The knowledge-based economy: Exploit ideas, not your staff

Britain must take advantage of its intellectual riches if it is to thrive commercially, the DTI insists

IN THE knowledge-driven economy, firms that rely on outdated processes, or try to compete against global competition by forcing down the pay and conditions of their staff, will be left behind. Successful companies are those that innovate, invest heavily in the skills of their people and seek out new ways of doing business.

Firms must build on their own capabilities and exploit links with the UK's world-beating science and technology base. This base is excellent at generating new and innovative ideas. What the UK needs is more businesses prepared to exploit these ideas, develop links with the universities and take advantage of novel opportunities.

Where this does happen, the benefits can be huge. Autosmart, which produces vehicle-maintenance products, developed links with its local universities through the Government's Teaching Companies Scheme (TCS). The TCS encourages universities to co-operate with firms to transfer technology and knowledge. Autosmart has seen a pounds 1m increase in sales and has already embarked on a second TCS project. Sophie Atkinson, its finance director, believes that by utilising the UK's science base, her company will enjoy a sustainable advantage over competitors.

The most successful companies in the modern economy know that their biggest asset is in the knowledge embodied in their staff. They know that if the skills, capabilities and ideas of their staff are harnessed, then all will benefit. Anglian Water realises this and has developed a University of Water to share knowledge across the business.

The key to exploiting the UK's capabilities is for management to be more innovative, outward-looking and entrepreneurial. By spotting new opportunities, entrepreneurs can generate wealth for themselves and for the UK. Already, changes in the economy have allowed a new wave of young entrepreneurs to take advantage of these trends. Covent Garden Soup Company, now captained by Simon Bell, created a whole new market in chilled soups. Through extensive investment in branding and advertising, the company has established itself as the clear market leader with 41 per cent of a market worth pounds 55m.

But being entrepreneurial does not just mean establishing new products. Devising new ways to sell traditional products can lead to huge rewards. The use of brands, advertising and marketing can generate genuine value. Bushra Ahmed and her brother Shami of Joe Bloggs clothing, have used innovative marketing to propel their firm to success in a highly competitive market. Throughout the economy, firms are missing out on opportunities to grow, create jobs and wealth simply by being unaware of the most modern and up-to-date ways of doing business. By getting together with other firms, swapping tips on best practice and sharing knowledge, all firms within an industry or region can prosper.

Participants in the Society of Motor Manufacturers and Traders Industry Forum have experienced the benefits of such collaboration. By getting together and sharing experience, wasteful activities can be identified and new opportunities developed. In the case of the motor seat manufacturer, Isringhausen GB of Wrexham, advice provided through the Forum resulted in a 20 per cent increase in output.

The benefits of collaboration can be spread throughout the supply chain. If purchasers and suppliers can agree to share their knowledge about new demands and processes, they can cut waste and improve their productivity. The engineering group South Wales Forgemasters, has seen its turnover increase 15 per cent in the last 18 months as a result of networking through the supply chain.

The changes bringing about the knowledge-driven economy are also generating new forms of competition. Globalisation means that firms can no longer hide from the forces of competition. But competition is manifesting itself in ever more subtle ways. Firms are competing on quality, on innovation, on having the best ideas first. The development of e-commerce changes the competitive advantage of existing companies.

Already worldwide electronic commerce trade is valued at $12bn (pounds 7.1bn) and this is set to reach $350bn-$500bn by 2002. The numbers are impressive, but what does the e-commerce revolution mean for UK business? US experience provides some clues. In a traditional retail trade such as book-selling where physical presence was the key to success, e-commerce has transformed the market. Amazon.com, the internet bookseller, has already come from nowhere to take a large slice of the bookselling market. Enhanced competition provides incentives, opportunities and rewards to innovators.

Even in something as traditional as the manufacture of equipment for ice-cream parlours, the knowledge-driven economy has transformed businesses.

Brian Tomkins, of Arden Supplies put his business online. This thrust his highly seasonal business into a 365-day-a-year global operation that has drawn orders from as far afield as India and Tanzania.

Smart firms are investing in their people, in research and development, and in marketing and brands. They are looking at new areas of businesses and new ways of doing business. They are generating profits for themselves, and jobs and prosperity for people throughout the UK.

They are providing consumers the world over with products they want to use. Successful business people already know that the knowledge driven economy is here.

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