HRM in the Knowledge-Based Economy:

Is There an Afterlife?

Mario Raich, Ph.D.,


Do you know if your business is a knowledge-based business? Are you part of the digital economy? Do you have an idea what that means?

It is all about work. When we talk about work we mean meaningful, goal-oriented, value-creating activities. It is without any doubt one of the most important activities in a human society. In our capitalist society it seems to be the most important one!

Social acceptance, our identity, well being, social role and much more all seem to depend of the kind of work we are doing. We are what we do!

The kind of work has changed in human history. Not so long ago, in the agricultural society, it was focused on the soil. In the more recent history it was capital driven. This was the so-called industrial society. We are still partially in this society, but more and more we are entering the knowledge society. In that society work is linked to knowledge and learning, which makes most of the working and management models and concepts obsolete. Also, the perception of time has changed. In an agricultural society time is work, and the work is dependent on the seasons. In the industrial society time is money, because capital is the main value. In the knowledge society time is life; we don’t live anymore to work, we work again to live.

What does all this mean? This means that we have new paradigms in the knowledge society and in the knowledge economy in relation to work, to time and, consequently, to values.

It is no longer the activity and the amount of work that is creating new values, but the knowledge and its application. Knowledge is no longer directly time dependent. Therefore, our perceptions of time will change.

These paradigm changes are explored partially in “Managing in the Knowledge-Based Economy,” in the process of being published (February 2000). We will devote the next issues of the Knowledge Economy to these changes as well.

Ask your management team and your HR-manager or your CD-head what the knowledge economy means for their business. If they have been following the changing role of the business, they may at least tell you something about “Knowledge Management” and “e-Business.”

If they are really concerned about the business, they may have a few surprising ideas for you.

If they do not have a clue about it, you should get really concerned. You may be already in a business belonging to the goners of the new economy.

Anyway, if you want to survive in the new environment and hope to thrive in it, you will have to ask yourself a few fundamental questions, and work on the answers to them. However, you should hurry up, you do not have much time to waste.

What is the digital economy?
It is a new industry emerging out of the merger of three parts:
• Telecommunications
• Internet applications
•Content providers
It is the first and most virulent part of the knowledge economy, referred to often as the “New Economy.”

First of all, you have to find out if your industry belongs to those industries that are ahead of the pack in adapting to the knowledge-based economy. Maybe you are lucky and your industry is one of the laggards. This will tell you something about the speed with which you have to act.

Next, you will have to find out what the substitution industry of your business is doing, or even the potential substitution industry. You will have to scan the web, because two months in the digital economy are equal to one year in “old” economy. You have to know what is going on in the digital economy. What are the new business models, who are the drivers in this business, and how did other companies adapt to it.

The final questions are about your business model. Do you know how you are making money and do you know how you are creating values in your business? Do you know which values your stakeholders expect?

After all these preliminary questions you can start to go through the key elements of the organization model suitable for the knowledge-based economy.

Leading questions for the business framework:

Which are the key drivers from the emerging context today? Which could become the drivers tomorrow?

Do you have any ideas of the potential that technology brings to your business?

Have you considered the impact of the digital economy on your industry?

Do you know what the purpose of your company is?

Do you know who the key of stakeholders of your company are?

Do you know their requirements, expectations, needs, wishes and dreams?

Have you established corporate objectives based on key stakeholders needs and expectations?

Do we know which are the core business drivers for our organization?

What is therefore your strategic direction statement, in simple and understandable form?

Do you know how to create values in your business? Is it changing?

Are the existing strategic and operational processes (STOPs) still adequate?

Do you have an understanding of the cash flow and investment needs of your business?

Do you have an understanding of the knowledge and the know-how you need for each part of the value creation?

Do you know how the organizational culture (e.g. cooperation = trust x common ground x communication) is influencing the core value creation?

Do you have a clear picture of your LEM-needs and capabilities? (LEM= Leadership, Management, Entrepreneurship)

Do you have the necessary change and transformation momentum?

Have you examined the impact of the paradigm shifts on our business?

Did you establish the expected results and success measures?

Do you know which values you have to create for the organization, for the key stakeholder and society?

Will the proposed development result in a healthy organization? Did you consult the key stakeholders about this?

Do you have an idea what role HR, knowledge management, managing the intangibles, marketing and sales, finance and IT are playing during the time you need to go from the established purpose to the created values?

Have you defined the key leading questions for your business?

Now you can ask the question about “HRM”: is there still a role for HRM, and if so, which one?

First of all, you will realize that the role of HR in the business organization has changed.

When we say “HR,” we mean “people in business.” This means: employees, management, strategic partners, consultants, freelancers, portfolio workers and, as you will soon find out, customers. The e-business is very much customer-led and customer-driven.

HR professionals can become highly valued business partners if they are ready, willing, and able to speak the business language, if they know which HR practices can help enhance the business, and if they are willing to engage in the change and transformation processes.

As Dave Ulrich points out in his book “Human Resource Champions,” the knowledge of the business lets the HR professionals join the management team, knowing the HR practices helps them to contribute, and managing change helps them to make things happen. Based on a study of 12,689 associates, change management explains 41 percent of the contribution of the HR professionals to the business, knowledge of the HR practices only 23 percent, and knowledge of the business 18 percent.

However, if “knowledge of the business” means also knowing the real issues and problems of the business, the contribution this part is probably more like 40-50 percent.


If we check which new activities and responsibilities are expected from HR professionals, we can see why this dramatic shift towards business partner occurs. HRM is expected to deal with the guts of the business.

This is an explosion of new responsibilities, possibilities and opportunities. The HR managers have a real possibility to become the highly valued business partner that they always wanted to be.

This will inevitably also lead to an increase of consulting services in this area.

In addition, the rapid development of the digital economy will lead to completely new concepts and models.


Dynamic balance means to have the right people at the right time in the right place.

The focus on organizational results means a shift away from physical presence and its control. This is crucial in the era of virtual companies.

It is not enough just to do things, it is crucial to improve and innovate all the time.

Human resources are not a mere cost factor anymore, they can be the source of profitability and they can create the competitive edge.

Organizational culture is probably the most important factor of performance, and has been forgotten for too long a time.

We must use and apply knowledge, but often it is vital to be able to find, create, and share the knowledge. One of the best ways to manage knowledge is to link it to the development of the corporate and individual core competencies.

With the new paradigm of “business partner” the HRM is covering a much larger part of the corporate ground. The persons responsible for HR, whoever they are, have to:

•Attract, select, recruit and help to retain the best talent

•Help to create focus and alignment towards the corporate objectives

•Help to develop the core corporate and individual competencies

•Develop and introduce new ways to manage performance of all “people” involved in the company

•Best practices and ePractices of people management

•Leverage corporate culture as one of the key differentiators

•Enhance business creativity and innovation

•Manage intellectual capital and knowledge management

•Help to develop a new strategic framework

•Support the development of the corporate communities of practice

•Support the relationship management with all key stakeholders

•Help manage the relationship networks

•Develop and introduce necessary HR policies

•Facilitate change and transformation

HR professionals will become key players in the management team only if they know how to manage people and influence bottom line results and are able to manage knowledge and the intangible in order to preserve and create value for the organization.

This happens independently of whether the HR people have realized this or not. The new function of HRM can be carried by the HR function, by the line management or to be in large part outsourced. The solution you will choose depends very much on your business model and your organization framework.


This is an example of a business model of a successful executive search company.

From this model it is clear that the fit between the “Candidates” and the “Companies = Customers” is the core of the business model. The faster and better this “fit” happens, the better are the results. On the other side: “No fit, no business!”

The business model for your company is something you have to figure out yourself. What we can say here is that in the knowledge-business-economy the successful business models are quite different from the ones in the past economy.

An example of a business model of a very promising start-up in the digital economy, the UPAQ, looks like the following:


The strategic framework that is quite useful for the knowledge-business-economy looks like the following:


You will find a more detailed description of this framework in Chapter 2.5 of

“Managing in the Knowledge-Based Economy.”

If the HRM wants to play a key role in the new economy, it has to take a leading

role in respect to the introduction of the new management thinking and in the development of the organization around the new organizational framework. It is important to reiterate: it can be done without HRM as a function, with the line assuming this responsibility, or with an external expert assuming this role. There is a wide variety of choice: consulting companies specialized on HR, executive search companies, business school faculty, freelancers with HR experience, etc.

Beside the driving force in the introduction of the new management thinking and the new organizational framework for the new organization, the new HRM will need to drive the management of the whole organization (the tangible, the intangible, and the virtual part), the knowledge management, and the organizational culture necessary for the sustainable success for the company.

In the digital economy the companies will no longer be “customer-oriented” or “customer-centered,” they will be “customer-led and customer-driven”! Customer services and customer care will have a new meaning. Customer satisfaction and loyalty will be the deciding factor in the success of the company and the career of the management team. Customers will be tightly involved in the vertical integration, especially in the development of new products and services. Marketing will have to move from target markets to customer networks. In one word, the customer will become an integral part of the company.

This is quite a challenge! It is a threat, but it is also an extraordinary opportunity for the “HR-people” to get back in business. They may even become the “preferred partner” of the business managers.

Summary:

There is a clear shift in Human Resource Management from a “service provider” to a “ business partner,” however, the new requirements and needs can also be met by the line management or external parties.

For this reason, the new development is at the same time an immense opportunity and a threat for the HR managers.

We are convinced that the HR function in the future will be very different from the one in the past. The companies that do not see this and do not act accordingly will have a serious problem with the core assets of the “new economy”: the knowledge workers and the knowledge professionals.