CHAPTER ONE
The Value of Knowledge
WHAT COMES INTO YOUR HEAD when you hear the word “knowledge”? Dusty books in the libraries of ancient universities, perhaps, or men in white coats with big foreheads? My aim in this first chapter is to change the way you think about knowledge. It is not an abstract concept divorced from the world of business; it is a tangible corporate asset. You can manufacture it, own it, buy and sell it, build it into machines that make profits for you: It is real stuff that has value. This is a crucial concept in understanding the potential benefits of decision management.
I'm going to start right at the top with a brief discussion of modern macroeconomic theories of knowledge before looking more practically at how organizations can measure and exploit the value of their own business knowledge.
THE ECONOMICS OF KNOWLEDGE
The past 50 years have seen a revolution in our understanding of the drivers of economic growth. Classical economic theory addressed labor, land, and capital. In much the same way, modern economic theory now addresses human knowledge, and its contribution to the growth of economies.
Neoclassical Growth Theory
Theories of growth proposed in the 1950s, such as those of Robert Solow1 and Trevor Swan2 were based squarely on physical capital: objects such as machinery and stock. These were called “neoclassical growth models.” According to neoclassical theory, physical capital is assumed to be subject to the law of diminishing returns: the principle ...
