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The Old Economy Vs. the New Economy
The Old Economy Vs.
the New Economy
By Byron Glick and Sandy Plisch • 02/04/04
Isnt that monster dead yet?
According to the hyperboleers, there is a B-movie style,
winner-take-all battle of the monsters going on between the New
Economy and the Old Economy. In round one, the New Economy stomped
around the New York Stock Exchange, thumping its chest and
proclaiming the death of the Old Economy. In round two, the Old
Economy rose up and threw the New Economy out of the ring, crushing
many innocent and not-so-innocent bystanders in its fall. Of
course, anyone who watches B-movies knows that no monster is ever
really dead.
Even now, the New Economy is stirring and it will be
back in the next reel.
This B-movie approach may add drama to stock tip newsletters,
but we need a better guide to conducting business in the presence
of these rival monsters because neither one is going to die anytime
soon. In practice, there are many economic models, each with its
own insights and perspectives. To thrive, one must understand when
to apply Old Economy pragmatism and when to experiment with New
Economy panache.
From Old to New
The Old Economy, rooted in the Industrial Revolution, is very
good at the mass production and consumption of physical objects.
Value is located in the physical attributes of the object. The
value and most of the cost of a sledgehammer are linked to the iron
head and wood handle; the non-physical costs, like labor and
design, are minimal. As the Old Economy evolved, society began
developing the skills and perspectives that became the foundations
for the New Economy.
As consumers, we began to understand and value
intangible aspects of our products. The prestige of the Cadillac
brand was becoming as important as the quality of Cadillac
coachwork.
The Old Economy creates value in a product through a simple
formula: The objects value is the sum of its obvious parts. The New
Economy produces additional value by a complex interaction of the
obvious parts with intangibles, like design, engineering, brand and
cachet.
Creating this value is a little like chemistry and a little
like magic--it is more than the sum of the parts.
This distinction between object and knowledge value becomes
clearer when we include intangible emotional experiences. For
example, the real driver of Britney Spears wealth is our reaction
to her and her music, not the manufacture and distribution of the
little glittery plastic discs used to capture that music. In fact,
a recent Forrester study suggests those who download music are more
likely to buy discs than those who do not.
Apparently, free
exposure to the Britney Spears experience actually increases the
value of the physical objects that are used to capture her
music.
Leadership in a blended (or should that be blender)
economy
The balance of object, experience and knowledge is unique for
every business and every industry. Being aware of what drives value
in a particular decision helps focus on the most appropriate
economic perspectives. Does your customer value engineering cachet
or sensible economics, obvious expertise or simple access? The
choice depends entirely on the customer and on the business you
want to pursue.
Most decisions are driven by data from the Old Economy. This
works best for organizations whose value is embedded in physical
objects. That same data is necessary but not sufficient for New
Economy decisions. Applied in isolation, the result is usually a
Frankensteins monster of stitched-together business processes and
best practices.
As value becomes more dependent on unique knowledge
and experience, objective data sources must be supplemented with
more subjective perspectives from communities of interest,
organizational cultures and other relationships.
Some of the value indicators by economy are:
Information technology in a blended economy
It should come as no surprise that information technology has
been shoehorned into an Old Economy model. A portion of the systems
creation process can be like assembly line work. Unfortunately,
most organizations start from that easy-to-manage core and apply
the assembly line methodology to the entire experience of defining
needs, identifying a solution, building that solution and rolling
it out into operations.
Engineers are good at assembly lines. They
may be less skilled at experiences.
To apply blended economy perspectives to IT, organizations must
expect more of their IT departments and also expect more of those
who rely on those departments. To realize the assembly line
benefits in building IT solutions, organizations will need
knowledge and experienced economic approaches for needs definition
and solution identification, as well as operational rollout.
Traditional IT processes will have to be supplemented the study of
the interactions of technology with communities of interest,
organizational cultures and other ways individuals and businesses
connect and work together.
_________
Byron Glick and Sandy Plisch are principals at Coherent Partners,
LLC, a technology management-consulting firm in Madison, Wisconsin.
They can be contacted via the web at www.coherentpartners.
com or
via telephone at 608/442-0120.
*****
The opinions expressed herein or statements made in the above
column are solely those of the author, & do not necessarily
reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN,
LLC accepts no legal liability or responsibility for any claims
made or opinions expressed herein.
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