This book is the best discussion I have seen of the value of managerial talent in the so-called “knowledge work” economy. Avent’s key thesis is that the driver of economic growth before the Industrial Revolution was physical capital; that the role of human capital become important in the Industrial Revolution; and that social capital now plays a similar role in amplifying economic potential.
An extended quote helps to summarize this idea:
People who stay with a particular firm for any length of time quickly pick up lots of little, difficult-to-classify pieces of information about how everything fits together to make the place function. Knowledge of this sort builds and evolves over time….
Part of what makes the firm’s information-processing machinery work is the knowledge contained within every worker’s head: the culture of the firm. (p. 103)
However, for individual contributors, much of the value of this knowledge is not transferrable between firms. Managerial talent, at least within a given industry, is much easier to apply at a new company than knowledge of a specific software stack for example. Managerial talent is also in shorter supply than that of individual contributors (see p. 116). (Incidentally, I think this is a large part of the explanation for why software companies cluster certain cities and those cities offer much better wages to employees willing to locate there.)
What is the key insight of firms that successfully leverage their employees’ social capital? The answer rests on effective communication and integrating employees’ cognitive efforts:
The allocation of particular forms of knowledge across workers within a firm, and an awareness of the modes of communication that allow that knowledge to be called upon when needed, represents a critical component of a firm’s social capital.
In the industrial age… human labour meant not simply becoming part of the machine, but also part of the larger cognitive structure of the firm. Factories and firms… are large information-processing structures. (p. 127)
Incidentally, Avent’s use of The Economist (where is a writer) as an example of a “knowledge work” firm makes the book even more enjoyable for readers of that newspaper.