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November 2004- Hong Kong Knowledge Economy
Source:
Dr. Gordon McConnachie and Hong Kong Democratic Foundation
Has Hong Kong got what it takes
to transform into a Knowledge Economy?
Dr. Gordon McConnachie, Board Chairman of the Scottish Intellectual Asset Management Limited, was the Foundation's guest speaker on 17 November 2004. Below is the full text of his speech.
Ladies and Gentlemen,
Thank you for the opportunity to share my thoughts with you today on a subject which is very close to my heart. It is a pleasure to be in Hong Kong and a pleasure to be in China. In the flier the HKDF posed the question "Has Hong Kong got what it takes to transform into a Knowledge Economy?" I'm not going to answer that question, but rather I will discuss issues that will, I hope, trigger answers in each of your minds, because, after all, it is you and others in Hong Kong who in the coming years will answer the question. It cannot be answered today, but the answer will become apparent in the fullness of time. Today we can only speculate.
The first feelings I had as I thought through what I wanted to say today were all questions. What is a Knowledge Economy? Why do we need one? What does it take to have a performing Knowledge Economy? Where is Hong Kong today? What is it going to take to always have Hong Kong where it needs to be? What are other countries doing? What can we learn? What are the barriers? What are the opportunities? The final question returns "Has Hong Kong got what it takes to transform into a Knowledge Economy?" Let us pick these off one by one, but first let me talk a little about knowledge, value creation, value extraction and value release.
In any venture, be it in a company, an academic institution, a region or a country, the source of value is knowledge and what we do with it. However, not all knowledge is a source of value and it needs a few more steps to convert the value created through some form of value release. This is why I talk about Intellectual Capital, which I define as the assembled knowledge of an organisation or society, tacit and explicit, codified and non-codified, which has the potential to create value. In making this simple definition, I am assuming a purpose for using the knowledge and introducing the concept of value. These are two critical steps that are all too often missing, and when they are missing we have a sub-optimal activity.
The Knowledge Economy, therefore, is at first base an economy which distinguishes between those pieces of knowledge which can create value in a given context, and those which cannot. The Knowledge Economy, therefore, manages intellectual capital towards a given purpose in order to create value. "Value" in this context means some form of economic, social, political or environmental benefit conferred upon a large number of people. The term "wealth" is often used to mean the same thing.
So let us ease into the first question: what is a Knowledge Economy? Such an economy is quite simply a place where the needs are known, the infrastructure is put in place to allow the needs to be fulfilled, an entrepreneurial culture is promoted and the ingrained culture of providing the solutions required, in time, in cost and with the appropriate communication and after sales service is created. You see I am already talking about much more than simply about electronic systems, I am talking about culture shift here. The internet changed global culture by allowing low cost instantaneous communication across the planet, yet many, many people have not yet realised the full consequences of this to their everyday lives, their businesses or their country.
Let me digress a little in order to come back to the same point with a clearer understanding. The Knowledge Economy has been around for quite a while but it received major boosts from two things, the creation of a low cost internet and the gradual globalisation of world trade. Now that the first of these elements is achieved, and the second is on its way, we have a truly global world market, and for this reason it is important for every economy on this earth to optimise and to create the conditions conducive to the growth of a Knowledge Economy within their borders. This begins to answer the second question, "Why do we need a Knowledge Economy?" and the answer is simply in order to compete on the world stage.
Thus it is critical for Hong Kong, China and all other countries, to buy into the need to create the conditions which provide fertile ground for the growth of a high peformance Knowledge Economy, and to invest in showing those who need to be convinced that it is only themselves, the people within your boundaries, who can do the job and get Hong Kong to where it needs to be today, next year, and out into the future. A Government can only help by creating the correct climate, and that brings me back to the point I was making about culture, because here Governments play a critical role.
Creating the Knowledge Economy begins with education. In the schools it begins with a good grasp of the basic educational building blocks like reading, writing and math, with familiarity with the encouragement of development of the self as a basic human right, with familiarity in the use of computers, computer software and electronic mail, and in an understanding of how the world economy functions, yes in school before the age of 18. It continues thereafter in making available continual self education for all those in employment and in unemployment so that the pool of talent in a society is refreshed and at its best, a least for those who are motivated to learn. This training should be tailored to the needs of society, in line with the development plan created as the result of a base line study, and measured for success by performance measures related to application of the learning gained. Vocational training centres and academic institutions have a special role to play in providing core learning and research, and these activities need to be funded as an investment for the future. Society today, and society into the future, needs a range of people with a broad spectrum of skills, ability, qualifications, training and personality, and channelling these people into the right jobs or activities in society is a further requirement.
Creating a climate which fosters the growth of the Knowledge Economy then continues in providing the correct infrastructure, an infrastructure to promote entrepreneurial activity, an infrastructure to allow rapid electronic communication, the provision of good transport infrastructure, an infrastructure that encourages new ideas to come from anywhere in the population and be screened and applied for common good with appropriate rewarding of the originator, an infrastructure which respects the common conditions of good business practice, including the role of and respect for intellectual property rights, and an infrastructure which imbeds the best practice at Government level in order to obtain the best result for the people in the country or region. If you are asking yourself "Which country has got all that together today?" then of course the answer is no one has. However this world is today a patchwork the elements of which range from excellence to disaster and we live in societies which compete in a free market economy, so it is important to do our baseline study, make our plans and create the climate that fosters the growth of the level of Knowledge Economy that is appropriate for our company, academic establishment, region or country. It is in our own hands here as to whether we succeed or fail.
Of course, once the education is in place and the infrastructure is there it is up to us, with guidance of course, to do the job. So "What does it really take to have a performing Knowledge Economy?" Of course the knowledge must flow, not just fundamental knowledge but also communication. Today electronic mail has replaced other means of written communication, and the internet and online systems have replaced many reference sources and libraries. This means that access to a high speed broadband connection is just as important today as access to a telephone or to electrical power.
However, all of these capabilities are of no value if they are not used or not used efficiently. It is therefore vital to study what is happening in the world on a regular basis, modify our plan according to what is found, test out that our education and infrastructure is still on course, and communicate to society that which needs to be known. This is a classical role for a Government in society either directly or, more often, through the setting up of independent think tanks or specialist service groups which are at least in part funded by public money. This is especially true if the region or country has a high proportion of small or medium sized enterprises within its economy.
Perhaps the greatest problem today is the fact that many people in positions of power simply "do not know what they do not know": in other words they are unconsciously incompetent, and being unaware are happy with the status quo when they should really not be sleeping at night because certain things need to be fixed. This is particularly true with respect to the lack of understanding of the value of "intangibles", otherwise known as knowledge, know how, intellectual assets, or intellectual capital, to any organisation or region or country. The greatest part of the value of any company today is intangible, yet only a few companies, although they invest heavily in efficiency, invest in understanding what is happening and in maximising the creation and extraction of value in a way that includes the intangibles. I was fortunate to work within one of these, Dow Chemical, for 27 years. The greatest part of the value today in any country is intangible, yet very few countries take account of this and invest in helping their population understand the value of intangibles to the economy, and help them leverage these to the advantage of their society. Again, I am fortunate to have been born in one of these countries, Scotland, which, on being given back a limited sovereignty a few years ago, immediately invested public money in identifying, and providing advice on leveraging, those value generating intangibles in the economy. I will expand on both of these issues now.
Dow Chemical¹ worked very hard on efficiency throughout the 90s, the last decade of the previous century. The R&D activity was made more efficient by tying it more closely to the business process, while manufacturing was revolutionised by taking far more into account the initiatives of the entire workforce, especially the shift operators. Customer service was revolutionised by the introduction of technical call centres and dedicated customer extranets which allowed customers access to agreed selected formulation and quality control information. The business activities were globalised, and non co-located business management teams were set up. One standardised work station laptop platform was installed over the whole company and a common intranet platform was introduced. A company wide e-mail and telephone directory was set up. The intellectual assets were catalogued, evaluated, managed and leveraged to create value. The first steps in the creation of an internal knowledge economy were taken.
The development and implementation of an intellectual asset management process within Dow Chemical, with which I was intimately involved, is now legend. The codified knowledge assets, starting with patents and trade marks, and extending later to all codified assets, were catalogued, examined for current and future use and value creation or potential and then managed accordingly. This was done as part of the business process taking full account of the business plan and in consultation with the business management. A dedicated person, an intellectual asset manager, was made responsible for this activity in each business. He or she co-ordinated the information gathering, facilitated decision making with the business leadership, and was responsible for making sure that all agreed actions were taken. New technologies were acquired, old technologies sold and current technologies, while still in use in core processes, were licensed or made available to others. A new business, Corporate Licensing, was created. In the first 5 years of activity, licensing revenue rose from US million to US 5 million annually. In the first 10 years, US S40 million was saved in patent and trade mark costs. The intellectual assets began to be used for multiple uses, multiple means of value extraction (use in Dow processes and licensed out) and returned more value straight to the business bottom line for incremental investment.
What large companies started in the 90s, small companies are beginning to work with today. Countries too are looking at what the Knowledge Economy can bring and are acting. The European Heads of State decided in 1999 that the knowledge economy is critical to European success and are developing initiatives and programmes to encourage uptake across Europe. When this roles out it will include tax incentives, will be financially effective and will over time imbed modern practice in each EU country. This is still to happen, and such initiatives in Europe happen slowly, but today, as an example, the United Kingdom has taken the initiative on Broadband internet access. The UK targets that 99.6% of the UK population will have the option to connect to the internet via broadband by the end of 2005. This target will be met, it is almost met already. The UK considers broadband internet access to be just as critical today as access to a telephone or to electrical power. Most other European countries today lag far behind the UK in the provision of Broadband access.
In Scotland the target for Broadband access is 100%, and the devolved Government in Edinburgh, Scottish Executive, is intent on meeting this target. In Scotland, the local development authorities, Scottish Enterprise and Highlands & Islands Enterprise, run programmes to inform people about the opportunities and pitfalls of the growing Knowledge Economy. This has led to several highly successful companies starting up in remote areas using the power of instant internet communication. Scottish Executive has funded three virtual institutes to conduct leading edge research in aspects of Energy, Life Sciences and TechMedia with a view to spin out high growth start up companies in Scotland. The investment of UK £450 million over the next 10 years is designed to bridge the gap between the excellent academic research carried out in these sectors in Scotland today, and the miserable track record Scotland has in converting this to jobs in Scotland. Most of the bright ideas have, in the past, been exported. Intellectual capital in a Knowledge Economy is easily transported, licensed, sold or simply lost.
Scotland has also created Scottish Intellectual Asset Management Limited , which I believe is the first organisation of its kind in the world. The Intellectual Assets Centre ™ (IA Centre) exists: "to assist Scottish businesses to maximise the economic potential of their intellectual assets." The IA Centre, which is particularly directed to providing assistance to SMEs, will:
(i) Raise Awareness & Understanding of Intellectual Assets, their value, identification, protection, management and exploitation for business benefit, and
(ii) Demonstrate how Intellectual Assets impact upon the development of strategy, products, processes, services, markets and supply & distribution channels.
The IA Centre will deliver through:
(i) Education about Intellectual Assets via events, training, seminars and information provision, and
(ii) Providing Tools to answer the questions about Intellectual Assets - Why they are important to all businesses, How to identify, How to access and to record and how to manage them, and ultimately how to extract additional value from them.
The Centre will therefore guide, direct and signpost Scottish companies to those suppliers of Intellectual Asset management products and services available, will encourage the development of a strong private sector-led supply of Intellectual Asset management products and services, and will develop Scotland's international profile as a leading exponent of Intellectual Asset management and exploitation.
Today I have the pleasure to be in Hong Kong, and you have kindly invited me to speak here. Let me take a purely personal look at where Hong Kong is today. Here in Hong Kong you have a workforce that is hard working and which possesses a multitude of skills. You are forward looking and you have decided to dedicate resources at a Government level to promoting the infrastructure required for the knowledge economy. The Hong Kong SAR Government has embraced² playing its part in providing the infrastructure required for leadership³ in the Knowledge Economy. The importance of education, lifelong learning, the need for (benign) competition, and the provision of assistance to those with a need to acquire new skills are all realised and documented.
Hong Kong will have the highest broadband penetration of any Asian country by 2006, and has a plan to have 75% of the population net savvy by the year 2010. The evolution of broadband in Hong Kong is, in many ways, a precursor to the evolution of broadband in other markets, in that a mix of liberalization, competition, and content-driven strategies are driving broadband success.
Hong Kong has, in the Innovation and Technology Commission founded in the year 2000, an initiative to support an infrastructure which assists in developing technology and supports R&D and Technology Transfer. This is supported by your Innovation and Technology Fund and your Applied Research Fund.
So what is it going to take to always have Hong Kong where it needs to be, at the forefront of the Knowledge Economy?
First of all, you are not there yet. It has been identified4 that many companies and decision makers in Hong Kong have not yet fully embraced the principles of Knowledge Management, nor do they realise the value to be extracted from working their intangible assets. The main change that needs to come, is a realisation that, in order to be truly competitive in today's world market, the intangible assets need to be taken on board and managed for value as part of the business or societal process, especially as intangible assets may have multiple parallel uses. This is what I call intellectual capital management and it is still in its infancy in Hong Kong, but please remember that even the best companies or countries are only learning how to walk in this respect. A common thread is that the more we learn about intellectual capital management and the value it can help release, the more humble we become in stating how much we already know. The only position in which I feel uncomfortable today, is when I feel that I know it all, because this means I have overlooked something.
What are other countries doing and what can we learn? There are good examples in many parts of the world, be they companies (Dow Chemical [USA], Neste [Finland] or Toyota [Japan]) or countries (Canada, Japan, Scotland, Hong Kong and Singapore). There is much to learn from success stories and from failures, and in this respect with the Knowledge Economy in its infancy, it is very important to have in each company or country a locus or community of practice so that we can learn from each other. The Hong Kong Democratic Forum or the Hong Kong Knowledge Management Society can contribute much to and learn much from the Intellectual Asset Centre in Glasgow, Scotland or the iCM Gathering of companies or current initiatives in the European Commission on the way to harness the value of intangibles or from many, many other sources across the globe. Here the key skill is networking, so that the ways in which knowledge is being used today or can be used tomorrow to further the way in which our economy functions, may be identified, incoming approaches selected which fit your situations in Hong Kong and modified and applied. The developments ongoing today are so many and varied that a good selection and validation process is required, whether you are looking at ways to create value, to identify value, to extract value or to release value in the bipolar matrix which exists as soon as you interpose the Knowledge Economy on top of these basic needs of any society.
So what are the barriers to success and what are the opportunities? Of course I could list many such barriers or opportunities but I would like to highlight one only. The greatest barrier to this movement into a Knowledge Economy are those who do not embrace the concepts and the value to be found: the greatest opportunity comes from those who realise the opportunities out there, and grasp them with both hands, realising the way will be stony and the work ahead will be hard, yet we must always remember that eventually those who ignore change will be left on their individual islands as the new and changed world flows past and around them. That reflection brings me to the final question.
"Has Hong Kong got what it takes to transform into a Knowledge Economy?" The answer, which I said I was not going to give, is of course you do, but you are not there yet. None of us are. Hong Kong is full of hard working, well educated and well motivated people. You have the infrastructure in terms of hardware, internet access, software and education either in place or you are working on it. You are in a part of the world which is in the centre of growth of world trade. The past few years have been less prosperous, yet you have the ability to adapt quickly and implement. So I challenge you. Go for it! After all, if Hong Kong hasn't got what it takes to transform into a knowledge economy, who does?
Thank you for your time and for your attention.
1. Gordon McConnachie, Journal of Knowledge Management, Volume 1, Number 1, pp56 - 62, 1997.
2. Tung Chee Hwa, People's Daily, 1 March 2000.
3. Tung Chee Hwa, People's Daily, 14 December 2001.
4. Knowledge Management, Volume 5, Issue 2, 15 March 2002.
The above does not necessarily represent the views of the Foundation
by Gordon McConnachie |
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