In June 1999, Forbes Global magazine pronounced Bill Gates, head of Microsoft, the richest person on earth, with a fortune valued at $90 billion (#87.2 billion).

How did Mr Gates get so rich?

Simple. He is a master of "knowledge management". Microsoft is an entity with relatively little in the way of bricks, mortar or expensive equipment.

Yet, its market value is many multiples of its tangible assets, reflecting the premium commanded by the intellectual assets that underpin the company.

Knowledge management, or KM - it even merits its own acronym - is associated with terms, such as intellectual capital, that denote the contribution of human intelligence to business performance.

Why is this contribution so crucial? Because it produces the aspect of the product/service which is of critical value to the customer.

Let us take the high prices we pay for medicines. It is not the physical product per se that we value, but the research knowledge embodied in that product.

It is that knowledge which gives particular drugs the capacity to heal targeted ailments. Or, take a company like Nike, a marketing rather than a manufacturing company.

Product development, design and brand creation, all of which emanate from knowledge flow, are the real value drivers of Nike.

The non-knowledge intensive activity of manufacturing is contracted out to suppliers in Asia. Further knowledge is embodied in logistics systems. These enable the company to move the right products to the right places on time, matching supply with demand in different markets anywhere in the world.

If we go back to Bill Gates, we are all aware that he did not personally create the MS-DOS system that became the world standard for personal computers. Rather, Microsoft acquired the fundamental system from a Seattle based company and adapted it for the new IBM personal computer.

This unique acquisition and combination of knowledge positioned IBM and Microsoft to set the world standard in personal computing. Arguably, IBM did not manage its knowledge as well as Microsoft.

The Microsoft element of the combination remained proprietary to itself, whereas the IBM element was open to any number of copycats and clones.

How easy is it for us to emulate Bill Gates? Perhaps an understanding of the nature of knowledge is a good starting point. In fact, it is apt to begin by defining what knowledge is not: it is not data.

Data is external to the person and is publicly available or purchasable. Many companies with large current databases boast of being leaders of knowledge management. They are only misleading themselves. In several instances, these companies even have a chief knowledge officer who turns out to be a glorified database manager. (Usually having a chief officer of anything tends to be a copout that absolves all others from the activity, for example chief equality officers or ethics officers.)

Knowledge, as opposed to data, presupposes the existence of a person who does the knowing and has the capacity to apply and develop knowledge. Unlike other assets or resources, knowledge is not consumed when it is used. Rather, its continued use builds up a body of experience where the knowledge is applied and thereby further developed and/or innovatively combined with other knowledge, producing originality. These are quintessentially human activities that require subtle understanding, even intuition.

The phenomenon of the BMW driver is a fitting case-in-point. It is possible to prepare a statistical profile of the typical BMW driver, in terms of age, income, occupation, residence, even information on favourite foods and preferred vacations. If I wanted to devise a car to compete with BMW, however, this profile would not take me very far.

I would need an in-depth understanding of what it is about BMWs that appeals to the people who buy them. We know that this appeal is based on something over and above the engineering and styling of the car. It has more to do with the psychological meaning and self image projected on the owner of the car, but this is almost impossible to define and articulate.

Even if I could define and articulate the appeal of the BMW car, I would have to find even more knowledge to create a car with greater appeal than a BMW. This might be achieved by fathoming deeper, more significant psychological needs to satisfy or by better satisfying those already identified by BMW (given that the price is relatively inelastic). Either way, it is a formidable challenge.

The difficulty lies in the subtlety, related to the notion of tacit knowledge. In contrast to explicit knowledge, which can be readily expressed, and sometimes quantified, tacit knowledge is highly personal, not easily made visible. Tacit knowledge is embedded in the individual talents and underlying beliefs and assumptions about the world that make every person unique. Thus, it is not easily replicable.

Paradoxically, it is these elusive qualities of tacit knowledge that make it so valuable. Two similarly qualified people might differ dramatically in the nature of their tacit knowledge. This is recognised by employers who try to hire the talent that will result in products/services that customers will value more than those of rivals.

Basically, tacit knowledge is not easily transmitted or imitated. This invests the owner of tacit knowledge with strong proprietary protection, equivalent to Bill Gates's ownership of the PC operating system.

The famous Saatchi & Saatchi ads in the 1970s demonstrate the significance of tacit knowledge. First, there was the "pregnant man" contraception promotion advertisement for the British Health Education Council.

Then came the "Labour isn't working" dole queue ad which helped propel Margaret Thatcher and the Tories to victory in the 1979 general election. What we have here is a happy convergence of factors that enables the manifestation of tacit knowledge - the right clients, a comprehension of the messages these clients want to convey, a subtle understanding of the target audience and their receptiveness to ideas, with the creative cleverness to put all this knowledge together in the form of simple, provocative, attention-grabbing advertisements.

Effective KM requires continuous, long-term knowledge generation, development and application for valuable customer solutions. In this sense, managing knowledge means getting knowledgeable people to contribute their knowledge. This is more easily said than done today when they have a range of choices, including working for themselves and "outsourcing" themselves to the highest bidders. Which brings us back to Bill Gates. It is said that a major reason Microsoft went public was to realise value for employees through share ownership, to retain their most important assets, that is the knowledge that resides between the ears of employees.

KM is not a new concept. The idea of the knowledge worker, as opposed to the manual worker was introduced by Peter Drucker in 1969, in his book The Age of Discontinuity. Drucker has never waivered from his belief in the value of knowledge as seen in his 1992 book, Managing for the Future.

The 1990s have seen an enthusiastic embrace of Drucker's notions of knowledge, with a plethora of books, and studies on the subject, along with a legion of consultants purporting to provide clients with KM skills. However, the very nature of knowledge, as seen above, renders it not easily amenable to management.

Nevertheless, KM does appear to be different to other management fads that promises business nirvana. There is some substance to the claim that knowledge is the key to wealth creation - but the ethereal secret of success is how to find that key and unlock the door, as Bill Gates has done.

Eleanor O'Higgins is a lecturer in strategic management and in business ethics at the Graduate Business School, UCD