For centuries a successful business has been one that bought raw material cheaply, used skill to create something from it, and then sold the result at a profit. So what's changed? Why are businesses who do exactly this, failing every day?

Managing a business is about

• managing the supply and safe storage of your raw material,
  
• managing the skilled workers that transform it, and
  
• managing the process of selling and distributing the finished goods to the consumer.

Business has always been about managing "things" and managing "people". And then they invented the computer.

Computers not only helped us manage things and people, they created a whole new industry where the "product" is knowledge. Knowledge about your staff and their productivity, knowledge about your physical assets and their value, knowledge about how those important human resources can do their job better, knowledge about customers and what they buy, why they buy and where they buy.

In 20 years the human race built a whole new way of sharing knowledge, selling raw materials, buying products, organising businesses and training people.

The industry boomed when people identified the potential that was inherent in the system. It bust when people realised that managing "information and knowledge" isn't any easier than managing "things and people".

Managing a "knowledge-based" consulting or service business is about

• managing the supply and storage of your raw information,
• managing the skilled workers that transform it, and
  
• managing the process of selling and distributing the finished result to consumers.

So before we all get carried away with the exhilaration of the possibilities of e-commerce, online communities, social networking, workflow and intranets it's worth stopping long enough to identify some operating principles.

Knowledge-based strategies begin with strategy,
not knowledge. 

Intellectual capital is meaningless without the old-fashioned objectives of serving customers and beating competitors. If a company does not have its fundamentals in place, corporate learning, knowledge management and information technology are merely costly diversions. 

A company has to know the kind of value it intends to provide and to whom. Only then can it link its knowledge resources in ways that make a difference: 

• serving customers around the world in a coordinated, consistent manner; 
• responding quickly to new trends and 
• offering faster, cheaper and better products or services.

Learning has a unique human dimension – you need to tap into the knowledge locked in people's experience. Most companies have elaborate systems to capture and share their "explicit knowledge" - the data that shows up in forms, databases, and employee handbooks. This kind of knowledge never translates into a winning strategy. Databases usually don’t include what the employees really know!

Despite the many limitations of financial systems to measure “intellectual assets” fairly, the hard truth is that knowledge must be connected to measurable improvements in performance - including improvements on the bottom line. 

Superior use of knowledge must prove to have a clear impact on sales, costs, cycle time, productivity and profitability. Yes, learning and education are "good for the company" - perhaps even "good for society." But the point of a knowledge-based strategy is not to save the world; it's to make money.

People who don’t want to collaborate, to share and develop new knowledge will not do so despite any technology tools. Interconnectivity begins with people who want to connect. After that, tools and technology can make the connection.

Knowledge development and sharing is driven by the employee's need for help in solving business problems; the power comes from the demand side rather than the supply side. Ultimately, learning is up to each individual, and all the company can do is raise each employee’s aspirations to learn. Don’t forget, these are the people whose contributions and ongoing development are the primary providers of your bottom line.