Towards an economy of flows

We believe there’s good reason to think that value is shifting from knowledge stocks to knowledge flows. Put more simply, we believe that flows trump stocks.

An excerpt from John Hagel in the Harvard Business (Review) blog, where he arguest that a revolution has occured in the way value is created:

” As the world speeds up, stocks of knowledge depreciate at a faster rate. As one simple example, look at the rapid compression in product life cycles across many industries on a global scale. Even the most successful products fall by the wayside more quickly as new generations come through the pipeline faster and faster. In more stable times, we could sit back and relax once we had learned something valuable, secure that we could generate value from that knowledge for an indefinite period. Not anymore.

To succeed now, we have to continually refresh our stocks of knowledge by participating in relevant flows of new knowledge. But there are two challenges. First, knowledge doesn’t flow very easily, especially if it is tacit rather than explicit knowledge.

To keep it simple, think of tacit knowledge as the “know how” rather than the “know what.” Imagine trying to perform brain surgery after having read all the books you can find on the subject. The books are the explicit knowledge telling you what to do but knowing how to perform this kind of surgery critically depends on an extended apprenticeship process in which tacit knowledge gets communicated through observation and then by participating on the periphery of these operations. Accessing this kind of knowledge typically requires long-term trust-based relationships. And, in times of rapid change, tacit knowledge becomes increasingly valuable: because it’s the newest knowledge, it’s the most helpful in dealing with the latest changes in a fast-moving business landscape.

Here’s the second challenge. We can’t participate effectively in flows of knowledge–at least not for long–without contributing knowledge of our own. This occurs because participants in these knowledge flows don’t want free riding “takers”; they want to develop relationships with people and institutions that can contribute knowledge of their own. This is a huge hurdle for most executives who were trained to guard their knowledge carefully. Yet if they remain “takers” they will find themselves rapidly marginalized. Knowledge flows tend to concentrate among participants who are sharing with, and learning from, each other.

Now, we are not urging folks to throw all their valuable knowledge into the crowd and wait patiently for something good to happen. We need to be thoughtful about which flows of knowledge we seek to develop and what elements of knowledge stocks we can afford to share. One option is to pursue what we call a “staircase of trust.” Begin by sharing relatively low value knowledge as a way of learning who offers valuable knowledge in return. As these value exchanges develop, they build confidence that certain partners can be trusted to reciprocate in ways that refresh our own knowledge stocks. Then more valuable knowledge can and should be shared. Modular approaches to product and business process design also have the advantage of supporting more selective and staged approaches to knowledge sharing. By participating in “networks of creation” and “economic webs” with robust reputation systems executives can further reduce risk while amplifying the potential for rapid learning and value creation. While there are certainly risks associated with knowledge sharing, the damage from IP theft diminishes as the rate of obsolescence increases. At the same time, the rewards from knowledge sharing go up substantially.”

1 Comment Towards an economy of flows

  1. AvatarRyan Lanham

    This is, in my opinion, very insightful. Said another way, securing long term cash flows without innovation is unlikely. Now, how does business forecast the capacity to innovate accurately? Very difficult, indeed.

    Ryan Lanham

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