Knowledge is the Most Powerful Engine of Production

“Knowledge is the Most Powerful Engine of Production”


Marshal’s perception which is inscribed in these knowledgeable words “Knowledge is the Most Powerful Engine of Production” is very applicable in today’s entrepreneurial sector. It is not a secret that advances in knowledge are instrumental in enhancing the quality of both human and physical capital. Actually, most economists have posited that it is the historical connection between information base of the economy, and its global network, its organizational form, and its revolution that has brought in a new dimension to the current economic system (Castells, 2000). It is based on this premise that this paper develops a lucid and argumentative analysis of Marshal’s claim.

Knowledge as the Engine of Production

Most organizations are nowadays faced with the challenges of controlling and effectively managing more complex activities brought forward by the knowledge-based economy. As evident in literature, a knowledge economy is described as being networked, purely informational, and global. Indeed, in today’s business, the informational basis of organizations is not dictated by their ability to process, generate, and apply knowledge-based information; but most of their core activities including production, distribution, consumption, and promotion are interactively organized in a global network of businesses (Castells, 2000). In the view of Choi and Lee (2002), knowledge and information play very crucial roles in the modern economy. It follows therefore, that organizations working as knowledge economies must conceive themselves as learning agents which are capable of adopting to new environments, creating and effectively managing both new and old knowledge in order to achieve their desired purpose (Westlund, 2006).

In essence, the validity of Marshal’s claim that “knowledge is the most powerful engine of production” leaves absolutely no doubt, especially when the context of organizational operations is brought into focus. Antique scholars such as Schumpeter and Clark point out that knowledge helps people to subdue the forces of nature and satisfy their wants. In the context production, knowledge emerges as the only instrument or element that does not have diminishing returns (Hislop, 2005). The concept of knowledge management (KM) becomes apparent in the context of organizational structure and operations. KM has been used to refer to the process that involves critical management of knowledge in order to meet existing needs, identify untapped opportunities and exploit them for gainful experience in an organization. KM is actually considered to be a business strategy/ practice that if efficiently managed can bring a considerable competitive advantage to an organization (Hislop, 2005).

Basically, production solely depends on knowledge, or the knowhow. Businesses protect production secrets, which is essentially knowledge, to avoid leakage to other competitors. The ability to come up with an extensive process of managing a given production process is creates a bank of valuable knowledge that forms the core of businesses (Becerra, Gonzalez, & Sabherwal, 2004). The ownership of the original knowledge of carrying out a particular production process has been recognized to be one of the most valuable assets in a business, and legal entities have created laws that recognize and protect patents. The gravity of violation of such laws fulfills the perception of Marshal that knowledge is the senior most component of every production process.

In yet another perspective, the connection between knowledge sharing and an organization’s innovativeness and creativity has been extensively discussed. Andersson, Bjorkman, and Forsgren (2005) point out that intrinsic and extrinsic motivational factor are important in enhancing the sharing of knowledge between individual employees. The main point that comes out strongly is that there is a strong relationship between knowledge, or rather sharing of knowledge, with an organization’s competitive advantage that is brought about by achieved innovativeness. This close relationship suggests that if knowledge is efficiently managed, controlled and shared among employees, then an organization is assured of achieving greater returns on its investment (Westlund, 2006). The only role that most businesses are left with is to develop a comprehensive process that outlines the strategies of creating an enabling environment for the transfer of innovative knowledge. When employees develop a positive behavior towards knowledge sharing, then an organization would be robust, informed, and fit to handle most of the challenging situations associated with daily processes of production. Bartol and  Srivastava (2002) reiterate that having a rich bank of knowledge and a set of employees who are willing to take part in passing on the information, then the level of information or knowledge can be exponentially correlated with production.

Research has continually shown that being part of a comprehensive network of a knowledge economy is paramount to discovering and exploiting new and existing business opportunities. If any case, entrepreneurship is all about coming up with innovative ways to develop and produce a good or service that customers would like (Tsai, 2006). For instance, having knowledge on the current and emerging trends in market segment is crucial for entrepreneurs who would want to develop new business, or expand their existing lines. Coming up with a good or a service that consumers would cherish in the market involves extensive market research, which is principally a quest for knowledge. If an entrepreneur is a part of an extensive network that keeps updated records and monitors new tastes and preferences in the market, then it would be easy for such a business to come up with a desirable product that would easily gain entry into the market. Based on Masharl’s perception, without this important knowledge of the needs and wants of a given target market, then production would be meaningless and would not bring the desired returns.

Social effectiveness or competence, which has been defined as the ability to read, understand, interpret, and control social interactions is one of the key features of knowledge (Anderson, Park, & Jack, 2007). This brings into focus the importance of social capital and how his concept is important in driving production towards the positive side. Being social competent is simply being knowledgeable and wise. Business entrepreneurs that are able to learn from their past mistakes and experiences, and utilize that knowledge to tackle new challenges makes up a successful business leader (Tsai, 2006). The idea of social capital is closely tied with social competence, as both depend on the type of social interactions a person or a business makes in order to become knowledgeable. Having an astute social capital built on shared knowledge is important for businesses and individual entrepreneurs to sail through challenges of production (Alwis & Hartmann, 2008). It implies, therefore, that knowledge is an interconnected phenomenon that needs a framework of related social relationships, but with close regard to business secrets.

The absorptive capacity of any organization is linearly correlated to the level of knowledge that that business has, as well as how effective it can manage and control the acquired knowledge to best control production processes. The ability of an organization to absorb, synthesize, and efficiently utilize knowledge from external sources such as competitors, suppliers, customers, and business alliances determines how effective it becomes in its state of affairs such as production, distribution, and sale of products (Liao & Welsch, 2005). Basically, the concept of absorptive capacity first applies to how effectively organizations can make use of the original knowledge they have to identify new and valuable information so that it can be developed into something creative and innovative. Thus, absorptive capacity, which is the backbone of Marshal’s perception, determines a firm’s capability to create and utilize knowledge in a sound manner that would be important in gaining a competitive advantage.

The organizational learning theory supports this claim by providing a platform which embodies absorptive capacity. According to the theory, organizations are able to withstand failures and risks because they engaged in the active capturing, creation, transfer, and mobilization of knowledge (Mudambi & Navarra, 2004). This is the basis of the learning concept of organizations. Since they possess the ability to adapt to changing environments due to their ability to internalize and utilize knowledge, it emerges therefore that this capacity is very crucial and forms virtually the backbone of every organization. What must not be forgotten is that every business is involved in one or more forms of production, whether it is service or good-oriented type of production.

Generally, the amount of knowledge of a firm and its ability to analyze, process, understand and interpret both internal and external knowledge is the resultant absorptive capacity on which Marshal’s perception is built. For instance, consider a situation where the production of a firm has been going down doe to delay of inventories and registering of meager sales. If a customer or a supplier would come and information on the possible cause of this retrogression, it depends on the organization’s ability to accept, internalize, and interpret this information so as to develop an innovative venture out of it. Entrepreneurial innovation in this information age is therefore a function of effective use of both technology and research-aided methodologies to create an organizational culture that appreciates the importance of acquired knowledge in the process of production.



Marshal (1920) claimed that knowledge is the most powerful engine of production. Based on the arguments advanced herein, this statements holds a lot of weight in the current information age, since entrepreneurial innovation soles depends on a firm’s absorptive capacity, as a well as the different mechanisms that have put in place to enhance the transfer and sharing of knowledge. It emerges, thus, that the effective use of information technology that aid in information sharing, transfer, storage, and interpretation must be adopted in order for a firm to gain a competitive advantage against its key rivals. The value and proper utilization of knowledge acquired in a business determines the efficiency and success of its production processes.


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