Introduction

It has become widely accepted, as we approach the end of this century, that organizations’ abilities to create, retain, communicate, and use knowledge are critical to their success (Davenport and Prusak, 1998; Nonaka-Takeuchi, 1995). Management of knowledge has become a frequently acknowledged source of “core competencies” (Prahalad and Hamel, 1990), which themselves give rise to sustainable competitive advantages (Leonard and Barton, 1995). The explosive growth of information-related sectors of industrialized economies has seen concomitant growth in the demand for products and services with potential to help organizations apply what they know more profitably. That same rapid growth has created entirely new occupational categories – web designer, network manager, software engineer, to name just a few – which produce economic value mostly by creating and manipulating thoughts, ideas, and symbols. Even in traditional occupations, ways of working have come to depend on intellectual activity, perhaps more than on physical activity. Factory workers invent and share process improvement ideas; salespeople develop novel ways to use the web to reach or retain customers.

One consequence of this shift in the nature of work is that the relationship between an organization's measured resources and its market success has become more tenuous. Unlike materials or equipment, core competencies are not listed on balance sheets; neither are the distinctive abilities of employees and teams, which can be an obviously significant reason for a firm's success. In some sectors of the economy, factors that contribute substantially to a firm's market success largely elude traditional means of quantification. This fact not only makes valuation of individual firms harder, it also complicates traditional analyses aimed at figuring out where to allocate resources, how to improve processes, and whom to reward.