What is The Difference Between The Knowledge Economy And The Traditional Economy?

Within the societal context, the term knowledge economy refers to the effective integration of knowledge aiming to produce economic benefits. Through a proficient and incessant exchange of knowledge, countries are able to realize better economic results. With a finer exploitation of their readily available resources they craft their way towards the improvement of living standards in terms of health, affluence and future progress.

Within the corporate context, knowledge economy emphasizes on the effective generation and leverage of knowledge within the organization as a source of enhanced organizational performance, competitiveness and sustainable competitive advantage. Being a source of innovation and creativity, it attains organizational competence producing agile organizations and contributing to socio-economic growth.

KNOWLEDGE ECONOMY CHALLENGES

Globalization

Effective integration of knowledge necessitates the leverage of rapid technological changes and excessive information, calling for heavy investments in information technology. Gathering, processing and evaluating information in the first instance, and converting it into knowledge in the second instance is a strategic goal for organizations. By bringing down interdepartmental barriers and facilitating company-wide availability and distribution of information, knowledge is disseminated throughout the organization. Consequently, the discovery of new corporate opportunities is facilitated resulting in the formation of entrepreneurship-oriented societies.

Information Paradox

Misuse of information or suboptimal investment decisions in information technology produce information overload. The information paradox - investing heavily in information technology and derive ambiguous results and/or inflexible organizational processes - is a strategic risk for organizations. Misconceived decisions taken by overburdened individuals, who spend enormous time on gathering information, rather than processing and evaluating it, lead to organizational ambiguity and uncertainty.

Human Capital

Human capital is a key strategic asset for organizational performance. Knowledge management, being the fundamental activity for obtaining, growing and sustaining intellectual capital becomes critical for organizational competitiveness. Consequently, knowledge economy requires skilled and knowledgeable individuals, who incessantly use and generate knowledge.

Organizational Alignment

Organizations operating in knowledge economy should emphasize on the alignment of organizational culture, structure and management processes. Managers should employ a stronger understanding of group and individual psychology and eliminate fear and uncertainty from the workplace. Then, strategic consensus will follow turning the organization into a socially responsible entity and a global player.

KNOWLEDGE ECONOMY vs TRADITIONAL ECONOMY

Knowledge Economy favours intellectual capital, while traditional economy favours financial capital. Moreover, knowledge economy focuses on rapid evolution, innovation, and global scope, while traditional economy is slow moving, favours rigid industrial organizations and focuses locally. Within this context, knowledge economy favours opportunity-driven strategies as opposed to the objective-driven strategies favoured by traditional economy. Finally, knowledge economy emphasizes on change management rather than on stability and automation and focuses on market differentiation instead of mass marketing.

The fundamental differences between the traditional and the knowledge economy enable the latter to exploit the full benefit of organizational intellectual capital. In today's competitive marketplace, successful corporations realize that human capital is their greatest competitive advantage. Dependence exclusively on innovation and product superiority to achieve sustainable competitive edge is not enough. Additionally, becoming enthusiastically integrated into global markets on the grounds of enhanced competitiveness requires also social skills from workforce and not only technical expertise.

In conclusion, to meet the social challenges of knowledge economy organizations need to implement customer-oriented strategies and to create and sustain long-term profitable customer relationships. Within this context, organizational intellectual capital is at the core of effective organizational learning.

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