I’ll start to explain the topic of this blog with the simple example of a cocoa farmer: Cocoa fruits are best harvested in a time frame of two days when the fruit is ripe. When the farmer harvests the fruit too early, the value of his cocoa beans are a lot worse than if he waits a little longer. If he invests too much by letting too much riping time pass, the fruit goes bad. The farmer needs to have experience and must make predictions about influencing factors such as environmental threats and opportunities and their probable impact on the riping condition.
I talk about the optimal investment amount for an expected output: between too much and not enough.
Another example that will bring us closer to the main theme of knowledge: The decision you had to make after being done with high school was whether to immediately work and earn money or go to college for investing in further knowledge; Or you could do a vocational training or a part-time study where investing in knowledge and earning some money go hand in hand.
Why Invest in Knowledge?
Why do so many decide to study (and maybe study again for a masters later on) while they could earn money right away? In the end, it is all about having the ability to earn money which you also had right after school, right? However, obtaining knowledge is an investment in the future potential to “harvest” a larger amount of money or at least in having a better chance at it. This is one of the first times you did a return on investment (ROI) analysis, even if you did not think of it as a ROI analysis back then.
Investing in Knowledge is a ROI Decision
The question after school was: How much do I need to or can I invest in knowledge so that I get a maximum return from that investment under the given circumstances (my abilities, social and monetary background)? Not studying at all is an alternative and might even have a higher ROI than studying “forever” (Bachelor, Maters, PhD, further studies etc.).
Maximizing the Billing Value of Knowledge
In order to maximize the possible billing value of knowledge for a professional service provider (an agency or consultancy), the manager needs to make a very similar decision. If he invests too much into the knowledge of his employees, they will only be occupied with learning / R&D and aren’t able to bill their customers. However, if he only tries to bill customers for amateur work hours, the billing price would be so low, he won’t cover his on-going expenses either. The amount of knowledge of an employee’s work hour determines its value for professional service providers and thus the price of the hour – theoretically.
Letting Your Customers Know About the Available Knowledge
Practically however, the customer will be rather uncertain about the value of the work hour he wants to acquire, if he does not know beforehand how much knowledge he will receive for his money. Thus, he will either choose a professional service provider where “he knows” what he will get or his threshold price of what he is willing to pay for the hour will be way too low. This is one factor why known brands, such as McKinsey or Accenture, BBDO or the like have an advantage: their brand is associated with knowledge, or at least experience.
This blog (and thus my master’s dissertation) is not only about investigating the optimal amount of knowledge creation in comparison to the time billed, but it also takes the discrepancy between the knowledge communicated and actually acquired into account.