The knowledge-driven economy
A Department of Trade and Industry case study

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Page 2: The knowledge-driven economy

Department Of Trade And Industry 5 Image 4A knowledge-driven economy is one in which the generation and use of knowledge will come to play the major part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the effective use and exploitation of different types of knowledge in all manner of economic activity.

Types of knowledge

We all have knowledge that we think about in terms of facts and information, as well as the skills such knowledge enables us to acquire. In order to think about how knowledge would be used in a fast-changing and more competitive knowledge-driven environment, it is important to distinguish between the two types of knowledge - ‘codified’ and ‘tacit’:

  • Codified knowledge can be written down and transferred easily to others, rather like the information contained in this case study
  • Tacit knowledge is slower to acquire and much more difficult to transfer. Examples include the knowledge built up during an apprenticeship, understanding how a market works, or familiarity with a particular technology or language. When managers within an organisation are encouraged to use their tacit knowledge to manage change they are developing new competencies as they address different situations. In a knowledge driven world this helps to improve the competitive advantage of their business.

In a global economy, capital is mobile, technology spreads quickly and goods can be made in low cost countries and then shipped to developed markets. It is important, therefore, for people within business organisations to develop capabilities that are hard to imitate.

Within the UK, the distinctive capabilities of business organisations must, therefore, not be raw materials, land or cheap labour but instead be the intellect and creativity of people.

Department of Trade and Industry | The knowledge-driven economy