Hong Kong faces monumental changes to its education, social and economic structure as it starts to transform itself into a 'knowledge economy.' What can companies and individuals do to help improve Hong Kong's productivity and better prepare themselves to compete in the 'knowledge-based economy?'

By Alan Lung

As the SAR Chief Executive Tung Chee-hwa unveiled his Policy Address last month, I started pondering how the "knowledge economy" would affect me, as an individual worker and business manager.

Despite the fact that Hong Kong is already speeding towards the "knowledge-based economy," can we anticipate what's coming at us two corners down the knowledge-economy road? Are we, as companies and individual workers of this new age economy, prepared for all these changes? Do we have the substance to backup Mr Tung's vision? Do we realise the consequence of failing to go down this road? And can we turn this vision into reality?

KNOWLEDGE ECONOMY
"Knowledge is taking the place of capital as the driving force in organisations, worldwide," said management guru Peter Drucker. The empowering factor of the new economy is knowledge - not money. Knowledge is the key factor that has been pulling the incomes of the First and the Third World countries even further apart.

Mr Drucker also coined the term "knowledge worker" in the 1960s to mean a worker whose achievement lies in doing the right things through exercising his expertise, rather than doing things right as in mechanical production line work. Knowledge workers need to be autonomous. They learn and find better ways of doing things. They make educated judgements and they do not just do what they're told to do.

"Knowledge management" philosophy emerged in the 1990s as companies, faced with an information explosion, rapid technological development, globalisation and rapid shifts in market demand, realised the importance of knowledge and the need to manage it directly.

Swedish companies pioneered this approach and still lead the race, but the U.S. has the broadest level of achievement and acceptance. Fortune 500 CEOs say that knowledge is their most important strategic asset and have some form of knowledge management programme in place.

IMPACT OF TECHNOLOGY
Fred Briggs, chief technology officer of MCI-Worldcom, joked during a business luncheon he was speaking at that when he planned and laid the first trans-Atlantic submarine fibre optic cable some 20 years ago, he thought the maximum traffic would be around 60 per cent of 4,000 lines.

On a serious note, Mr Briggs spoke admiringly about the head start made by Hong Kong in 3-G mobile telecommunications, and about MCI-Worldcom's intention to use Hong Kong as a gateway to invest in Asia. But what really stood out was his mind-boggling predictions for growth of voice and data network communications, which will have a monumental impact on Hong Kong's transformation into a knowledge economy.

The knowledge workers of Hong Kong need to think globally and to learn and adopt knowledge from around the world quickly. But the idea is nothing new. Bill Gates coined the term "the speed of thought," and it is this that will have the most impact on knowledge economies.

In his Policy Address, Mr Tung said, "In a knowledge-economy, anyone equipped with knowledge stands a chance of succeeding regardless of his or her social status or family background."

Opponents and cynics should look at the developed economies and acknowledge there is at least some truth in this statement. As companies and individuals, we need to work smart, not just hard.

THINK MANAGEMENT BEFORE TECHNOLOGY
Michael Enright, author of a milestone study on Hong Kong titled "The Hong Kong Advantage," said that technology is over-rated and the biggest challenge facing Hong Kong will be the "managerial revolution."

In a world full with change, productivity improvements do not come naturally for every individual or company. When people try to deal with too many things at once, their ability to think and act tends to be stifled. And managers tend to get lost in the world of "NT Servers," "CRM," "ERP" and forget that they need to manage costs, and process knowledge before jumping to the conclusion that they'll be saved by technology.

TAKE A LONG-TERM VIEW
In 1992, Harvard Professors Kaplan and Norton introduced the "balanced scorecard" concept which proposes that managers should not just look at the "lagging" or historical financial performance indicators. Rather, they should balance financial performance against other leading indicators, such as "organisation learning," "innovation," "process improvement" and "customer satisfaction and growth" -- factors that can predict a company's future performance.

Scorecards have been implemented at corporate and strategic business units at hundreds of private and public sector organisations worldwide, but the U.S., in particular, is taking the lead in performance management. The balanced scorecard enables organisations to implement and manage their businesses' strategies and activities. Companies can now look at their overall performance by integrating financial measures with other key performance indicators.

"Our task today is to take a clear-eye, practical and realistic look at Hong Kong's economy. How it has changed, where it is going, and what we should be doing to help prepare for the future," Dr Victor Fung, chairman, Li & Fung Group of Companies, said at a seminar organised by the Central Policy Unit.

But managers should also think of applying Dr Fung's statement to their own companies. They should count what their companies have been doing and balance short-term financial performance against other longer-term objectives.

MANAGING COSTS
I don't think it is generally understood in Hong Kong that wage increases are not sustainable if pay rises are not matched by productivity increases. This will remain true for as long we peg our dollar to the US-dollar and for as long as we have to compete in the world market in terms of price and quality.

And even though the U.S. and now increasingly Asia-Pacific economies such as Korea, Taiwan, Indonesia and Singapore have been implementing activity based cost management to control their costs, the importance of managing costs through activity management is not well understood in Hong Kong. Managers often cut costs solely by cutting jobs. This approach often leaves 75 per cent of the workforce to handle 100 per cent of the company's activities -- a highly unsatisfactory situation which leads to low staff moral and low customer satisfaction.

"The only truly effective way to cut costs is to cut out activities altogether. To try to cut back costs is rarely effective. There is little point in trying to do cheaply what should not be done at all," Peter Drucker said.

Activity-based costing enables management of activities and redeployment of resources to newer and more valuable activities. It has already been accepted as a costing standard and the preferred quantitative management method at major public and private sector organisations in the world. Looking ahead at the challenges of the knowledge economy, government departments, businesses and financial managers should give activity-based costing due consideration before jumping to the conclusion that the only way to cut cost is to cut jobs.

SINGAPORE'S LESSON FOR HONG KONG
Traditionally, Singapore and Hong Kong are often compared for their differing policies. In his latest book, Lee Kuan Yew gives a vivid account of how he led each of Singapore's sectors "from the Third World to the First." Mr Lee has been criticised for being harsh on the voice of opposition, but in view of the need to have more autonomous citizens to participate in the knowledge economy, Singapore has recently been liberalising in all dimensions.

In terms of the economy, Singapore was viewed as pursuing a form of managed capitalism, while Hong Kong adopted a laissez faire approach. One of the major human resources policies that distinguish Singapore from Hong Kong is its willingness to invest in upgrading the skills of those who are already employed.

At various committees of the Chamber, I have been vocal about the risk of having a wrong training policy. The Hong Kong Government spends billions of dollars on training organisations such as the VTC and the HKPC. But there is still a woeful shortage of skilled workers in Hong Kong. Those who are poor in new skills and knowledge do not really benefit from government spending.

In his Policy Address, Mr Tung said that the government will consult the community on the needs to upgrade skills in the next six months, which the business community should be pleased about, and should use the opportunity to lobby for a proper training policy.

Mr Tung concluded his Policy Address by urging businesses to participate more actively in the "third sector." He pointed out correctly that in some developed countries almost all the best universities, museums, think-tanks and hospitals are run by non-profit or voluntary organisations.

In the process of adapting to the knowledge economy, companies and members of the business community should support Mr Tung's call for action to help build Hong Kong as a knowledge-based first-world community.

Alan Lung is chairman of the Chamber's Human Resources Committee, and director & general manager of ABC Technologies (HK) Ltd.