Managing in the New Economy (Part 2)
The New Economy in Europe
The US economy provides an excellent example of success in creating a new sector of the
economy from the use of information, knowledge and technology. This new sector has been
labeled the “new economy.”
The US economy has created a competitive advantage on its march toward the knowledge-
based economy, which will be the final stage of the present transformation of the global
The volatility of the stock markets, especially of the stocks of the “new economy,” is normal
for a new sector of the economy and will continue for quite a while. However, the underlying
fundamental momentum is strong and there is no way back! We can already see the “merger”
of the new and the old economy into the truly genuine knowledge-based economy. This leads
also to massive changes in our culture: in the way we work and the way we do business, the
way we do things, the way we behave, and even the way we dress. Our attitude toward the
speed and ability to change itself is changing, both for individuals and companies.
The new motto is “work smarter, not harder!” because working harder gives us just more of
Some of the characteristics of the economy we are entering now are:
• The speed of decision-making. Decisions have to be made fast, even if not always right,
based on a lot of uncertainty in a volatile environment.
• Much less structure and organization, much more entrepreneurship and initiative by
• Shift from “power and status” to “ownership and achievement.”
• New ways of compensation, with more participation in the risk of gains and losses with
all people involved in the business venture, with the opportunity of big pay-offs. • Much higher level of creativity and innovation of all key stakeholders applied to all parts
of the enterprise.
• Integral management of the whole organization, instead of the disjointed management as
in the old economy.
Europe and Asia are working hard to catch-up. They will need to speed up the pace of
technological and institutional change. The government’s role is the facilitation of the
process and assuming the responsibility for providing opportunities for education and
Europe and Asia have the advantage that they can learn from the lessons of the US experience,
but they need to create their own best practices as soon as possible.
All this will lead to a major transformation leading towards the knowledge society and the
The new economy is entering into its second and decisive stage in the USA. After the first
wave of start-ups with many successful initial public offerings (IPOs) it is now time for
consolidation. This will inevitably lead to a shakeout and a lot of nervousness on the part of
the investors. However, we can see the beginning of the second stage. Large established
companies are taking advantage of the possibilities of the new ways of doing business. The
first big signal came when J. Welch of General Electric decided to lead the company into the
“e” age before his retirement. This is a bold movement. Then came the joint announcement
by GM, Ford and DaimlerChrysler of the pending creation of a common supplier platform.
Other companies will join them.
In the next months many similar initiatives will follow. They will definitely transform the
economy. There is no way back anymore.
Europe has just begun to enter into the new economy at the end of 1999. We think the
development in Europe will be different from the one in the USA. The Europeans have the
advantage that they can look at the successful applications from the other side of the Atlantic;
however, we have deal with many cultures, many languages, different legislation and different
tax systems across Europe.
In the USA the access to the Internet is mainly PC-based; in Europe it will be more mobile
telephone-based. There are ten times more mobile telephones in Europe than in the USA.
This will give Europe a leap in connectivity.
In addition, the European development will coincide with the introduction of the broadband
We have a rapidly growing new economy in Europe with start-ups, spin-offs and the
transformation of classic companies.
We can also see a growing number of support and consulting services for the “new economy.”
The development of the new economy in Europe will probably go through three
• The start-ups and spin-offs stage based on the present access to the Internet using PCs and
mobile phones. Many countries have already been in this stage for one to two years.
• The enhancement stage due to the broadband access.
• The transformation of the “brick and mortar” companies into “click and mortar”
companies, accompanied by the consolidation of the start-ups and spin-offs.
Conversion of the classic economyPC based new economy
Today, we can watch the rapidly increasing amount of venture capital available. Most of the
European venture capital comes from people used to make investments, with the attitude of
“wait and see.” So far, there is not too much “smart capital” available.
In order to be successful in the new economy the new companies and the ones in
transformation are facing the challenge to find “smart money,” to get qualified people, and to
find quickly management practices suitable for the new challenges.
In Europe there will be more government support, but the Europeans will have to face the already well-established US competition. The European competitive advantage is in market intelligence and the closeness to the local markets. The language, the legislation and the tax systems are formidable barriers for USA entrants. Many of them underestimate the problems linked to these issues and therefore have a real problem to get the right growth momentum in Europe.
In the new economy everything is more transparent and more interlinked than in the old economy. Therefore, it is absolutely imperative to manage the whole company, i.e. the tangible, the intangible and the virtual parts. The management of knowledge will become similar in importance as the financial management.
All this means that we need “integral management” encompassing all parts of the business
and involving all key stakeholders. The emphasis is more on simple business models and strategic frameworks that are transparent and easy to understand than on complex, highly sophisticated strategic and management models and concepts.
Many start-ups work on the basis of a well-written business plan and a simple strategy linked to the main stages of development: seed period, angels money, venture capital, and public capital, i.e. the IPO and the post-IPO.
They have a set of specific problems:
• They need to develop and to grow the business fast. • They need to turn from their focus on finance and technology to a focus on people and
markets very fast.
• They need to build and entertain a well-balanced approach based on: people, finance,
markets (customer), technology and communication. • They need to define a structure and organization that allows them to keep the initial
creativity and entrepreneurship and that can sustain the growth momentum. • They need new management practices suitable for the new economy. • They need people able to cope with the new environment.
This is quite a challenge for the management team and particularly for the CEO, who becomes more of a “chief enterprise officer” than and “executive officer.” He needs to integrate and facilitate the business and coach the key players inside and outside the organization.
In order to succeed in this new environment the companies must define their business models and share their insights across the whole company and with the key stakeholder. Each company must discover and develop its own business model, but there are some common threats. The following generic model is a good starting point.
The most important point is to figure out how the company is creating value and how it is making money. However, it is also important to understand what the customers need and want, and what the expectations of the other key stakeholders are, in order to be able to determine which values need to be created.
The new strategic framework can help to create the integrated management processes and the necessary structure and organization.
The first step is the clarification of the purpose of the company. The next step is the understanding of the emerging context (external and internal). After these two elements are established it becomes possible to describe the strategic direction. Next come the definition of the key stakeholders and the exploration of their needs and expectations, dreams and wishes. This leads to the definition of the corporate objectives.
The result can be a matrix such as the following:
Key stakeholder Needs and expectations Values expected by the Corporate objectives
of the key stakeholder key stakeholder • Owner/Shareholder • Management team • Employees • Strategic partners • Customers • Suppliers • other
It is good practice to assign certain members of the management team the responsibility for a
corporate objective, to make the whole process visible and transparent to all key stakeholders
and to report on a monthly basis the progress against the corporate objectives. This report
needs to be accessible to all key stakeholders.
The next step is the elaboration of the value creation, which is not a chain or a process
anymore. The best way to do it is to define the core elements of the value creation and to
group them around the way the customer or the consumer is using the output of the
When all this is defined it makes sense to work out the necessary structure and organization,
i.e. the management processes supporting the value creation: general management, finance
management, HRM, knowledge management, marketing, sales management, production,
innovation, business development, quality management, etc.
Usually, we will get from all this work ideas for strategic initiatives, i.e. all initiatives linked
directly to the value creation. The strategic initiatives are then converted into projects or
We also have to define and develop the core competencies of the company and the key
individuals. Once this is done it becomes quite obvious which knowledge has to be managed
It is good practice to consolidate all this into a business plan focused on the purpose and the
values that have to be created.
It is apparent that the economy has changed in fundamental ways, and those changes largely
result from the shift from the industrial economy to the knowledge-based economy. The most
virulent part of it is the “new economy,” where the development and the application of technology linked to knowledge management caused some sectors to leap over other sectors
of the economy. The changes in the next years will be even more dramatic and will occur
more rapidly. There is no turning back.
Several new rules are driving this development:
• Speed: in the digital economy the speed of development is at least four times faster than in
the classic economy, i.e. one month is now one week.
• Start from scratch: most of the experience and the management knowledge from the
previous era is no longer applicable. This means everything has to be reinvented.
Structure and organization Corporate culture
- Cultural Spirit
- Virtual communication platform
Marketing Customer integration Sales - Communities of experience
- Common business development
However, the most important shift is in the attitude toward business and work.
What Is This All About?
The most important activity of the human being is not work, as many people think, but life
itself. The most precious “thing” we all have is life. Life is being considered again more as a
discovery and learning process than just an economical value generated through a series of
Let us look at the different elements of life to consider this.
BasicsCulture•AirFunBodyCommunities of Practice•WaterMindHolidaysPlay•Food
As we can see life is far more than just “work.”
Everybody needs to find the right balance for himself or herself. This balance is a dynamic
process changing during our life time and it is linked to several factors: age, gender, education,
family situation, work, profession, health, and many external factors.
st Century The Challenges of the 21
The “merging” of the old and the new economy is a huge challenge, which will keep us busy
for the next decade or two. Beside this we can see some other fundamental challenges for
The integration of women into the society, the science and the economy, exploiting the
mostly untapped 50% of our creative, entrepreneurial and leadership potential.
Keeping control over possible applications of science and technology, especially the
biogenetics and biotechnology.
Securing clean air and water for over six billion human beings.
Creating meaningful activities for the computer and Internet illiterates, for the “drop-outs”
from the new economy.
Keeping local conflicts under control.
Coping with the worldwide streams of human migration.
In one word, we need to build a new society with a new economy, and make the necessary
This will require all of our intellectual and emotional intelligence, as well as the whole
available talent pool!
We can wait what will happen, and we can begin to move toward the future society.