Without a doubt, today we are experiencing the end of the industrial age. The 21st century is the beginning of a new era dominated by new forms of production, operation and cooperation. Globalisation, digitisation and networking are leading to a transformation of both economic and social organisation. Knowledge is fuelling this revolution.
Knowledge is the productive power
For the first time in history, the human mind is not only a decisive element in the production system, but it is the productive power itself. “Knowledge has become the resource, rather than a resource,” wrote the economist and management theorist Peter Drucker in 1993, in his book “Post-Capitalist Society”.1 “It changes, and fundamentally, the structure of society. It creates new social dynamics. It creates new economic dynamics. It creates new politics.”2
And that is not all: Knowledge influences knowledge itself as a source of productivity. Information processing aims at optimising information technology itself. That is, technological knowledge interacts with the knowledge applications it produces. It is a “circulus virtuosos,” as sociologist Manuel Castells highlights3, with outrageous dynamics and a spike in productivity. So, knowledge is the raw material and driving force behind the 4th Industrial Revolution. But knowledge is distinguished by a characteristic that is lacking in other known raw materials: It is practically inexhaustible, as stated by one of the fathers of sociology, Max Weber, in his article entitled “Science as a profession.”4
The foregoing also necessitate a revision of traditional certainties regarding the management of enterprises. It is a game-changer regarding the organisation, governance and culture of an enterprise. Correlations are altered and the existing method of cooperation and leadership comes into question. The hierarchical vertical organisation of the industrial age is losing its ability to meet the needs of the new economic, technological and social conditions.
We are on the threshold of transition from the Industrial Age to the Age of Information and Knowledge. In this sense, even the term 4th Industrial Revolution seems problematic and is perhaps misleading. By using this term to explain the upcoming structural changes, we believe that we are progressing along the path paved by the previous industrial revolutions. That is, that innovations are being added to technology and production methods, new energy sources are being discovered, and as a result we are moving to the next level of industrial development. But this is not the case; changes and innovations are not gradual and cumulative, but sudden and radical.
We ignore the fact that added value will be generated less and less through industrial production and that it will be based not on material resources, but on information and knowledge. Knowledge Society is determined by an “economic order in which knowledge, not labour or raw material or capital, is the key resource.”5 In other words, we are abandoning the industrial production impasse, and the capital and labour factors are losing their significance. “Knowledge” is now added to the triptych of traditional production factors: “land”, “labour” and “capital”. And that is not all: As the terms “Knowledge Society” and “Knowledge Economy” reveal, it is here to play a decisive role.
The most important feature of the structural changes taking place during the transition from Industrial Society to Knowledge Society is the fact that the value of industrial production is being reduced financially compared to the sector of provision of relevant services: Services, Design, Research and Development, Marketing, Innovation and Logistics.
Nowadays, the majority of work already consists of activities such as consulting, informing, investigating, organising, networking and presenting. These activities are based on knowledge and information, and the important factors are the amount and quality of ideas that are produced and that enrich goods, services and processes.
This is not to say that the production of goods is no longer important or that it will disappear – just as agriculture did not disappear; its value simply decreases, since this sector of economic activity is undertaken by machines or is transferred to countries with lower labour costs. Actual or “physical” production is important and continues, of course, to be the essence of economic activity. However, in the context of value chains, it is now simply a reproductive activity. The added value of production is reduced, as is the number of employees working in production. Competition in Knowledge Economy is primarily not cost competition, but innovation competition. This holds true for products as well as processes and operations. This is where the bulk of future added value lies.
The means of production belong to employees
The production factors “labour” and “knowledge” are linked and become human capital. What distinguishes human capital from physical capital is that you cannot own it. “Knowledge” a means of production will always belong to the employee! They decide to what extent they will make it available and with whom they will share it. It is a fundamental difference compared to the industrial era of the past, where in one sense the entrepreneur acquired ownership of the labour force; they could measure it and trade it.
This change may not completely reverse the relationship between capital and labour. Paraphrasing the sociologist and philosopher Theodor W. Adorno, one could say that, based on everything we know about technological development, today’s societies are knowledge societies. However, based on the economic and political structure, they remain capitalistic.6 There is no doubt that a balance will be achieved between “capital” and “labour”. This observation is very important because it determines, to a great extent, the need to change the governance, leadership and culture of an enterprise. Without active participation and cooperation of the employees, dissemination of their knowledge is not possible. A purely hierarchical culture based on the traditional system of command and control, as is customary in the vast majority of companies, will not be competitive in the future, because it is not in a position to draw upon the necessary resources. As a result, it is gradually losing its competitive advantage. Companies have to change course. One cannot survive in the era of Information and Knowledge Economy with a corporate culture born in the era of the industrial revolution.
Another important change is also taking place due to Knowledge Economy: the alienation of workers from their work and the work process, as diagnosed by Karl Marx7 in 1844 in his analysis of the new capitalist mode of production at the time, ceases to exist. One could say that in a knowledge economy, the means of production belong to the employee again!
This alienation reached its peak through the introduction of the principles of scientific management by Frederic Winslow Taylor8 and the development of the Fordist production model. From then onwards, the new methods of production and the management methods that accompanied them, which are based on vertical hierarchy and division of labour, have played a decisive role in the economy and society. In particular, the disassociation of intellectual work – in other words, the separation of designing and planning work from its implementation – contributed to the alienation of workers and their being forced to assume the role of tools, as an extension of machines. This is also changing. Planning and implementation can no longer be separated in such a clear manner. The erosion of this dividing line, the collapse of hierarchical structures forced by developments, as well as the intangible form of the raw material of the Knowledge Economy are establishing a participatory culture in modern enterprises, conditio sine qua non.
Participation is key to competitiveness
Since in the future competition will increasingly be based on innovation and knowledge, the usual organisational structures of the Industrial Age will prove burdensome. New ideas always challenge older knowledge and, by extension, the balance of power. Creativity is essentially foreign to the nature of all organisations. Hierarchical, bureaucratic organisations are usually rigid and unable to innovate and create to the extent necessary in an era of constant changes and strides in all fields of business. They are busy holding continuous meetings, conferences, drafting budgets, dealing with organisational procedures, employee performance measurements, audit routines, drafting reports, etc. In this way, organisations try to reduce risks and safeguard power relations. Rules, regulations, supervision and control are key components of the Taylorist-bureaucratic organisational model.
It is to be expected that the traditional hierarchical organisational structures of the Industrial Age will necessarily give way. The boundaries between design and production will not be fixed, and neither will the difference between those who make decisions and those who execute them. The command, obedience and control systems will have to be replaced by new forms of cooperation and participation tools. A necessary condition for this is an organisational structure and corporate culture in which innovation can flourish, as well as a leadership that motivates employees to place their knowledge and human capital at the service of the enterprise. One important goal, inter alia, is to enhance the company’s reflexes and adaptability. From an ideological perspective, one may dispute the necessity of employee participation, but financially and operationally it is imperative. It is not a political, moral or ideological choice, but an economically substantiated imperative. The question is not whether there should be participation, but how this is to be achieved.
1“Knowledge has become the resource, rather than a resource,” Peter Drucker 1993: Post-Capitalist Society
2«It changes, and fundamentally, the structure of society. It creates new social dynamics. It creates new economic dynamics. It creates new politics”, Peter Drucker 1993: Post-Capitalist Society
3Manuel Castells 1996: The rise of the network society
4Max Weber 1919: Wissenschaft als Beruf (Science as a profession)
5“…economic order in which knowledge, not labor or raw material or capital, is the key resource” Peter Drucker 1994: The Age of Social Transformation
6Theodor W. Adorno 1968: Spätkapitalismus oder Industriegesellschaft (Late capitalism or industrial society)
7Karl Marx 1844, Economic and philosophic manuscripts. Ökonomisch-philosophische Manuskripte (Pariser Manuskripte)
8Frederick Winslow Taylor 1911, The principles of scientific management
