Why knowledge is the most important modern factor of production

Why knowledge is the most important modern factor of production

One of the key subjects in elementary economics is factors of production. You will learn about land, labor, capital and entrepreneur. Without land, in the old industrial economy, it would be very difficult to do business. How can you establish a mill factory where there is no land? Of course, that economic theory has since been updated as technology redesigned our world. Today, knowledge is the most important factor of production.

To compete in the market place, you need ambitious and talented team players to lead your firm. This is what separates iconic, dynamic and successful companies from the laggards. These firms are knowledge organizations. Driven by human intelligence, they live in the domain of innovation and forward-thinking business philosophy. Knowledge brings competitive advantage and creates an ecosystem that sustains market leadership through both creative destruction and disruptive innovation.

For organizations to succeed in this globalizing economy, human talent is very important. Without it, there is no pathway to success. The reason is that technology has reshaped the nature of competition. In the old industrial economy, you can depend on having scale to win the market place. Today, we have noted that innovators with brainpower can disrupt, by relying not, largely on capital, but ideas.

Google was nearly bought by Yahoo when it was rising up. Today, Google can afford to buy Yahoo. Google innovated and was forward-thinking, moving from web to mobile ecosystem while Yahoo was docile and static, focusing on email and news aggregation businesses. Many experts have argued that Yahoo has stalled in innovation because the company is not trendy to attract top talents like in Facebook, Zynga, and Google.

Across industries and markets, we have consistently noted that ideas are developed and scaled by the imagination and determination of man.  This has been as old as civilization. While we can see technology as the instrument for business processes, man remains the anchor and epicenter to make that technology work intelligently. One man sees the cellphone as a device to make a phone call, another sees it as a bank branch office. It is all about understanding the future with the knowledge of the present and using that to create business models that will align with market evolving patterns. You need talented people to do that. If your firm does not recognize that in the trio of People, Processes and Tools (PPT), that the most important element is People, you will not succeed.

I do not see agile firms as being driven by the outdated factors of production. I use PPT because it gets all the important variants I need. Irrespective of your business, it surely has an operation in it and there are tools that help you to execute that operation. That tool could be land, and capital. The People are then the entrepreneur and the labor (your team members) that drive the organization goal.

Interestingly, the Process is what the People have made it using the available Tools. So, it is very strategic that you get the right people to manage that tool if you hope to get your process working. How do you do that? You need to understand that every Innovation is only possible because it is humanly possible. That means you have to position your team to become that one that will make that innovation possible. You need to invest in mentoring and development to help them reach their fullest potentials and create a constant reawakening for all, irrespective of level in your firm, to understand the real power of People.

Specifically for entrepreneurs, they live and succeed by people. That is why the venture funds or private equity firms take time to understand a team, irrespective of the idea. To them: “it is not just the idea, but the people behind the idea”, says a Boston area serial entrepreneur in a private discussion. And he is  right, computers, software, sales, etc are nothing without People. So learn how to invest and maximize the potential of your organization “human element”.

by ndubuisi ekekwe


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