• Technology
  • McKinsey & Co.

Making a Market in Knowledge

For companies and their employees alike, knowledge is power -- and profit.

Just like people, companies in today’s economy find that their primary source of competitive advantage increasingly lies in the unique proprietary knowledge they possess. Companies and individuals may have equal talent and access to public knowledge, but the special value that comes with unique understanding provides a real edge. The bond trader who is the first to understand an opportunity to arbitrage securities across two different markets can earn extraordinary returns until other traders figure out the secret. A company thoroughly familiar with how to compete in a particular geographic market — China, say — has huge advantages over competitors lacking that familiarity.

Put simply, there is great value in sharing, across a whole company, proprietary insights into customers, competitors, products, production techniques, emerging research, and the like. In practice, of course, companies find it far more difficult than do individuals to take advantage of all this knowledge. An individual’s knowledge is self-contained, always available. But in companies — including small ones — it can be hard to exploit the valuable knowledge in the heads of even a few hundred employees, particularly if they are scattered in different locations. In a large, diverse company, the task expands to cover thousands of highly educated professionals and managers spread across a variety of specialties, locations, even countries. But difficult as it may be to profit from this diffused knowledge, the power that such large-scale interaction yields can dwarf what individuals or small teams, however brilliant or effective, can accomplish.

Misguided Management

Many companies have long been reasonably proficient at distributing knowledge by using technology no more advanced than the telephone and the fax machine. In the past decade, as advances in communications, software, and computers opened entirely new possibilities for sharing knowledge rapidly and efficiently, many leading companies, academics, and management consultants came to believe that the future belonged to large companies that could manage knowledge. The promise of bringing all of a company’s proprietary knowledge to bear on every problem or issue it faces led executives to invest billions of dollars in what came to be called knowledge management.

Of course there was progress. But if the goal was to use a company’s best proprietary knowledge to solve every problem it faced, knowledge management, as generally applied, has barely begun to fill the bill. Most companies have tried one of three approaches to managing knowledge, with mixed success. Indeed, many companies have tried all three.

1. Build it — they will use it. Some companies have relied exclusively on big investments in document-management systems, shared servers, and other technology solutions, believing this approach to be enough to let employees unlock knowledge. The result, simply, brings inefficiency. The sheer volume of documents at large companies today is overwhelming, and many such documents are out of date, poorly written, or otherwise difficult to parse. Even a diligent search by a determined knowledge seeker is likely to produce only a few valuable, easy-to-access insights.


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