Preparing for the knowledge economy

Chief Executive, The, Jan-Feb, 1995 by Patricia B. Seybold

Your business won't succeed the coming knowledge economy, unless you begin to prepare now. Chances are, your company is organized to excel as an industrial- or service-economy business, but that's going to have to change. It's time to get your organization into shape for today's global information economy and to plan for tomorrow's world knowledge economy.

In the 1950s and '60s, we learned how to transform raw materials into new goods. We discovered how to build efficient, vertically integrated industries designed to flood world markets with labor-saving devices. The industrial economy spawned the production line, command-and-control systems, hierarchical information flow, and autocratic rule. In the '70s and '80s, we learned how to satisfy the customer with quality products, round-the-clock service, convenient locations, and customized goods and services. We learned how to build customer loyalty with world-class service and brand recognition. Women joined the labor force. The service economy brought total-quality circles, empowered customer representatives, diagonal information flow, and democratic processes.

In the mid-1990s, we are halfway through the information economy, and barreling toward a knowledge economy. In the former, the information about customers is worth more to business than the customers themselves. We need to know where they buy, what they buy, what products they prefer. And, on the flip side, customers want more complete and timely information from us. For example, one Detroit law firm, Plunkett & Cooney, gives clients online access to all information about a case's progress: depositions, status reports, time and billing, and project schedules. New York-based Young & Rubicam set up a similar arrangement with Chevron for joint project management of the San Francisco-based oil and gas company's advertising projects. In the information economy, we're learning how to share information with our customers, how to enable them to extract the data they need from our organizations, and how to get out of the way. Middlemen are on the way out. Electronic markets are on the way in.

By the year 2000, customers will be buying knowledge-based products and services - products with more know-how and intelligence built into them - such as smart telephones that track our calling patterns, smart toys that teach our kids the next concepts they're ready to learn, and smart tires that alert us when they need to be refilled. These intelligent products will gather a new kind of information: usage patterns.

We'll build knowledge bases that will continue to grow and evolve organically, letting us analyze these usage patterns and intuit new product opportunities. Customers will add knowledge to our products and services. Here's an early example: New York-based insurance broker Johnson & Higgins helps corporate customers spread their risk by offering an electronic marketplace service. Instead of taking customer requirements and using its core competence to match those requirements with the best insurance products, J&H enables insurers to see those requirements directly and to bid on the business electronically, all under its watchful eye and guidance. This gives customers faster service, and allows J&H to build a marketplace mechanism that organizes itself to suit the needs of ever-changing market conditions.

In the knowledge economy, you'll need to share information freely with customers and even competitors. A company that clearly understands this principle is Merck in Rahway, NJ. Merck funds basic genetic research and then puts the results into the "public domain" for other organizations to use. Merck hopes to contribute to faster progress in unlocking the secrets of DNA and thus open new opportunities for treatments. When Merck announced this new policy, competitors were shocked, and the value of their own proprietary DNA research banks suddenly plummeted.

How can you get your business in shape for the current information economy and ready to compete in the knowledge economy of the future?

* Streamline your business and information processes. Make sure all the information and context circulates to everyone involved with your organization: This means customers, employees, and suppliers, as well as business partners.

* Reward people for contributing to your company's shared knowledge base of insights and information. Information has no value unless it's shared with others who may need it. When it's shared, give kudos.

* Encourage electronic and interactive dialogue and commerce with your customers and trading partners. This is how you begin to build your knowledge base.

* Stop hoarding information. There are no secrets in the knowledge economy. Your strategic advantage is based on contributing to and building on collective knowledge and wisdom.

Patricia B. Seybold is president and chief executive of the Patricia Seybold Group, a Boston-based information-services firm.