"A knowledge driven economy is one in which the generation
and exploitation of knowledge has come to play the predominant
part in the creation of wealth" (UK Department of Trade
The European Round Table (ERT) is a group of 47 leaders of
major European companies covering 18 European countries with
a combined turnover greater than 800 billion Euros. Together
they employ nearly 4 million people worldwide. In October 1999,
key managers from ERT companies involved in all aspects of knowledge
management met for a two-day workshop on managing in the new
economy. Hosted by BT at their Adastral Park research laboratory,
these senior managers believed that knowledge management and
the emerging knowledge economy were of such importance for the
continued competitiveness of Europe that a paper should be prepared
for the ERT and used to help influence Key European bodies and
business. The following are the conclusions following interviews
with these key knowledge leaders, discussions with leading experts
and gurus from academia, companies around the world and the lead
members of ERT who guided the develop of the recommendations.
The traditional industrial economy model and paradigms are
being challenged and rewritten because of some fundamental changes
in the marketplace:
- New production, communication and information management
- Globalisation of the market place and the removal of trade
- Openness and availability of information creating more demanding
and discerning customers
- All three previous drivers creating a fourth, the ever increasing
speed of change and complexity of market dynamics and solutions.
Success in the new economy is based on creating and exploiting
knowledge and innovation faster than your competitors. In this
economy knowledge is the main source of wealth for regions, nations,
enterprises and people.
This new knowledge economy is based on economic values far
removed from those of the industrial economy. Value has shifted
towards intangibles and in particular towards increasing value
by incorporating knowledge into services and products.
Once you take out the traditional Industrial age balance sheet
items such as stock, cash, Debtors, buildings etc, you will find
more than 50% of the market valuation of most listed stock market
is attributed to non tangible assets. Assets such as: Brand,
customer base, their profile and relationship, intellectual capital
and capability of the people. The key now is how to assess the
value and actions to take to develop and exploit the value of
these intangible assets. Winning enterprises are those best able
to harness the benefits and opportunities of IT, capitalise on
their knowledge base, and move at the speed of the market. Europe
is lagging significantly behind the US in seizing these opportunities
and in managing and exploiting the wealth of knowledge that it
has. Europe must now define its own path towards a new competitive
agenda - or lose out.
The main driver this century to improve productivity and business
performance has been mechanisation. Large Corporates thrived
by employment of mass production techniques, and systemisation
of processes which ensured an average annual 3-4% productivity
improvement. However from the 1960's onwards productivity growth
has slowed steadily, 80% of jobs are in the services and solutions
sector not in traditional production. Productivity here is growing
at less than 1% annually. This is because the new source of productivity
and competitiveness is knowledge. The need to create, share,
re-use and exploit scarce knowledge such as customer contacts
and preferences, solutions development and reuse, innovation
and creativity. This is currently largely being sought through
the use of new technologies. Digitising transactions and allowing
the customer to control these transaction on line is an example
of a quick win. For example a traditional teller transaction
in the states costs $1.07, on line it costs 1 cent. BT has enabled
its customers to manage its friends and family selection on line
reducing costs from an average £1.20 a time to 18 pence.
However further success in exploiting technology and knowledge
lies in the development of new skills, development of collaborative
behaviours and cultures, increased freedom and support to risk
take and other so called soft issues.
The ERT companies have recommended two key areas Europe needs
to address quickly and is working with the European Commission
to help address them.
2. Two Key Areas for European Wide Action
New Economy Financial and Business models: The new fast moving
networked environment of collaboration and co-operation requires
new financial and business models. These new models need to be
developed and evaluated to ensure that they support and value
creativity and innovation and that they predict where investment
of risk/venture capital is required to enable innovation to be
brought to market.
These models need also to enable the valuation and exploitation
of intellectual capital.
People and Social attitudes: Companies, and their people,
need to recognise the shift from entitlement to employability
and develop partnerships with individuals to increase their capability,
whilst at the same time leveraging their full potential. The
social culture in Europe has attributes such as 'it is bad to
fail, knowledge is my power base, success or making money is
anti-social'. These inhibit the knowledge economy.
3. The knowledge Based or Networked Organisation
In the knowledge economy the traditional factors of production
- machinery, labour and capital - have ceased to be the primary
assets. The new assets and driving forces for companies are the
ability to innovate, create new products and exploit new markets
- through exploitation of people's skills and knowledge and of
interactive information technology. This new economy is customer
driven - whoever owns and satisfies the customer interface wins!
Large corporate are increasingly struggling to deliver solutions
and services through wholly owned resources. Increasingly partnerships
and networking through a virtual value chain is the answer. The
impact on Corporates is clear. In the United States, 30 years
ago, two thirds of workers were employed in these large Corporates
or in national/local government. Now two thirds are employed
in small to medium sized enterprises and Corporates have radically
downsized and continue to refocus their business strategies and
"In the knowledge economy speed of product development
and penetration will be critical as will the ability to partner.
The ability to attract potential partners will be influenced
by perceived ability to unlock expertise." (GKN)
The knowledge economy requires not only strong and flexible
customer relationships, but also strong and flexible relationships
with other organisations - partners, suppliers, and emerging
e-businesses and in some circumstances, with direct competitors.
Strong and flexible business networks are required; networks
in which each participant can contribute to the value chain in
the areas in which they can be market leaders. Companies will,
increasingly need to identify and focus on doing what they are
world class at and partnering with centres of expertise and knowledge
in those parts of the value chain that they do not have world
beating competence in. In BT they have launched a Knowledge Network
called Mobility Leaders. Joint Ventures, wholesalers, retail
businesses, mobile phone producers and network operators can
join and they trade knowledge! For example new mobile network
start ups in Asia_Pacific can draw on the knowledge and expertise
of BT Cellnet, Nokia, Ericcsons and others to avoid classic pitfalls
in developing networks, avoiding fraud and attracting business
thus minimising costs of repeated mistakes. Each member provides
the knowledge which underpins their particular world class capability.
4. Mastering change
Achieving networked businesses and the essential value shifts
requires the ability to operate flexibly in a very fast-moving
marketplace. The ability of individuals to acquire new skills
and capabilities is key.
"Europe must develop its skills in faster responses,
customer orientation and speed in adapting to market conditions"
The current culture in Europe punishes failure, frowns on
success and making money and fosters the concept that knowledge
To thrive, organisations need to create an environment in
which knowledge is valued, people are encouraged to create and
share knowledge, and knowledge is used innovatively for the benefit
of customers. Knowledge management practice must simply become
good management practice.
"The knowledge economy is one in which organisations
profit by proper creation, management and distribution of knowledge"
In compiling this report, we found that within ERT companies
there are already many initiatives with a knowledge focus - all
designed to increase corporate capability and competitiveness.
However, there are also many challenges and opportunities still
to be addressed.
5. ERT research - key findings
Through interviews with ERT executives and other experts in
Europe and the US, we have identified a number of challenges
and opportunities that may prove to be key drivers in either
helping or hindering European efforts to compete effectively
in the new economy.
|European challenges and opportunities
|| Europe's multi-cultural society is a key strength. Cultural diversity
can lead to greater flexibility and the ability to utilise different
views and opinions to stimulate ideas and innovation, solve problems
and increase learning. This is one area in which Europe has clear
advantage over the US, and perhaps one reason why some new US
e-business, software, telecommunications and technology companies
are driven to make inward investment in Europe. Europe must grow
its culture to encourage risk taking, learning from failure,
celebrate business success and foster knowledge sharing.
|Education & IT literacy
||"The knowledge economy in Europe is evolving at a slower
pace than in other regions of the world, Europe is therefore
at a competitive disadvantage" (BT)
The rapid development and adoption of new information and communications
technologies in the US gives it a competitive advantage over
most nations. On the other hand, the US often overemphasises
the technology itself rather than the development of the skills,
competencies and mindsets to use the technology to greatest advantage.
Opportunities for Europe centre on stimulating the widespread
adoption and use of technology (particularly in areas such as
mobile communications where it has a strong market lead) whilst
at the same time ensuring that the excellent educational and
training infrastructure in Europe provides people with high levels
of IT and information literacy.
|Open markets - regulation and trade liberalisation
|| European society is seen as socially progressive with well respected
legal processes. However a highly restrictive regulatory regime
operates in many of the areas which are essential to supporting
an emerging knowledge economy. Where regulations have been eased
(such as in the telecommunications sector), business has flourished.
Many organisations, including ERT, have already identified the
need to address the regulatory barriers and urged the European
Union to liberalise international trade, which would help European
|| Traditional business models within Europe must change to allow
migration and adaptation to the knowledge economy. Organisations
will need to develop more flexible boundaries to accommodate
exchanges of information, frequent movement of staff and new,
closer working relationships with partners, suppliers and customers.
They will need to find new ways of working that enable rapid
problem-solving and innovation, and allow the demands of the
market to set the pace.
|European challenges and opportunities
|| Europe is a world leader in creativity and innovation but poor
in exploitation. Few systems are in place for business, academia,
investors and government to capture and exploit the stream of
new ideas and products that emerge each year. There is an urgent
need to stimulate partnerships, both within and between organisations
- public and private - that could become the generators of future
intellectual capital, the very asset needed to drive greater
European competitiveness. Openness and flexibility need to be
seen as assets, not dangers.
|Financial and business models
|| The European financial market is very large and sophisticated.
Compared to the US, however, it has a poor record of supporting
risk-based entrepreneurship. Moreover, in a world where change
is both rapid and unpredictable, conventional approaches to valuing
businesses and justifying investments are no longer sufficient.
Meanwhile, shareholder capital is draining from established enterprises
to the new dotcoms. European companies urgently require new models
for the valuation and exploitation of internal and external intellectual
capital. Such models could be used to manage the investment process
including when and how to make available risk/venture capital
to support innovation.
|Employability vs. entitlement
|| The power in the product value chain has moved from the manufacturer
to the customer. A similar shift of power is evident in the job
market. Currently employers in Europe are witnessing the emergence
of a "free agent" workforce of specialist staff, at
once more flexible and more demanding, who may not ask for security
of tenure, but do expect the personal and financial rewards associated
with specialised, challenging work. Their career growth may not
be based wholly on salaried remuneration within a single company,
but on a mix of business ownership and in-company experience.
In order to remain competitive, organisations will have to adapt
both to attract and accommodate such key but potentially short-term
Simultaneously, both workers and their employers need to adapt
to the challenge of continuous developments in technology and
the workplace, requiring a commitment on both sides to "lifelong"
learning. Employees must be ready and motivated to constantly
upgrade their skills to meet demands, while employers must provide
appropriate learning opportunities.
Time is against Europe. This project has identified key challenges
facing Europe as it moves to greater participation in the knowledge
economy. If Europe is to succeed in exploiting the immense opportunities
and benefits this can bring, a number of outstanding issues need
to be addressed by government, academia and business. It is recommended
that the knowledge economy becomes a major focus for European
Businesses, Governments and Academia to address by;
Europe Wide Actions
New Economy Business Models - The speed of change,
the time to market, and the product life cycle are key issues
for all companies. Governments, Companies and their partners
need to change their structures, processes and capabilities to
meet these challenges. New business models that value intellectual
assets must be created.
a) ERT will establish a community of company experts focused
on knowledge economy awareness, the new business paradigms and
related issues. To research, share experience and communicate
findings to ERT and to the new European Sponsored KM Forum by
end 2000. Collaboration with the European Commission, European
Parliament, national governments, academia, start-up and European
research bodies is strongly recommended.
b) The outcome of this "knowledge-sharing initiative"
should be compiled into an official ERT Report for 2001 aimed
at stimulating action from European leaders and policy makers.
Knowledge Economy Culture and People - Employees and
employers need to shift mindsets from focussing on rights and
tenure to focussing on employability and capitalising on knowledge.
The new employment culture will be based on self-initiative where
employees commit their talent to create value in exchange for
the opportunity to develop their capabilities and their employability.
a) The ERT knowledge-sharing initiative will research guidelines
for a new model for the employment contract, one that involves
changing corporate values, culture, and reward systems, encourages
life-long learning and fosters a more flexible relationship between
people networking inside and outside the organisation. A model
that is committed to increasing the employability of people,
whilst also leveraging their capabilities.
b) ERT develops recommendations and guidelines for education
and employment policy that can be shared across ERT and with
governments and EU bodies.
European Business and Worker Recommended Actions
a) Increasingly organisations cannot control and deliver world
class products, solutions and services on their own. Businesses
need to identify where there true centres of excellence are,
focus on developing the knowledge and capabilities to continually
develop their productivity and competativeness in these areas
and seek to partner with suppliers of excellence in those areas
they cannot truly resource and manage competitively themselves.
b) There are four key business questions to succeeding in the
new economy that managers need to address. 1. What is my unique
and competitive value proposition and what is the knowledge I
must create, manage and exploit to continually outperform my
competitors in these areas? 2. How can I manage my business performance
and reward/correct my people's performance against the requirements
identified in point one? 3. How do I create a culture, the leadership
and environment that enables the creativity, collaboration, innovation
and continual learning to thrive? 4. How do I develop the systems,
structures and technologies to allow easy identification of and
connections to the knowledge and information both in the company
and across the networks and partnerships?
c) How do I, as an individual, ensure my knowledge and capability
is kept up to date, valued and valuable to the business and to
the marketplace I wish to be employed in?