This document discusses the development of a composite index called the Index of Knowledge Economy (IKE) to measure knowledge economy maturity across countries. It proposes a framework with four factors - fundamental, effectiveness, efficiency, and innovation - that capture different aspects of a knowledge economy. Countries are ranked into five stages of maturity. The index methodology aggregates over 20 indicators and 168 variables to calculate sub-index scores in each factor, with the weights on factors varying by maturity stage. The overall index score is the weighted sum of sub-index scores. An appendix shows example rankings of countries by their IKE scores and maturity stages in 2010.
Ten Organizational Design Models to align structure and operations to busines...
IKE - Index of Knowledge Economy and Maturity Model
1. Mohamed Bouanane – Director –
Strategic Management Consulting
February 23, 2014
While many existing Information and Knowledge
Society indices focus exclusively on technology, a
comprehensive composite index across all areas
and taking into account the key factors has not
been exhaustively defined. Developing a
comprehensive index, from scratch, to measure
the knowledge economy maturity and its impact
on the whole society is a complex task. The
adopted approach aggregates a large number of
known indicators reflecting various key factors of
the society and economy and regularly published
by different international organizations.
This approach aims to avoid creating new
indicators that might be difficult to collect, to
assess and to maintain, and will ensure data
comparability across countries. The indicators
should be exhaustive and hence capture different
aspects such as inputs (drivers), enablers
(business environment) and outputs
(performance). Moreover, a sensitivity analysis is
conducted to select the most appropriate weights
for the sub-indices.
IKE - Index of
Knowledge
Economy and
Maturity Model
2. IKE – Index of Knowledge Economy and Maturity Model
M. Bouanane 2
Measuring and comparing countries achievements is an important exercise to assess maturity
level and progress. It provides policy makers with useful statistics supporting the development
of evidence-based recommendations.
In Knowledge Economy, knowledge is the key resource (as both a tool and an economic good)
and hence must be continuously renewed and evolved. Codified knowledge can be taught and
transferred as opposed to tacit knowledge (know-how and experience) which economic value
comes from investing and sharing with others (colleagues and external partners if it is beneficial
to both sides). Thus, investing in and sharing knowledge is a cornerstone of the knowledge
economy. A major element is the influence of the new technologies on the creation of
knowledge. Information as such is a raw data used for generating knowledge through a
transformation and analysis process in which technology play a major role in making this
process easier and repeatable.
In that regards, the OECD has produced a composite indicator of “investment in knowledge”
made up of investment in R&D, investment in higher education, and investment in IT software.
Though it provides some interesting indicators, it is found, at this stage, insufficient to measure
and assess the Information and Knowledge Society as a whole. The Knowledge Economy Index
(KEI) published by World Bank has two versions1
. The basic version captures the overall
readiness of a country for the knowledge economy. It summarizes each country’s performance
on twelve (12) variables (+2 overall economic performance) corresponding to 4-pillar
framework: Education, ICT infrastructure, Innovation, and Economic & institutional regime. The
large KEI version consists of 109 variables divided into 8 functional cuts.
It can be noted that while many existing Information and Knowledge Society indices focus
exclusively on technology, a comprehensive composite index across all areas and taking into
account the key factors has not been exhaustively defined. Developing a comprehensive index,
from scratch, to measure the knowledge economy maturity and its impact on the whole society
is a complex task. The adopted approach aggregates a large number of known indicators
reflecting various key factors of the society and economy and regularly published by different
international organizations.
This approach aims to avoid creating new indicators that might be difficult to collect, assess and
to maintain, and will ensure data comparability across countries. The indicators should be
exhaustive and hence capture different aspects such as inputs (drivers), enablers (business
environment) and outputs (performance). Moreover, a sensitivity analysis is conducted to select
the most appropriate weights for the sub-indices.
1
Knowledge Assessment Methodology, World Bank (http://www.worldbank.org/kam).
3. IKE – Index of Knowledge Economy and Maturity Model
M. Bouanane 3
MATURITY MODEL FRAMEWORK
As there is no single index that has exhaustively measured the complexity of the overall
knowledge economy in a quantified manner, we suggest the use of a composite index that
allows for the grouping of several key performance indices and indicators into one single index,
capturing a variety of critical economic dimensions and societal parameters.
The proposed Knowledge Economy Maturity Model (KEMM – shown in Figure – I) is based on
four factors (categories of sub-indices or dimensions) applicable for all countries and a ranking
among five stages of maturity2
. The factors – each of which is measured by a selection of
indicators – are interrelated and form a coherent conceptual model. The model takes the stages
of maturity into consideration by assigning higher relative weights to the factors that are more
relevant for a knowledge economy given a particular stage of development.
Indeed, societies go through different stages of development and hence, the proposed model
reflects the increasing difficulty for the knowledge economy to move along a maturity path
(from Stage#1 to Stage#5) to reach an ultimate stage of development. The model is designed in
a way that the above mentioned factors will affect each country’s maturity in a different way
depending on the country’s development stage. In other words, we are establishing different
weights for the factors depending on the country maturity stage. Countries are then ranked
within each stage based on their scores.
The Figure – I highlights the mapping between the four factors and the respective weights for
each Maturity Stage. As well it depicts the evolution of the importance of each factor within the
composite index based on the evolution of the maturity stage (increasing or decreasing weight).
Figure – I: Knowledge Economy Maturity Model – Mapping Factors to Maturity Stages
2
Stages of maturity are: Stage-1: Basic economic development; Stage-2: Effectiveness-driven economy;
Stage-3: Transition from Effectiveness-driven to Efficiency-driven economy; Stage-4: Efficiency-driven
economy; Stage-5: Innovation-driven economy.
4. IKE – Index of Knowledge Economy and Maturity Model
M. Bouanane 4
COMPOSITE INDEX FRAMEWORK
The proposed composite IKE framework (Figure – II) is then organized into four factors grouping
the selected components – 21 indicators grouping 168 quantitative and qualitative variables.
These factors are defined as follows:
The ‘Fundamental factor’ (sub-index) includes those indicators that are most
important for societies in the first stage of development (e.g. Health & Education,
General infrastructure...).
The ‘Effectiveness factor’ (sub-index) includes those indicators that are most
important for societies promoting effectiveness through higher education, better
competition and technology transfer.
The ‘Efficiency factor’ (sub-index) includes those indicators that are most critical for
societies (called efficiency-driven economies) that are enhancing their processes
through efficient legal and regulation frameworks as well as high utilization of ICTs.
The ‘Innovation factor’ (sub-index) includes those indicators critical for innovation-
driven economies (e.g. R&D, Innovation, Business & Financial sophistication...).
Figure – II: Composite Index of Knowledge Economy (IKE) Framework
5. IKE – Index of Knowledge Economy and Maturity Model
M. Bouanane 5
Each sub-index score is averaging the different individual indicators of the same factor (refer to
Table – I). The weights (relative importance and impact) applied to individual indicators are
appropriately selected based on the indicators correlation and importance within each factor
(sub-index): a larger weight to heavily penalize countries that are badly performing. The same
method is applied to variables composing an indicator.
The overall index for each maturity stage is then the sum of weighted sub-indices. The weights
applied to each factor and used to calculate sub-indices' scores for each stage of maturity are
shown in Table – I. They are selected in a manner to express the difficulty and constraints in
growing from stage-1 to stage-5.
Table – I: Weighted Factors and Indicators
Factors Indicators Weight Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Fundamental
1. Health & Primary Education W1
W1-1 W2-1 W3-1 W4-1 W5-1
2. General Infrastructure W2
3. ICT Price Basket W3
4. Regulatory Environment W4
5. Economic Freedom W5
Effectiveness
6. Competition Environment W6
W1-2 W2-2 W3-2 W4-2 W5-2
7. Technology Adoption W7
8. Corporate Ethics & Accountability W8
9. Higher Education & Training W9
10. ICT Readiness W10
Efficiency
11. Government Efficiency W11
W1-3 W2-3 W3-3 W4-3 W5-3
12. Labor Market Efficiency W12
13. ICT Usage - Business W13
14. ICT Usage - Individual W14
15. ICT Usage - Government W15
16. Gender Equality W16
Innovation
17. Press Freedom W17
W1-4 W2-4 W3-4 W4-4 W5-4
18. Financial Market Sophistication W18
19. Business Sophistication W19
20. R&D Environment W20
21. Innovation Environment W21
6. IKE – Index of Knowledge Economy and Maturity Model
M. Bouanane 6
APPENDIX – KNOWLEDGE ECONOMY RANKING AND MATURITY
STAGES3
Index of Knowledge Economy Ranking and Maturity Stages 2010
Knowledge Economy Ranking and Maturity Stages (2010)
Country Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Overall IKE
Score Rank
Singapore 8,04 7,91 7,87 7,74 7,66 7,78 1
Sweden 7,80 7,77 7,76 7,73 7,71 7,73 2
Denmark 7,81 7,75 7,72 7,66 7,62 7,68 3
Finland 7,76 7,71 7,69 7,63 7,61 7,67 4
United States 7,73 7,68 7,65 7,60 7,58 7,65 5
Switzerland 7,74 7,68 7,67 7,62 7,60 7,65 6
Canada 7,60 7,50 7,45 7,36 7,29 7,40 7
Norway 7,47 7,42 7,41 7,36 7,33 7,36 8
Netherlands 7,52 7,43 7,37 7,28 7,22 7,34 9
New Zealand 7,59 7,47 7,40 7,28 7,19 7,33 10
Hong Kong SAR 7,60 7,45 7,40 7,25 7,17 7,31 11
Luxembourg 7,50 7,41 7,33 7,24 7,16 7,30 12
Iceland 7,49 7,40 7,41 7,31 7,26 7,30 13
Australia 7,52 7,40 7,34 7,23 7,14 7,28 14
Germany 7,37 7,28 7,22 7,13 7,09 7,21 15
United Kingdom 7,34 7,25 7,21 7,13 7,08 7,17 16
Japan 7,25 7,19 7,15 7,09 7,07 7,16 17
Austria 7,29 7,20 7,14 7,04 6,98 7,11 18
Ireland 7,22 7,11 7,04 6,93 6,85 7,00 19
France 7,14 7,05 6,99 6,90 6,84 6,96 20
Taiwan, China 7,04 7,00 6,99 6,95 6,92 6,95 21
Belgium 7,16 7,05 6,96 6,86 6,78 6,95 22
United Arab Emirates 7,08 6,95 6,88 6,74 6,63 6,78 23
Estonia 7,00 6,89 6,86 6,76 6,68 6,77 24
Israel 6,77 6,75 6,74 6,71 6,70 6,72 25
Korea, Rep. 6,87 6,78 6,73 6,65 6,60 6,71 26
Qatar 6,93 6,78 6,71 6,56 6,44 6,61 27
Cyprus 6,83 6,71 6,64 6,52 6,44 6,59 28
Malta 6,73 6,63 6,57 6,48 6,40 6,53 29
Malaysia 6,71 6,61 6,57 6,46 6,39 6,50 30
Chile 6,74 6,61 6,55 6,42 6,32 6,47 31
Czech Republic 6,63 6,55 6,50 6,41 6,35 6,46 32
Slovenia 6,64 6,54 6,50 6,40 6,34 6,44 33
Bahrain 6,71 6,56 6,50 6,36 6,24 6,38 34
Spain 6,59 6,47 6,40 6,28 6,20 6,35 35
Portugal 6,54 6,42 6,36 6,24 6,16 6,30 36
South Africa 6,25 6,23 6,21 6,19 6,16 6,20 37
Lithuania 6,41 6,29 6,26 6,15 6,07 6,18 38
Slovak Republic 6,36 6,26 6,20 6,10 6,01 6,14 39
Oman 6,39 6,26 6,21 6,08 5,99 6,12 40
3
The green color indicates the development stage the country has reached. Uncolored columns highlight
unclassified economies.