They may be presented as the two dimensions of a vector or matrix. The horizontal dimension deals with the common impacts of production being analyzed in the conventional cost accounting, while the vertical dimension deals with the knowledge aspects of production, such as innovation, education, training, improvements, corporate culture, and so on. The relationships are depicted in the next diagram. However, the capability pool, by itself, is exposed to continuos depletion due to brain drain, and the obsolescence of information, knowing and artifacts. Organizational capabilities play a key role in developing and updating the capability pool.
Organization is the essence of any business.
As Peter Drucker indicates the function of organization is to make knowledge productive. The classifications of substituting and enabling are not absolute. They constitute a spectrum of behavior, where material and energy occupy one side and knowledge the other. Applications Knowledge based cost analysis has a wide range of applications. If we want to repeat the same procedure for a second machine of the same type, the knowledge based cost analysis is even more evident.