Monday, July 29, 2013
The Knowledge Economy and Advertising
A long time ago, I began my career at an a very large ad agency in New York. On my second day on the job, my boss called me in and began to brief me on the industry. He was very methodical and kind. After an hour or so, he asked me if I had any questions. As a newly minted MBA, I asked about the firm’s assets. He smiled and said we really only have two. They were the company’s reputation (largely the creative product) and the people. He said,“Our major asset is our people and they go up and down on the elevator every day.” That was the first time I had heard that term which is still repeated to this day. What he was telling me, and at the time he did not know it, was that I had just joined the “knowledge economy”.
As best as I can tell, the term came from management guru Peter Drucker in his 1969 book, THE AGE OF DISCONTINUITY. Like many coined terms from Drucker, the idea took a while to catch on but, when it did, it gained a lot of traction in erudite business circles.
What does it mean? A formal definition offered by the British Work Foundation is “The Knowledge Economy is what you get when you bring together powerful computers and well-educated minds to meet an expanding demand for knowledge-based goods and services”.
How can we bring this down to the world of 2013? Well, when we all studied economics, we were invariably taught that labor and capital were the dominant factors of production. Today, many of us would say that knowledge is replacing labor as a major means of creating wealth both personally and for one’s company. When you use a non-depleting asset like knowledge you can actually enhance its value by sharing it. Today, in developed countries it is safe to say that some 50% of the GDP and also half of the jobs are in the knowledge economy.
Knowledge, true knowledge, really adds value to an organization. It makes for better decisions, encourages innovation and often can raise productivity. Many big companies have appointed Chief Knowledge Officers which sounds horribly pretentious but makes a very good point. A knowledge officer has to be able to distinguish between knowledge and information. A few consultants whom I have run across say that you have “explicit” knowledge and “tacit” knowledge. You can easily find explicit knowledge in company databases and the occasional old filing cabinet. Tacit knowledge exists in employees (your assets) heads and is largely intangible as it covers intuition, experience, and judgement. When IT leads company projects they often fail as they are chained to explicit data or information.
From my second day in the ad business, I learned that the assets of the agency left on the elevator each night. This is a crucial issue. Competitors can lure aways your most talented employees and some older staffers retire. Some companies received a rude awakening in 2008-2009 when they downsized too aggressively and fired a lot of 55-62 year olds to save on large salaries and especially health care costs. Suddenly, they found that the remaining teams did not know how to do certain things. Also, the older folks had a strong knowledge of customers, of products, relationships within the company and with clients. Also, many had what I like to call “organizational memory.” If they had been around longer than most senior executives, these graybeards knew what worked and did not in the past and, also what clients did not like. It has always stunned me that executives do not do a detailed debriefing with a long term employee the last year of their employment. Most spend an hour with a clueless HR person in some form of final meeting.
Fifty years ago, the name of the game in the industrial economy was efficiency. Even Hollywood movies made fun of efficiency experts. After a while, most people caught on to efficiency in production. So, today production advantages are not that great. We then moved on to business processes which blended resource planning and information technology. As those advantages narrowed, we have now turned to knowledge as the issue that can make our group have a sustained competitive advantage.
A key for the future will be seeing how well companies can differentiate themselves on tacit interactions that rely on judgement.
Also, you may find that your boss may not have any idea what the Knowledge Economy is yet he or she may live it every day. Brains matter more than anything. If you work in Advertising or the Media, keep it top of mind.
If you would like to contact Don Cole directly, you may reach him at firstname.lastname@example.org