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

    economy.

    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

    the same.

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

    individuals.

    • 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

    development.

    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

    knowledge-based economy.

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

    technology.

    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

    stages:

    • 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.

    growth

    Wireless technology

    Conversion of the classic economyPC based new economy

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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.

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    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.

Integral Management

    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.

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    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.

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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

    organization.

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

    actions.

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

    and how.

It is good practice to consolidate all this into a business plan focused on the purpose and the

    values that have to be created.

Management Practices

    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.

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