Do Project Managers Need Business Knowledge?

I have been debating recently with some colleagues about whether project managers need to have in-depth business knowledge of the business area in which they are managing projects. By in-depth we specifically meant having previously worked in the business itself before becoming a project manager.   In fact, there are some organisations that use certain employees as project managers from time to time but mainly they fulfil some other role. Clearly the business knowledge of those people must be seen as an advantage when managing projects. Or is it as simple as that? If I was being cynical I might suggest that those organisations only occasionally need project managers and it is easier (not to mention cheaper) to simply temporarily transfer someone from an existing role than to employ a contractor.   I wonder what those employees feel about it? Maybe it provides a welcome change from their regular job, or, indeed, a chance to try out the role of project manager without committing to re-training.   But can it actually be a hindrance to have relevant business knowledge – can a project manager remove himself from the coal face and look at the bigger picture? Can he/she effectively communicate with stakeholders and senior management from the overall project perspective without being biased towards the “workers” in the project team?   Or does business knowledge, in fact, enable the project manager to communicate more effectively with everyone on the project from the junior team members to the most senior stakeholder?   Perhaps the answer is “it depends”… it depends on the project management skills and personality of the individual project manager and it most certainly depends on the business area itself. The industry where the answer is most obvious is perhaps in IT where a knowledge of IT itself is always a benefit.