Was there ever a ‘New Economy’?

Last week, I delivered a talk on e-business before around 200 IT majors at the University of Asia and the Pacific. During that talk, I asked the following question: "Do you believe we are in a New Economy, or are we still in the ‘Old’ Economy?" There were about 10 or so who believed we are in the midst of a New Economy, maybe another 20 or so believed we are still in the Old Economy, and the rest of the audience was non-committal. This wasn’t really a surprising result to me, as many out there are, more than ever, quite confused about this Old vs. New Economy jargon.

The term "New Economy" was essentially coined to refer to the recent rise of the Internet, bringing with it a slew of Internet-commerce companies and new ways of conducting business. The "New Economy" also can relate to the increasing importance and stakehold of technology and technology-driven companies in the world economy. With the Internet and technology bubble bursting, however, many have looked back and asked whether there really was a New Economy, or simply an extension of the old one. Sure there were a lot of new terminology, parameters, thinking and behavior (mainly the irrational sort) that took place in these last two or so years, things like "business models, first to market is the focus, eyeballs and page views equals valuation, strategy equals implementation, no profitability goals – only stock options and revenues, etc., etc."

To muddle things even further, there is a new lexicon going around western e-business sectors called "the Next Economy," to differentiate this from the "New" one. This term was coined, I believe, by a consultant at Scient, one of the once high-flying e-business/Internet professional services companies spawned in the last five years (Nasdaq-listed: SCNT). Some of the key strategic elements behind the "Next Economy": 1) Companies will use technology to leverage existing strategy; 2) Everyone in the organization will have to live and breathe their strategy; 3) Strategy will become a cause, a source of uniqueness; 4) IT will be the nervous system of strategy, with speed of execution determined by technology; 5) Fast, yes; First, no. Best to market not first to market. These are all good and useful ideas, but is there anything really new here? Or, as I suspect, didn’t many of us have these ideas already (maybe even executed) in the good ol’ "Old Economy" days?

By the way, for the curious, Scient’s stock as of Tuesday (U.S. time) closed at $0.84 a share, a new 52-week low and way off its 52-week high of $72.75 a share. Wow, from a market capitalization less than a year ago of $5.4 billion to today’s $62.3 million. That’s the New Economy bubble burst for you. I recently saw this amusing assessment from David Pink of the Fast Company:

1999:

Twentysomething Internet entrepreneurs are paradigm-shifting geniuses!

Jeff Bezos is Time Magazine’s Person of the Year!

Everyone is going to be a gazillionaire!

2001:

Twentysomething Internet entrepreneurs are pathetic chumps who have to move back in with their parents!

Jeff Bezos is the Idiot of the Young Century!

Everyone is going to be laid off!

Reflecting on Old vs. New vs. Next Economy, I really get to thinking about the ideas of that great futurist, Alvin Toffler. His website has a good summary of his thoughts over the last few decades and I will quote and paraphrase a few passages from herein:

"The central premise of Toffler’s thinking was that human history, while it is complex and contradictory, can be seen to fit patterns. This pattern has taken the shape of three great advances or waves. The first wave of transformation began when some prescient person about 10,000 years ago, probably a woman, planted a seed and nurtured its growth. The age of agriculture began, and its significance was that people moved away from nomadic wandering and hunting and began to cluster into villages and develop culture. In this first wave, wealth was land, and it was exclusive; if I grew rice on my acres, you could not.

The second wave was an expression of machine muscle, the Industrial Revolution that began in the 18th century and gathered steam after America’s Civil War. People began to leave the peasant culture of farming to come to work in city factories. It culminated in the Second World War, a clash of smokestack juggernauts, and the explosion of the atomic bombs over Japan. The context for wealth diversified into three factors of production: land, labor and capital. As with the rice paddy of the first wave, each of these factors was discrete, allowing for only one use at a time.

Just as the machine seemed at its most invincible, however, we began to receive intimations of a gathering third wave, based not on muscle but on mind. It is what we variously call the information or the knowledge age, and while it is powerfully driven by information technology, it has co-drivers as well, among them social demands worldwide for greater freedom and individuation (vs. the standardization of the second wave).

To illustrate: In the industrial regime, General Motors became rich by combining its resources (its factories, its manpower, and its money) to make cars. Each car loaded onto the truck slightly drained the company of its resources.

Today’s counterpart to General Motors, Microsoft, makes software that anyone can easily replicate at home (by copying disks). Microsoft is not drained of its resources when it ships a package of Windows 95. The land, muscle and money in Redmond, Washington, are not the source of the company’s wealth; the knowledge of its software developers is.

Economics has been lovingly defined as ‘the science of the allocation of scarce resources.’ From the standpoint of the third wave, in which the primary resource is knowledge, that second-wave definition rings hollow. In the first place, economics has never been much of a science, Toffler said. More to the point, our supply of knowledge is anything but scarce.

Indeed, like paper money, in which the tangible gold of the earlier waves has been replaced by alpha-numeric figures stamped on intrinsically worthless sheets of paper, our knowledge is inexhaustible."

The last few decades have been a time of great transition, where many second-wave type organizations are transforming into third wave-driven knowledge enterprises. Over this time, we have been in the midst of Toffler’s Third Wave, the Knowledge Economy, and the rise (and fall) of the "New Economy" is but a chapter in the evolution of this Third Wave. Through it all, the fundamentals of sound business decision-making and execution, i.e., to deliver value to customers and profit to owners, have been unwavering.