Business in the Knowledge Economy

1. Business in the Knowledge Economy PandelisIpsilandis School of Business and Economics Technological Education Institute of Larisa, Greece Socrates IP Mobile and interactive marketing, IT for convergence internet marketing & eBusiness management Virrat, 2008

3. The Knowledge Economy A knowledge economy is one in which knowledge is the key resource. … one in which the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activity. DTI, 1998, Our Competitive Future: Building the Knowledge Driven Economy

4. Contents • What is the knowledge economy? • What is new about the ‘Knowledge Economy’? • How do we prepare for the future?

5. The forces behind the Knowledge Economy • Rise in knowledge intensity • IT revolution • Technological Change • Increasingglobalisation of economic affairs • National and international deregulation • IT based communications revolution

6. Economic activities are knowledge driven • Products and Services • Consumer ideas, information and technology is part of the product. Smart Products • Assets • Knowledge worker is any organisation’s greatest single asset (more important than capital, land etc.). Capital is more and more a function of knowledge. • Human Resource Management • Labour is not a commodity. Companies must attract, retain and continually grow the capabilities of knowledge workers.

7. 1980 – Engine Control Unit • New Industry: Open source based h/w and s/w systems for cars • New products: On board computing functions • audio-video control, on-board internet interfaces, informatics, telemetric and navigation • Replace ECU functions with open source based h/w • Freescale’s Linux OS for car makers • available with MPC5200 Board Support Package • Similar growth path as Linux in mobile phones?

10. IT Revolution • Digitalisation • Open Systems • Memory & storage technologies • Scanning / imaging technologies • Display systems • Fast Speeds • Rich Content • Virtual Stores • Virtual Shopping Malls • Virtual Bulletin Boards • Virtual Government Agencies and the list goes on……

11. Technological Change • Low cost • Manipulate, store, transmit large quantities of information • Marginal cost of is virtually zero • Pervasiveness • Generic Technology. Not centred on particular products or industrial sectors • Impact on every element of the economy: both goods and services • Across the business chain: R&D, production, marketing, distribution

12. Globalisation • Towards a global open economy • Reduction of tariff and non-tariff barriers on trade (goods and services) • Integration of world financial & Capital markets • Reduction of barriers to foreign direct investment and capital flow and of barriers to technology transfers • Deregulation of product markets • Telecommunications, Air Transport, Finance, Insurance… • Less barriers to movement of workers • Knowledge workers

13. Globalisation – New trends • 7-24 s/w development • Scheduling of continuous flow of s/w development process across units located at different time zones • World – wide distributed service centres • Calls at a help desk may be answered by personnel in another country. Transparent to caller • Changes in Universities • A large number of graduates in engineering, medicine are employed in other countries

14. Knowledge Economy The emergence of the knowledge economy can be characterised in terms of the increasing role of knowledge as a factor of production and its impact on skills, learning, organisation and innovation.

15. EU view of the Knowledge Economy • “Stodgy old national income accounts are said to do a poor job of measuring the modern knowledge economy. They are especially bad at picking up firms’ “intangible” investments, such as building brands or training staff. Measuring this spending properly and America’s true economic health would be revealed. Investment and output growth would be higher” – The Economist, 4th March 2006 • The Lisbon Strategy to create a world-class knowledge-based economy in Europe by 2010 Production, codification and dissemination of knowledge are the key determinants of economic success

16. Historical Perspectives 1911 – the first time the Census included occupational breakdowns: ‘knowledge workers’ were a 15% minority 1962 – publication of Machlup’s seminal work on the US knowledge economy 1970 – the quickest route to a middle class income was a skilled factory job (now it’s getting a degree) 1982 – tidal waves of de-industrialization, knowledge workers a 28% minority 2002 – services dominant and knowledge workers grown to a 40% minority 2012 – Working Futures Report projects the minority will grow to 45%

17. What is New in the KE? Knowledge, Skills & Learning Innovation & Knowledge Networks Clustering Strategy & Location Flexible Organization Economics of Knowledge Learning Organizations & Innovation Systems Systems of Creation Production & Distribution Discordance Global Competition & Production

18. Flexible Organization • Integration of “thinking” & “doing” at all levels of operations • Elimination of middle management • Multi-task job responsibilities • Molecurization • Projectized Organizations • From Economies of Scale to Economies of Scope

19. Knowledge Skills & Learning • Shortage of Tacit Knowledge • ICT investments complementary with investments in human resources and skills • TacitKnowledge • Know-how • Know-who • Codified Knowledge • Know-what • Know-why

20. Innovation • Obsolete your own products. If you don’t, your competitors will • Product life cycles collapse Companies  Innovation must be prized, rewarded and encouraged Education  Students must be motivated to learn and to be creative, rather than to recall information Governments Liberate the human spirit

21. Knowledge Networks and Clusters Innovation is the result of numerous interactions between persons and institutions, which together form an innovation system. • Within the Firm • Inter company interactive learning • Partner networks • Spread the costs and risks of innovation • Access to new research results • Technology based alliances • Government, Academia, Industry networks Goal: Timely access by innovators to relevant stocks of knowledge

22. Global Competition and Production • Global businesses need to be able to link with customers, suppliers, employees and partners throughout the world. • New opportunities in global financial markets. • With knowledge becoming the key resource, there is only one world economy. Knowledge knows no boundaries. There is no domestic knowledge and no international knowledge. • Stay-ahead management: Ad hoc alliances, strategic partnerships, use of information technology

23. Producer-Product-Consumer • Mass customisation instead of mass production • Consumers become involved in the production process • Companies identify customer buying patterns • New forms of production / work scheduling • New enterprise is a real-time enterprise: Goods are received from suppliers and products shipped to customers «just in time» • Supply Chain Management: Increased sharing of information between suppliers, producers, customers • End of Customer Service?

24. Disintermediation Agents Wholesalers Distributors Retailers Brokers ….. OLD Producer Consumer NEW Internet

25. The end of Customer service 1902  1916  1947  1967  1995 Horn & Hardart Self Service Self-pumped Barkley’s Alaska Air Automat Grocery Store gas ATM internet ticket Ranked 2nd in Times Magazine “10 ideas that are changing the world” • Tesko Fresh & Easy grocery stores in the US • Alaska Airlines “Airport of the future” in Seattle • Sushi restaurants in Malaysia fitted with IBM ordering screens • Check in kiosks for emergency room visits

26. Identifying Consumer behaviour patterns • Supermarkets • Bar Code cash registers • Real time inventory monitoring and control • Demand forecasting • Data mining to detect consumer buying habits • Internet Sales • Consumer preferences • Low cost promotion and advertising

27. “Old” Questions – “New” answers Price Pm Price Pn Price P1 S D S D Price Po Seats Q>72% Revenues ↗ Seats Q=72% The Airlines pricing model • Same Economic law, but IT allows for “real time” dynamic pricing models

28. Supply Chain Management in KE 2nd-tier suppliers 1st -tier suppliers ProjectOrganization 1st -tier customers 2nd-tier customers Traditional purchasing function Materials Management function Supply Chain management • Direct Investment, • Knowledge Sharing • Open Book Accounting • Vendor Managed Inventory

29. What does it mean?Employment in Knowledge Based Industries EU15 2005 Notes: High to medium tech manufacturing, and knowledge based services. Figures share of total employment. Knowledge and technology based industries are Eurostat definitions. Source: Eurostat

30. What does it mean?Europe’s Knowledge Industries EU15 in 2005 • Tech based manufacturing 6.9% • High-tech manufacturing 1.1% • Medium tech manufacturing 5.8% • Market services 15.3% • High tech services 3.5% • Financial services 3.2% • Business/Communications 8.6% • Health, education, cultural 19.4% • All tech and knowledge based 41.5%

31. Competences in the workplace

32. Competences

33. Thank You ! Pandelis Ipsilandis TEI Larisa, Greece Socrates IP Mobile and interactive marketing, IT for convergence internet marketing & eBusiness management Virrat, 2008