic occurs when you “spend” knowledge capital: It multiplies.
For instance, when I know something and I teach you that something, the amount of knowledge capital in that area just doubled because two people now know what only one knew before. This brings up another very powerful distinction between the two types of capital: Financial capital is a linear asset, whereas knowledge capital is a “viral asset.” Think of it this way: If I have a dollar and you have a dollar, and I give you my dollar and you give me your dollar, at the end of that transaction we both have one dollar. However, if I have an idea and you have an idea and I give you my idea and you give me your idea we both now have two ideas!
Plus the company’s knowledge capital has just been increased, perhaps exponentially, because good ideas have a tendency to spread. People also have a tendency to build upon them.
The need to embrace this new reality of business is crucial because once overtaken by a competitor who is maximizing the value of their knowledge capital, it will be extremely difficult to recover. The competition will have learned how to leverage this new capital in ways that will see them getting smarter, faster while you are just getting started. Then catching them, if you can, will be extremely difficult and very costly.
So, how does one get started? First, start thinking “outside of the Org Chart” and see your organization as a highly functioning, knowledge network whose people have deep reserves of readily available knowledge capital.
Then begin to engage more and manage less. Ask questions, then listen. Give responsibilities and empower. Allow people to make their mistakes and teach them. Be a mentor, not a manager. Expand their knowledge capital and you will perhaps double and triple yours. •