The terms “knowledge worker,” “knowledge economy” and “human capital” have existed since the late 1950s, but our thinking with respect to the workplace is still mired in the era of the Industrial Revolution. The ghost of Frederick W. Taylor’s discredited religion of scientific management spawned the altar of efficiency at which businesses continue to worship.

Human capital determines the performance capacity of any organization. Today’s knowledge workers, unlike the factory workers of the Industrial Revolution, own the means of production. Wealth does not reside in tangible assets or money; it resides in intellectual capital — knowledge that can be converted into profits. In fact, the World Bank study “Where Is the Wealth of Nations?” found that 75 percent of the world’s wealth resides in human capital.

Knowledge firms are the ultimate “asset-less” organizations, since volunteers own the majority of their value-creating capacity. This is a tectonic shift not only in the nature of wealth creation, but also in how companies need to think about how they work. We need new thinking and new models to judge knowledge workers’ effectiveness, and we need to draw an enormous distinction between efficiency — always a ratio of outputs to inputs — and effectiveness — or the extent to which a desired result is realized.

Why Effectiveness Trumps Efficiency
All businesspeople are familiar with the bromide “What you can measure you can manage.” We hear everywhere that efficiency needs to be improved in our organizations. But nowhere is this term defined. What exactly does it mean to increase efficiency?