To use a tired old cliché, information is power. And it's truer now than ever before. As the world inexorably moves towards becoming a knowledge economy, knowledge based businesses are coming to the fore. And even those that are part of the traditional economy, are learning that they need to manage their collective knowledge well to survive. So, how does one define a knowledge based business? And what makes them tick?



How do you recognize a knowledge based business? Surprise, surprise! Although you'll find a whole lot of wisdom on the subject at expert sites, there is no standard definition at all. It is generally accepted that knowledge based firms are those where the main line of business (or product or service) is highly dependent on possessing or applying knowledge. While that may be true of virtually every business, there are some – for example financial services, consulting or research where knowledge is necessary for the very survival of the enterprise. Perhaps, it is more appropriate to ask which one is not a knowledge based business!

Such businesses are characterized by high growth, technology intensity, a high rate of obsolescence and are hugely human capital dependent. While the scale may vary from a lone freelance consultant to giant corporations, a knowledge based business can be set up with relatively low capital. Knowledge resources are unique in the sense that they are used, but never consumed. In fact, sharing knowledge invariably enhances it.

Geographic and time zone divides are even less of a barrier for a knowledge based business than for one that belongs in the old economy. No wonder that knowledge also flows from a region where it is cheapest or most abundant to places where it is not. The burgeoning Business Process Outsourcing industry is all the proof we need.

Knowledge is not merely an enabler – more often than not, it is a strategic edge. Products and services with a higher knowledge quotient command more respect and higher prices in the marketplace. Watch the rise and rise of Chief Information Officers in most companies!

On the other hand, a knowledge based business also faces a number of challenges, which must be managed to ensure longevity of the enterprise. First of all, the very ease of information flow can be its undoing – thus, protection of intellectual property and ensuring confidentiality is of paramount importance. We've dealt with this issue earlier in our article on the importance of confidentiality agreements for the legal aspects. Data storage and security is another huge concern for all businesses worldwide, and has happily enough for the likes of EASEUS and Data Security Group, spawned off an entirely new industry! Knowledge industries have also to run harder to stay in the same place – with technology becoming obsolete faster than ever, research and development is the very lifeline of a knowledge intensive enterprise. The final and perhaps most important issue, is that knowledge cannot be monetized unless it is locked into a specific system or process. And ironically, that need has created another set of knowledge based businesses as well!