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Information for Social Change

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ISC 20. Creating Value from Knowledge in the Knowledge Revolution
by Ruth Rikowski

Today, we are moving into the knowledge revolution, which is the latest phase of capitalism. This knowledge revolution is dependent on knowledge, information, skills, human capital, intellectual capital, ideas, services, intangibles, brainpower, education and brand names. Stephen Byers, who at the time was the UK Trade and Industry Secretary described this revolution to the Confederation of British Industry (CBI) in 1999, saying:

The first industrial revolution was based on investment in capital and machinery. The revolution we are going through now requires investment in human capital - skills, learning and education. (Byers, 1999)

Meanwhile, Potter said:

My thesis has been that we are in the relatively early phases of a major economic revolution. This revolution is based around the concept of a post industrial era where making things is increasingly automated and routine; creating things is difficult and value therefore derives from creation and from the intellectual capital or knowledge base of the firm or nation. (Potter, 1999, p.7 - my emphasis)

Note here, in particular, Potter's reference to value. So, value today is being derived more from knowledge itself, rather than just from the production of manufacturing goods. Obviously, knowledge also plays some part in the production of manufacturing goods. However, today, knowledge and ideas are also being sold and marketed in their own right, such as through the selling of a patent or a brand name, and through this process value is being derived from knowledge. This is in contrast to the 'first industrial revolution' where value was largely extracted from tangible goods.

A consideration of value in the current business and information literature
The importance of creating value itself for the continued success of the economy has been recognised by many in the business and information world today. Tapscott, for example, says that:

Innovation drives everything and competitive advantage is ephemeral. Firms must constantly seek new ways to create value . (Tapscott, 2000, p.220 - my emphasis)

Meanwhile, David Green says:

KM is different in that it focuses on future value , rather than short-term profit. (Green, 2000, p. 31 - my emphasis).

So, Green emphasises how knowledge management (KM) can create value. Furthermore, that it is also increasingly being recognised that value must be clearly differentiated from profits. As Welch also says:

The organisation has to recognise that its prime objective (perhaps its only objective) is to add value . NOT to cut costs. Making more profit, increasing the share price, increasing the value of intellectual assets (including brands) is what makes a company fit to survive. (Welch, 2000, p.10 - my emphases)

The difference between value and profit was also considered in the knowledge management (KM) research that I undertook between 2001-03 (Rikowski, 2003). I conducted semi-structured interviews with KM experts from both the private and the public sector, across a range of organisations. This included both information professionals and non-LIS staff. I also undertook some research in a number of KM focus group sessions. In order to ensure anonymity throughout the research, a simple code was used; for example, P1 for participant one and P2 for participant two. When considering profit and value, one of the participants, P8, said:

I think value must be measured on a number of different.fronts.we have the balance score card.made a start on trying to.re-balance the scales. Profit is one amongst a number of measures of value. (My emphases)

Meanwhile, when I asked P11 about the difference between value and profits she said that value:

.is slightly more intangible. We can point to some, because we change peoples' roles and see them as being more efficient. But will it win us more projects? I dunno. That's a bit harder to say.Well, if I invest £2 million in knowledge management, will I get 5 million out. It's a bit hard to do that.

Upon asking P10 whether he thought that value was different from profit, he said:

.say we chose to work with.a particular customer.and I demonstrated that the profit was 20%. Then, we had another customer and the profit was 30%.That appears to be black and white.if you have limited resources you'd always work with the one that gives you 30%.But I could clearly make a case that by working with the customer that's only giving us 20% profit now, we might be.building our capability, that's say based on knowledge.Increasing our knowledge, that we might be building an organisational capability that would give us profits.extending into the future.That clearly creates value.

Thus, several of the participants clearly thought there was a definite difference between value and profit, and that value somehow encompasses more and can help to provide long-term sustainability for companies. However, although businesses largely recognise that there is a difference, much of the business and information literature does not really explore what this difference actually is.

Similarly, much of the literature has difficulty in defining value itself. Chris Meyer, writing in Business 2.0 makes some interesting comments about value, saying:

The New Economy's emphasis on the intangible forces us to think about value in a new way. The economies of the past - the Agrarian Age and the Industrial Age - were characterized by the mass of their outputs, be they crop or steel. We became accustomed to thinking about worth in terms of weight. But the intangible economy is harder to define because there's less stuff to look for an indicator of value .While we are all conditioned to think in terms of that which we can touch and feel, actual "matter" has significantly less relevance in the New Economy and value has become all about velocity. Matters matter less. (Meyer, 2000, p. 194 - my emphases)

Furthermore, he notes that:

Value has shifted from the tangible to the intangible, from steel mill to know-how, from supply side to demand side, and from dealer network to customer loyalty. (Meyer, 2000, pp.194-196 - my emphasis)

Thus, Meyer emphasises just how important it is to create value for the continued success of the economy, and that the necessity to create value goes across different ages, or phases of capitalism. However, whereas in the Agrarian Age and the Industrial Age this value was created through tangible products, in the New Economy (or the Knowledge Age) this value is increasingly being extracted from intangible goods. The important point to note here is that the necessity of creating value cannot be over-emphasised.

However, Meyer misunderstands the concept of value itself. He says that value creation is moving from manufacturing (the production of goods and tangible commodities) to intangibles like knowledge, information and services. But when Meyer says that, "there's less stuff to look to for an indicator of value", this misrepresents and misunderstands the concept of 'value'. Value itself is intangible - it is not the case that when value was created by the production of tangible goods, such as in the Agrarian and the Industrial Age, that value was tangible and could be weighed and measured. If this was true, then a bag of potatoes would be worth more than a diamond, for example. Instead, value is and can only ever be created by human labour - this can never be weighted. As Marx says:

.human labour creates value.(Marx, 1887, p.57)

Furthermore,

The value of a commodity.is determined by the quantity of labour contained in it. (Marx, 1887, p. 203)

Meyer's quote does, though, at least help to illustrate the complexity of 'value' as a concept and the need to recognise that it needs to be considered at a deeper level.

Many business and information writers (as well as others) recognise the importance of value, but do not endeavour to actually define it. This is often seen to be largely a waste of time. When I asked one of the participants, (P6), in my research about his views on the importance of 'value' in regard to knowledge management, for example, he was somewhat sceptical and said:

.it is easy to talk about adding value because you can lump together a whole range of things that you are doing well.

Furthermore, he thought that, in some ways, value was almost being used as a 'copout phase'. He said:

.all the time one is hopefully adding some value.One is creating something extra. And it's just ,it's almost a copout phrase. It's a.case of, well year, there's something there.

When I then proceeded to ask P6 whether he thought it was an easy way out, he replied:

Well.I mean I'm being cynical, I guess, but it is.a common phrase. You know.adding value.

Thus, there is recognition amongst many in the business and information world that value is something important, but there is somewhat of a reluctance to actually explore this further. Similarly, Seybold recognises the importance of value in today's economy, saying that creating value:

..is different. You have to move faster, build momentum quickly, and find ways to get customers to literally stick to you. (Seybold, 2000, p. 248)

However, the meaning of value itself needs to be explored at a deeper level. Various thinkers and writers have endeavoured to define and explain value. Adam Smith in 1776, referred to value in the following way, saying:

The word VALUE it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use' ; the other 'value in exchange' . (Smith, 1776, p. 132 - my emphases)

Value does indeed have a 'use value' as well as an 'exchange value'. P6 in my research referred to value, saying:

.the value is defined.not by the person who is saying it is valuable, but by the user . People don't collect it because they have this desperate desire to collect data. They collect it because they think it's valuable. But eventually it's.the person that is using it that really makes the judgement. (My emphases)

Also, one of the focus group sessions that I researched discussed the topic 'Does knowledge have a shelf-life or should we ever discard old knowledge?', and at this session there was a discussion about whether only useful knowledge should be kept, and whether knowledge only has value at the point of use. The two main speakers emphasised the importance of useful knowledge, but another person in the group said that knowledge could be sold, even if it does not appear to be useful. He gave the example of patents that are sold for a price, but do not necessarily have to be useful. This person, then, was referring to 'exchange value'.

However, value also needs to be defined on its own, in abstract from both use and exchange, I would suggest. Michael Neary and Glenn Rikowski explore value at a deeper level and describe value as being 'social energy' . They say that:

Value can be viewed as being social energy that undergoes transformations.Value is a multi- dimensional field of social energy - a social substance with a directional dynamic (expansion) but not social identity. (Neary and G. Rikowski, 2002, p.60)

Furthermore, Glenn Rikowski says that:

.value, within the social universe of capital, constitutes a social force field analogous to gravity as a force within the known physical universe.value is a social energy whose effects as a social force are mediated by the movements of capital (in its various forms) and the social relations between labour and capital. (G. Rikowski, 2002, p.183)

Thus, this is a complex topic, and energy and also time need to be considered and analysed further.

A consideration of value-creation through knowledge in the current business and information literature

Thus, many of those writing in the current business and information literature recognise that it is necessary to create value, but they also recognise that in the knowledge revolution today this value is increasingly being extracted from knowledge. A few quotes from the literature on this subject highlight this fact. Meyer says, for example:

Value is in the intangibles like knowledge, information, services, software, and entertainment. (Meyer, 2000, p.193 - my emphasis)

Furthermore, Potter notes that:

. Value and wealth derives from the process of creating, not making things. (Potter, 1999, p.2 - my emphasis)

Meanwhile, Byers speaking at the Mansion House in February 2000, said that:

The main source of value and competitive advantage in the modern economy is human and intellectual capital. (Byers, 2000, p.1 - my emphasis)

Broadbent also notes that:

Knowledge management is about enhancing the use of organizational knowledge through sound practices of information management and organizational learning. The purpose is to deliver value to the business. (Broadbent, 2000, p.24 - my emphasis)

Comments made by Mougayar are also interesting. Mougayar says:

Customer loyalties are shifting from companies that produce the best products to those sellers that make the best use of information about their customers. Companies therefore are pressed to develop infomediary-think and infomediary-flair within management ranks so that the right infomediary strategies are quickly developed. The goal: create a business that relentlessly manipulates information to extract higher value from it by reselling it, reusing it, repackaging it, or giving it away; either directly to end-users or indirectly via third parties . (Mougayar, 2000, p.253 - my emphasis)

In referring to the Internet Mougayar says:

Value is digital value Digital value is 100 percent information-based. It surrounds, envelopes, and sometimes makes obsolete current (or old) value..Just as a factory is in charge or production, the infomediary is in charge of creating digital value. (Mougayar, 2000, pp.253-254 - my emphases)

Meanwhile, in 'Keystone for the information age: a national information policy for the UK' the Library and Information Commission say that there is an urgent need for a UK National Information Policy that will add value to some of the initiatives that it is undertaking. It says:

Britain is closer to becoming an information society but we still lack the overall policy and co-ordination that will add value to the various initiatives that are taking place. We have, therefore, taken the opportunity to re-state our view that a UK National Information Policy is urgently required if we are to remain competitive in the global information society. (Library and Information Commission, 2000, p.1 - my emphasis)

Furthermore:

The National Information Policy should establish a framework within which the public sector can evolve information strategies to manage and add value to their information resources. (Library and Information Commission, 2000, p.6 - my emphasis)

Various models and concepts have also been developed in order to explore intellectual capital in more depth. This becomes necessary for businesses given that intellectual capital assists in the creation of value today. A model called the ' value platform', for example, has been developed between Skandia, CIBC and Dow Chem. The model puts intellectual capital in three main categories - human, organisational and customer capital. Dzinkowski says:

These three components dynamically interrelate to form value . Human capital (HC) + organisational capital (OC) + customer capital (CC) = intellectual capital (IC) . (Dzinkowski, 2000, p.42 - my emphasis)

Human capital can be seen to be the knowledge that is in people's heads. Furthermore,

CIBC, one of Canada's biggest chartered banks, recognised the importance of the hidden value of intellectual capital in Canadian history and in so doing, has become one of the first banks in the world to devote an entire lending division to businesses whose primary assets are knowledge and innovation. (Dzinkowski, 2000, p.44 - my emphasis)

Much has been written about transferring human capital into structural capital. Through this process the knowledge and ideas that people have are transferred to the company and becomes part of the company's 'structural capital'. For companies, the issue becomes - how can they capture this as quickly and easily as possible?

Thus, various business and information people are now recognising that knowledge is the essential ingredient for creating value in the knowledge revolution, this being the latest phase of capitalism, that we find ourselves in today.

Empirical research on value, knowledge and KM

The empirical research that I have been undertaking on KM (Rikowski, 2003) also reinforces the importance of extracting value from knowledge today. Many of the participants interviewed thought that it was very important to create value from knowledge, and that this could be achieved through effective KM practices. One participant (P7) said, for example:

.I believe that the value comes out of managing knowledge , whether people recognise it as that or not.In reality, you are always managing knowledge to create an application and create value out of.a situation.you might not actually recognise it as knowledge management but you're still doing it . (My emphases)

Another participant (P11) said:

I suppose people talk about that [value] because they feel that if they've got to implement any sort of knowledge strategy or programme in a company then you've got to see some benefits.so people talk about the value of it. (My emphasis)

Meanwhile, P8 said:

I think the whole point of. managing knowledge, information and people.is to produce value for the organisation and beyond the organisation for its customers. (My emphases)

At another point P8 said:

I think the whole point.of managing knowledge, information and people.is to produce value for the organisation and beyond the organisation.but that value isn't always produced in monetary terms, or measurable in monetary terms . (My emphases)

P7 thought that the links between value and knowledge were not all that clear at the current time, but that would become increasingly so in the future. He said:

Yes, that relationship.about knowledge and value, I think, is something where it will dawn on people a lot more. (My emphases)

However, there was also a clear recognition that there is little point in storing and capturing knowledge just for its own sake. Instead, this needs to be related to how value can be extracted from the knowledge, so that the knowledge can be used effectively, particularly for business advantage. P9 said:

So, knowledge is useless if it is indexed, stored, categorised. It is only of value when it is applied in a business context. And in our view too much knowledge management effort goes into.the indexing, capturing and storage of the content, even the retrieval of the content, not enough into working out how it can be applied to business advantage. (My emphasis)

Furthermore, P6 also related the capturing of the data to use, saying that there is little to be gained from capturing the data, if that data is then not used. He said:

.there is.this obsession.with capturing things and it is almost a disease.People.get this sort of thing, we must capture it, it's great.But.it.starts with use . You should really only capture the stuff that is useful.And it it's not gonna be used there's almost no point in actually capturing anything in the first place.And .I think one of the failures has been that people have tried to capture endless streams of data.which then isn't used . You know, it's no use whatsoever. And there is also the access time. That sometimes it's.stashed away in the database that is almost.incomprehensible to the average user.So, they just don't use it. They can't use it because they don't understand how to get in. Yes, capture it, put it there and I'm sure we'll be able to access it.It's not as easy as that. (My emphases)

Thus, this is clearly an area that information professionals need to give due consideration to.

Marx, Value and Intellectual Labour

In conclusion, the importance of creating value in general and of extracting value from knowledge, in particular, in the knowledge revolution that we find ourselves in today is now generally recognised. This article has considered some of the business and information literature, in this regard, and has also focused on the empirical research on KM that I undertook between 2001-2003. The empirical research included both interviews and focus groups.

However, what does value actually mean? Many in the business literature are loathe to explore this in any depth. However, in order to make meaningful progress we need to explore these deep philosophical questions, I would suggest, and as far as I am concerned, this means returning to a Marxist analysis of value. Marx emphasised how value can only ever be created from labour. A Marxist analysis considers various types of value, including use value, exchange value, surplus value and added value, which I refer to as the forms and aspects of value (Rikowski, 2003). This is considered in more depth in my book - Globalisation, Information and Libraries (Rikowski, 2005). Use value and exchange value are different forms of value, whilst surplus value and added value are different aspects of value. In order to ensure the continued success of capitalism, value must always be created, and this value can only ever be created by labour. This value then becomes embedded in the commodity, in various forms and aspects. When the labourer labours, he/she undertakes both manual and intellectual labour, but what is important to appreciate for this analysis of knowledge and value, is that in the knowledge revolution, there is a greater expenditure of intellectual labour and less expenditure of manual labour. Extracting value from knowledge can only be achieved by the exertion of intellectual labour. This is the key point. When business people refer to creating value from knowledge, they seldom refer to the labour process that is necessary in order for this to succeed, but the labour process is essential - value cannot be created from knowledge without the labourer undertaking some form of intellectual labour.

As I emphasise in my article On the impossibility of determining the length of the working-day for intellectual labour (Rikowski, 2004) although the labouring process involves both manual labour and intellectual labour, in the knowledge revolution there is a greater expenditure of intellectual labour, and less expenditure of manual labour. The value from this intellectual labour then becomes embedded in intangible goods/commodities. This is in contrast to the industrial revolution, when there was a greater expenditure of manual labour, and the value from this labour then became embedded in tangible goods/commodities. This then, is why there is such an emphasis in the world of business on the importance of creating value from knowledge, ideas, information, brand-names and brain-power etc. Furthermore, good and effective knowledge management (KM) processes assist with this process. This creation of value from intellectual labour, which is then embedded in the commodity becomes necessary, so that intangible commodities can be sold in the market-place and profits can be made (and ultimately profits can only ever be derived from value).

This process ensures the continued success of the knowledge revolution, and indeed of global capitalism itself. This process means that labour becomes exploited, alienated and objectified. In order to break free from this we need to break free from capitalism itself and look towards an alternative social system - i.e. move towards socialism and ultimately to communism. In this way, humans can enjoy and rejoice in the world that they have created with their own labour, rather than being dominated by it. Let us shape the future together; let us look towards a better world.

References

Broadbent, Marianne (1998) The phenomenon of knowledge management: what does it mean to the information profession? Information Outlook, May, p.23

Byers, Stephen (2000) Speech to the Mansion House, 1st February. Available at: http://www.dti.gov.uk/Minspeech/byers030200.htm

Byers, Stephen (1999) Speech to CBI London Region Annual Lunch, 26th February. Available at: www.dti.gov.uk/Minspeech/byers050399.htm

Dzinkowski, Ramona (2000) Knowledge is power, Business Age, April, No. 97, pp. 42-44

Green, David (2000) Everything starts with an e: knowledge management focuses on future value rather than the quick buck of the dotcom stock frenzy, Knowledge Management, April, p.31

Library and Information Commission (2000) Keystone for the information age: a national information policy for the UK. Available at: www.lic.gov.uk/publications/policyreports/keystone.html

Marx, Karl (1887) (1954 - reproduced text of English edition of 1887) Capital: a critique of political economy, Vol 1. London: Lawrence and Wishart

Meyer, Chris (2000) What's the matter? No longer does bigger, heavier, and more sold mean more value, Business 2.0, March, pp. 193-198

Mougayar, Walid (2000) Aggregation nation: a nontrivial pursuit: turning information into electronic markets, Business 2.0, March, pp. 253-258

Neary, Michael and Rikowski, Glenn (2002) Time and speed in the social universe of capital, in G. Crow and S. Heath (eds.) Social conceptions of time: structure and process in work and everyday life. London: Palgrave

Potter, David (1999) Wealth creation in the knowledge economy of the next millennium . Third Millennium Lecture, Downing Street, 27 May. Available at: www.number-10.gov.uk/textsite/news/features_display.asp?id=665

Rikowski, Glenn (2002) Fuel for the living fire: labour-power!, in Dinerstein, Ana C. and Neary, Michael (eds.) The labour debate: an investigation into the theory and reality of capitalist work, Aldershot: Ashgate

Rikowski, Ruth (2003) Value theory and value creation through knowledge in the knowledge revolution . Dissertation submitted to the University of Greenwich, in partial fulfilment for the degree of MA by Research in Business

Rikowski, Ruth (2004) On the impossibility of determining the length of the working-day for intellectual labour, Information for Social Change, Summer, No. 19. Available at: http://www.libr.org/ISC

Rikowski, Ruth (2005) Globalisation, Information and Libraries: The Implications of the World Trade Organisation's GATS and TRIPS Agreements, Chandos Publishers: Oxford

Seybold, Patricia B. (2000) Ubiquity breeds wealth: give it away. Build buzz. Reap the rewards, Business 2.0, March, pp. 241-248

Smith, Adam (1776) The wealth of nations (Books 1-111) London: Penguin

Tapscott, Don (2000) Minds over matter: the new economy is based on brains, not brawn. The only thing that counts is smarts, Business 2.0, March, pp.220-227

Welch, Rob (2000) Knowledge management in a deconstructing economy, Knowledge Management , May, p.10

Ruth Rikowski - Author of:

'Globalisation, Information and Libraries: The Implications of the World Trade Organisation's GATS and TRIPS Agreements, Chandos Publishers: Oxford, 2005. ISBN 1 854334 084 4 (pbk); 1 84334 092 5 (hdbk)

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http://www.chandospublishing.com/catalogue/record_detail.php?recordID=35

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Ruth Rikowski is a Visiting Lecturer at London South Bank University and the University of Greenwich and is the Series Editor for the Chandos Series for Information Professionals

November 2004
Email: rikowskiat symboltiscali.co.uk


 

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