Why the Knowledge Asset is Under-valued

© Peter Atkinson
July, 2011

Despite the discussion that has taken place over the past twenty years or so about the strategic value of the knowledge asset to the organisation, it has continued to be undervalued by most organisations in all sectors of the economy. Before attempting to identify remedies to this shortcoming, it would be useful to identify why this undervaluation takes place so consistently across the board.

Here we are not addressing the separate, but related, question of, “why is the knowledge asset underutilised.”

Before addressing the question head-on, it is necessary to investigate some related matters.

First of all, let us consider the question, “What does this knowledge consist of?” When one consults the standard text books on the subject of knowledge management, they tell us that organisations contain a lot of tacit knowledge which resides in the heads of employees and built into business processes. This received wisdom goes on to tell us that the organisation can protect this knowledge by making it explicit, by capturing it in documents and software systems so that it is not lost when individual employees leave the organisation.

In fact, this model of knowledge is erroneous from the start. Tacit knowledge cannot be made explicit by recording it because knowledge cannot be recorded; only data can be recorded. Knowledge may only be derived from data through the application of understanding and, so far, only people are able to do that. However, descriptive or detailed the data is it can only be used if it is interpreted by individuals who are suitably prepared by their professional training. We could, to be concise, say that the knowledge asset of an organisation consists in its employees’ ability to interpret pertinent data.

What an employee’s professional training has done, chiefly, is to insert them into a professional discourse which gives him or her a vocabulary, a set of objects of analysis and some rules of analysis, in short, a way of talking and thinking about their field of activity. This discourse is very rarely created by one organisation but almost always it is created by a professional community which spans many organisations in many geographical locations. The employee of a particular organisation acquires greater expertise in this discourse as they gain experience and they also gain knowledge of its specific application to the conditions of their organisation.

This point brings us to another question, “Who owns the knowledge asset?” If the knowledge asset resides in the heads of employees, it is evident that it is not possible for the organisation to own it any more than it is possible for the organisation to own its employees. In the absence of actual slavery, it isn’t possible for organisations to prevent employees from leaving.

So, the value of the knowledge asset to the organisation is dependent on the effectiveness with which employees apply it. The value of the part of the knowledge asset in use by any particular employee is the value of their wages. The time and effort spent in acquiring this personal asset, for that particular employee, represents an opportunity cost compared to other bodies of knowledge that they might have acquired. If the employee loses his or her job their knowledge is ripped out of context and rendered worthless. Because they are inserted into a professional discourse, they have a value to other organisations who are engaged in the same activities but the prospective employee lacks some of the context that existing employees have so a new employee usually has less value than an existing one.

Marx’s concepts of the alienation of the employee from the products of his or her labour are relevant. The individual employee is only selling their labour as a commodity and another employee who can perform to the same extent has the same value. The identity of the employee is expunged by the transaction of exchanging labour for wages. This situation leaves the employee vulnerable to the whims of the employer, for example, if the organisation makes a decision to discontinue one of its activities. The situation of the employee is very different to that of an artist for example. Take the example of a novelist. His work is directly attributed to an individual and no matter what opinion anyone has of him, his work is irrevocably his work. Usually, this attitude is reflected in the way that the novelist is paid: by royalties on each book sold.

There is a conflict of interests here. It is advantageous to the employee to have the value of his or her knowledge evaluated to its fullest extent. It is advantageous to the employer to obfuscate the value of an employee’s knowledge as a proper evaluation might give the employee a bargaining tool and might upset the given power structure and hierarchy of the organisation. It is here that we have the answer to our question, “why is the knowledge asset undervalued?” It is not a problem with the knowledge asset in itself but a problem in the evaluation of the human resource.