Through analysis of current trends, it is evident that an organization's intellectual capital is exceptionally valuable in today's knowledge economy. The trends of global competition, talent competition, and advancements in technology create an environment that demands growth in an organization's knowledge base. These trends are best addressed through value innovation, competitive compensation and retention plans, and training employees. Leaders must invest in developing and retaining knowledgeable workers, who are their most important asset, in order to survive and thrive in this dynamic business environment.

1. Product to Knowledge-Based Economy
by: Sundeep Bhola
Definition: Oxford dictionary defines a knowledge economy as a system that is reliant on acquiring, sharing
and using expertise more effectively, as opposed to a means of production, for economic and social
development (“knowledge economy,” n.d.).
Current Situation: Knowledge is of importance to the economy because it allows countries to produce goods
and services at a lower cost and with a higher efficiency (Kefela, 2010). Simply put by the third wealthiest
human in the world, Warren Buffet, “The more you learn, the more you’ll earn.” Currently, businesses are
faced with a plethora of challenges when it comes to survival that is being solved from a transition out of just
production, towards a focus on expansion of knowledge as a means for growth. Through carefulobservation of
current trends, leaders and organizations can understand the impact and implications in this dynamic
environment.
Trend/Cause/Antecedent:
1. One trend that is apparent on a macroeconomic level, is that companies now more easily compete
internationally. Although this may be an issue to most defenders or reactors in a product based economy, this
competition doesn’t hurt companies who are proactive and decide to focus on innovating for the future (Leavy,
2010). There has been an emergence of competition in global markets due to the ease with which companies
can compete internationally. In economic theory, this is analogous to the model of perfect competition.
Makowski (2014) describes perfect competition as many firms selling identical products, having no control of
market price and with low barriers to enter the market. To illustrate this point, think about the intense level of
competition that plagues the cell phone industry. Consumers have had hundreds of devices to choose from,
meaning that competition has essentially been perfect with almost identical products up until 2006. However,
Apple’s market share, in terms of iPhones sold yearly, ranges from 11.7% to 23% in the last decade (President,
n.d.). This is much higher than what would be expected in an industry with intense competition. Their success
in large part can be attributed to the value innovation created by their knowledge workers. For example, in
2007 Steve Jobs revealed the first Apple iPhone. This was the first phone to use touchscreen capabilities, the
integrated a user-friendly web browser and was an MP3 player. A multitude of Apple’s competitors were able
to perform each of these functions. Despite this, their competitors weren’t as user-friendly and integrated as
Apple’s iPhone (Laugesen and Yuan, 2010). Apple had determined that smartphone customers value this
integration and convenience and therefore had innovated towards creating this product. Hence, Apple had
expanded on the market through value innovation. Furthermore, this demonstrate that Apple didn’t attempt to
play defense by reacting to other players in the industry. Instead, Apple was constantly on the offense by
leveraging their knowledge workers to create novel concepts based off of what purchasers’ value. As a result,
according to Forbes, Apple was able to capture 90% of smartphone profits in 2015 despite a highly
competitive landscape and in turn, have created a quasi-monopoly (Jones, 2016).
2. Another trend that is apparent in the news, is the willingness for companies to go after top C-suite
executives who have vocational skills (Schrodt, 2016). They are willing to poach these employees due to the
intangible value of the employees’ knowledge. This has placed a greater emphasis on the need to better
compensate and retain employees within the company. As alluded to previously, companies are willing to
poach talent from other organizations because they realize that executives, with industry knowledge, are highly
coveted (Erickson, Schwartz, & Ensell, 2012). These executives have vocational skills that are transferrable to

2. other firms within the industry. In Beechler’s article, he describes that a Price Waterhouse Cooper study had
found that 89% of CEOs put acquiring talent as one of their top priorities. A current example of this issue in
the news is Netflix Inc. being sued by Twentieth Century Fox for allegedly poaching employees (Schrodt,
2016). The talent leaving the Rupert Murdoch’s Twentieth Century Fox must be thoroughly desirable because
they are responsible for blockbuster titles such as The Simpsons, Family Guy and Modern Family (In, n.d).
3. The last trend is the advancement in technology that has allowed knowledge workers to develop much more
intricate products (Guruz, 2011). For example, cars are no longer just construction of alloy but have been
developed, through research and development. Rather, they have been augmented into a sophisticated machine
that uses computer processes to create a safe, enjoyable and eco-friendlier experience (Powell & Snellman,
2004). Each of these trends towards a knowledge economy impact both organizations and leaders in multiple
ways, in that it demands the preservation and progression of intellectual capital, known as the knowledge that
can transformed into value (Zéghal & Maaloul, 2010). This can be done by advocating value innovation,
compensation and retention plans, and investment in the training of their employees.
5 Ways These Trends Impact Organizations
1. These impact organizations because they must be willing to pay premiums to recruit knowledgeable
workers. Furthermore, these workers have intangible skills that are highly valued in a non-linear workplace.
These include creativity, innovativeness, teamwork, leadership and vocational skills. All of these skills are
transferrable which is very important because their effectiveness in a new environment is dependent on this
transferability in a knowledge economy.
2. Organizations must make greater investments in training workers to increase knowledge base. The
opportunity cost, or best forgone option, in not investing in your workers, is that you will have those
undertrained workers will still be a part of your company. Santovec of Women in Higher Education speaks of
an important question posed to leaders. That is, “What if we train and develop our employees and they leave?”
Alternatively, she asserts, “What if we don’t and they stay?” (Santovec, 2010). This conversation answers a
fundamental concern that businesses may ponder. Despite this, the cost of not investing in one’s employees, is
that businesses will have those undertrained employees underperforming. As a result, it is a demanded that
companies invest in their employees if they want to survive in the long run.
3. Poaching demonstrates the large emphasis that leaders are attributing to workers with specialized
knowledge. This article also explained that McKinsey and Co., America’s largest management consulting firm,
believed that people are the new source of competitive advantage and that talent is absolutely worth fighting
for (Beechler, n.d.). As a result of this, companies must be concerned with retention of their executives’ tacit
knowledge, also known as human expertise. This loss can be up to 20 times the tangible costs associated with
training and recruitment (Leonard-Barton, Swap, & Barton, 2014).
4. Removal of bureaucratic hierarchies. This means that companies utilize a flatter approach to management.
This would include cross-functional teams who work on common goals with one another. This prevents from
having isolated teams that aren’t communicating with one another. Rather, they should look to remove
practices that prevent this. In turn, this allows for the merging of ideas while emphasizing synergy and the
amalgamation of multiple viewpoints to merge.
5. Although no industry is perfectly competitive, most companies experience high levels of competition and
can learn from perfectly competitive markets in this globally competitive market. Kim and Mauborgne of MIT
Sloan Management Review believe that instead of trying to beat the competition, a knowledge economy must

3. focus on expanding markets or creating new ones. Professors Andrew and David Cropley define this as value
innovation, more specifically, connecting innovation to what customers’ value (A. Cropley & D. Cropley,
2011). Moreover, increased output may not be the solution to success, rather, investments in a company’s
knowledge base may be the answer for the long run (Neef, Siesfeld, & Cefola, 2004).
3 Implications for Leaders
1. Leaders must be highly proactive in their compensation retention plans, if they wish to deter their top talent
from leaving. They may take on a Jack Welch approach, whereby they decide provide merit to top performers.
More specifically, this is done by giving Welch’s top 10% compensation incentives through bonuses. This can
also be achieved through linking compensation to performance. Namely, having the compensation of
employees directly correlated to the profits of the company. This would insure that executives take actions that
are aligned with the company’s performance goals. In addition, this gives incentives for employees to work
harder to create value for the company. Essentially, leaders must constantly be working to develop an
attractive compensation and retention plan. Otherwise they leave themselves vulnerable to other companies
looking for talent, or worse, have their top employees vacate willingly in search of somewhere they are valued
more.
2. Leaders must also invest in their people through training and development. As described earlier, holding
onto employees and deciding to not train them creates deadweight within the company. Instead, leaders should
look to reinvest their profits into training their employees. Fundamentally, this is the identification of
diminishing marginal returns of investment in goods but increasing marginal returns of investment in
knowledge (Neef et al., 2004). In economics, marginal return is the benefit derived in output, from one unit of
input. Put simply, investing in knowledge has been shown to produce greater results than investing in means of
production, in the long run (Neef et al. 2004). This was illustrated in the progression of cars. Instead of simply
focusing on the means of production, a focus on technological progress created by the inputs of knowledge
workers, has created a superior product.
3. Leaders must realize that people in their organization are their biggest asset and thus work on training their
best employees. Without people, companies can’t run. These people have knowledge that is fundamental to the
success of the company. As Sir Francis Bacon, the former Attorney General and Lord Chancellor of England
put it, “Knowledge itself is power,” (Bacon, 1512). No company is fully autonomous and free from human
oversight. Although knowledge is intangible, and transparent on the balance sheet, companies must do their
best to train individuals in their company.
Through analysis of the current trends it is evident that an organizations’ intellectual capital is
exceptionally valuable. The multiple trends of global competition, talent competition and advancements in
technology, all create an atmosphere that commands growth in organizations’ knowledge base. These trends
have been found to bested through value innovation, compensation and retention plans, and through training of
employees. Additionally, the overarching theme has been to maintain proactivity and staying ahead of the
challenges that threaten the long-term success of organizations.

4. Reference List
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