Dr. Abbas Foroughi, 10-29-2006 1 The New Economy compiled and presented by Abbas Foroughi, Ph.D....

Dr. Abbas Foroughi, 10-29-20061

The New Economy

compiled and presentedby

Abbas Foroughi, Ph.D.Professor of Computer Information Systems

Coordinator of E-Business programSchool of Business

University of Southern Indiana 8600 University Boulevard Evansville, IN 47712-3597

[email protected]://business.usi.edu/aforough

Tel: 812-465-1667 Fax: 812-465-1044

Dr. Abbas Foroughi, 10-29-2006 2

What is the New Economy / e-Economy / Knowledge Economy?

A new global economic environment characterized by: Global competition Rapid, rampant change Faster flow of information and communication Increasing business complexity Pervasive globalization More far-reaching technological advances Consumers whose preferences are revised with the

speed of a television commercial.



The New Economy is a world in which: People work with their brains instead of their hands. Communications technology creates global

competition - not just for running shoes and laptop computers, but also for bank loans and other services that can't be packed into a crate and shipped.

Innovation is more important than mass production. Investment buys new concepts or the means to

create them, rather than new machines.



The New Economy is a world in which: Rapid change is a constant. Reality is at least as different from what came

before it as the industrial age was from its agricultural predecessor.

Its emergence can only be described as a revolution Free markets are central. The Internet creates a

level playing field globally



Example :Bill Gates is the world's richest man. Microsoft has annual sales of US$11 billion. Most of its assets walk in and out of the doors wearing

T-shirts. Yet the stock market values the company at well over

$150 billion - far more than either IBM (sales $76 billion, market cap $100 billion) or General Motors (sales $160 billion, market cap $50 billion).

Why? Because the rules of competition are changing to favor companies like Microsoft over paragons of the industrial age.



Microsoft's rise is a testimony to : The power of ideas in the new economy. Working with information is very different from working with

the steel and glass from which our grandparents built their wealth.

In New Economy Information is easier to produce and harder to control than stuff you can drop on your foot.

For a start, computers can copy it and ship it anywhere, almost instantly and almost for free.

Production and distribution, the basis of industrial power, can increasingly be taken for granted.

Innovation and marketing are all.



The New Economy is more open – it doesn't take a production line to compete, just a good idea. More competitive. Information is easy not just to duplicate, but to replicate. Successful firms have to keep innovating to keep ahead of

copycats nipping at their heels. The average size of companies shrinks. New products and knockoffs alike emerge in months rather than

years,



Market power is increasingly based on making sense of an overabundance of ideas rather than rationing scarce material goods.

Each added connection to a network's pool of knowledge multiplies the value of the whole - one reason for Microsoft's astonishing growth. The result: new rules of competition, new sorts of organization, new challenges for management


What is the New Economy?

Accelerated development of IT Emergence of new distance activities Emergence of new economic domains with impressive

growth Increased amount of knowledge activities and learning

processes Development based on innovation and competition Fast and profound structural changes at

macroeconomic, microeconomic and social levels


Forces Driving the New Economy Technology Deregulation Increased worldwide competition Freer trade and investment throughout the world Venture capital system Life long learning Thinking Dynamism Constant innovation Connectivity Speed Growth of intangible value


Main Principles in New Economy

Instantaneous access (and feedback) Customized products and services Simultaneous presence in different places

(ubiquity)


New Rules in New Economy

From "places" to "spaces" Everything is connected Growing power of networks Transparency Members thrive when network thrive Decentralization Systems integration Multiplication generates value From problems to opportunities


Markets

ISSUEOLD

INDUSTRIAL ECONOMY

NEW KNOWLEDGE ECONOMY

Economic Development

Steady and linear, quite predictable

Volatile - extremely fast change, with explosive upsurges and sudden downturns, and chaotic - the direction of the economy's changes is not perfectly clear4

Market changes Slow and linear Fast and unpredictable

Lifecycle of Products and Technologies

Long Short


Markets (Cont.)

ISSUEOLD INDUSTRIAL

ECONOMYNEW KNOWLEDGE

ECONOMY

Key Economy Drivers

Large industrial firms

Innovative entrepreneurial knowledge-based firms

Scope of Competition

LocalGlobal hypercompetition

Competition: Name of the Game

Size: The big eats the small

Speed: The fast eats the slow

Marketing: Name of the Game

Mass marketing Differentiation


Enterprise

ISSUEOLD INDUSTRIAL


ECONOMY

Pace of business SlowAppreciably faster with ever-rising customer expectations

Emphasis on Stability Change management

Business Development Approach

Strategy pyramid: vision, mission, goals, action plans

Opportunity-driven, dynamic strategy

Success Measure

Profit Market capitalization

Organization of Production

Mass productionFlexible and lean production


Enterprise (Cont.)

ISSUEOLD INDUSTRIAL


ECONOMY

Key Drivers to Growth

CapitalResources: people, knowledge, capabilities

Key Sources of Innovation

Research

Research, systemic innovation, knowledge management, integration, new business creation, venture strategies, new business models

Key Technology Drivers

Automation and mechanization

Information and communication technology, e-business, computerized design and manufacturing


Enterprise (Cont.)

ISSUEOLD INDUSTRIAL


ECONOMY

Main Sources of Competitive Advantage

Access to raw materials, cheap labor, and capital for conversion; cost reduction through economies of scale

Distinctive capabilities: institutional excellence, moving with speed; human resources, customer partnership; differentiation strategies; competitive strategies

Scarce Resource Financial capital Human capital

Decision Making Vertical Distributed

Innovation Processes

Periodic, linear Continuous, systemic


Enterprise (Cont.)

ISSUEOLD INDUSTRIAL


ECONOMY

Strategic Alliances with Other Firms

Rare, "go alone" mindset

Teaming up to add complementary resources

Organizational Structures

Hierarchical, bureaucratic, functional, pyramid structure

Interconnected subsystems, flexible, devolved, employee empowerment, flat or networked structure

Business ModelTraditional: command-and-control

New: refocused on people, knowledge, and coherence


Work Force

ISSUEOLD INDUSTRIAL


ECONOMY

Leadership VerticalShared: employee empowerment & self-leadership

Work force characteristics

Mainly male, high proportion of semi-skilled or unskilled

No gender bias; high proportion of graduates

SkillsMono-skilled, standardized

Multi-skilled, flexible

Education Requirements

A skill or a degree Continuous learning


Work Force (Cont.)

ISSUEOLD

INDUSTRIAL ECONOMY

NEW KNOWLEDGE ECONOMY

Management-Employee Relations

ConfrontationCooperation, teamwork

Employment StableAffected by market opportunity / risk factors

Employees Seen as Expense Investment


New Economy Summary

Old NewSecurity Learning

Job Preservation Job Creation

Status Quo Speed and change

Innovation is more important than Mass ProductionPeople will work with their Brains vs. Hands

Innovation is more important than Mass ProductionPeople will work with their Brains vs. Hands

Source: John Doerr, Venture Capitalist


Business Paradigm shifts in the new economy

In new economy, there is a change in the organizational pattern that defines: how we manage our company, how we view and value our employees, most importantly how we solve problems.


Classical vs. New Economy Organizations

Issues Classical industrial culture

e-business culture

Attitude power is wielded by hoarding information.

value is placed on sharing information and transparency

Focus management focuses on optimizing individual processes.

management focuses on collecting and communicating key information

Management decisions are made centrally and filtered down a pyramid of managers

is inherently distributed, with implementation and management decisions made locally.


Classical vs. New Economy Organizations

Issues Classical industrial culture

e-business culture

Coordination Accomplished through rigid organizational structures, progress meetings and backward-looking quarterly reports.

Accomplished by sharing key information collected automatically from users (such as a barcode reader on a production line) and organized as needed, on demand

Communication Publisher-push model. User is sent data just-in-case it might be needed.

User-pull model. Users proactively seek information based on current requirements


Bottom Line for New Economy

Old economy New economy

To increase profits you increased prices

To increase profits you decrease costs

Organized around standardized mass production

Organized around flexible production of goods/services


The New Economy

We always have some part-time positions available for people who only want to work 60-80 hours a week!

Dr. Abbas Foroughi, 27

eProcesses in New Economy


New Economy: Issues to Consider

A final thing we don't know is

where - or how –

the New Economy

revolution will end.

Dr. Abbas Foroughi, 10-29-2006 1 The New Economy compiled and presented by Abbas Foroughi, Ph.D....

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