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"What indeed are the new rules, the new assumptions, and the new values that will provide the context for economic activity in the next century?"

Agility and the New Business Rules for the Knowledge Economy

BY CHARLES M. SAVAGE

Introduction

Agile, but for what—doing the same old things faster? Or quickly doing new things in new ways? What are these new ways? What are the new rules of business in the 21st century? Some speak of the emerging "Intangible Economy," others discuss the "Network Economy," and still others focus on the "Knowledge Economy." The name is not that important; the substance is. What indeed are the new rules, the new assumptions, and the new values that will provide the context for economic activity in the next century?

The Intangible Economy

The defining trend of the modern economy is the shift to the intangible. The economic landscape is no longer molded by physical flows of material goods and products, but by intangible streams of data, images, and symbols. The source of economic value and wealth is no longer the production of material goods, but the creation and manipulation of dematerialized content. (Goldfinger, 1996) Charles Goldfinger, Brussels

In this bold statement, Charles Goldfinger, a leading European thinker on key economic trends, has thrown down the gauntlet, challenging our traditional assumptions about the rules of business. What does the shift to the intangible really mean? How will it impact our companies? How does it impact our own thinking— yours and mine? Sweden has built its economy on forest products, steel, machinery, and automobiles. Now it finds one of its growing exports is its recording industry—  intangible products yes, but very tangible in terms of income. Songs are produced on tape, disk, CD, and the Internet. The creation of songs is not limited by any natural limitation. They come out of the abundance of human nature, not the scarcity of natural nature.

Goldfinger would readily admit that we are not moving into an either/or economy, but a both/and economy. Wealth will still be generated from material goods, but more and more the creation and manipulation of intangible assets will define our future. Goldfinger begins to define the characteristics or rules of the intangible economy— or as some call it, the Knowledge Economy.

First, this new economy is built upon a logic of abundance, not scarcity. Second, there are overlaps everywhere— suppliers have offices in the design space of their customers, like United and JAL had while Boeing was building the 777. Third, there is not one way to do things, but instead there are many ways. We can expect increased instability and volatility in demand. Contradictory crosscurrents are swirling around us, being both global and local, concentrated and fragmented, vertically integrated and horizontally distributed. In the September 1997 issues of Wired magazine, Kevin Kelly echoes Goldfinger's thinking in an excellent article entitled "The New Rules of the New Economy: Twelve Dependable Principles for Thriving in a Turbulent World."

The Network Economy

Kelly notes four key characteristics of what he called the "Network Economy":

  1. Wealth in this new regime flows directly from innovation, not optimization. The challenge is to seize the unknown, not just perfect the known.
  2. To cultivate the unknown it is necessary to nurture the supreme Agility and nimbleness of networks.
  3. To domesticate the unknown, we need to abandon the highly successful known.
  4. In the dynamic web of the Network Economy, we need to live the cycles of "find, nurture, destroy" continuously.

As we noted, Goldfinger calls it the Intangible Economy, and Kelly the Network Economy. Whatever we call it is irrelevant as long as we begin to understand the new rules and the new logic and their meaning. In the new order, Agility refers not only to our quickness of moving metal; it also refers to our adroitness at moving minds. Success in the future will be as much a function of combining ideas as it will be combining parts.

Kelly's twelve principles of the Network Economy give us insight and approaches necessary in the future. I will not repeat the list of twelve, but instead touch on a few highlights that are impacting our need for increased Agility.

We are experiencing "the collapsing microcosm of chips and the exploding telecosm of connections". Soon, everything will be networked to everything else. SAP and HP are extending their offerings to include both suppliers and customers in their extended enterprise applications. Extending the web brings value.

Remember when we had only one fax machine in the world? It was expensive, but useless. Now when we buy an inexpensive fax machine, we immediately have access to an incredibly valuable network of other machines. Equipment and people take on value in the web. It is the abundance, not the scarcity that brings value— a point Goldfinger makes.

Kelly maintains "value explodes exponentially with membership." For a long while, the big retailers hardly noticed TV shopping. It seemed to be an insignificant activity during the 1980s. But when TV shopping took off in the '90s, it was too late for most of the large retailers; they had missed the window of opportunity. As more and more people used the tube for shopping, the value of this approach took off. The same thing happened with Microsoft and Federal Express. These companies have gotten into virtuous circles, where success leads to more success.

The new rules suggest a different pricing strategy. Companies are finding they have to give away their browsers and their "lite" software to generate a market. Other companies are involving their customers in perfecting their beta offerings. This touches on the volatility that Goldfinger mentioned. Patterns of interaction between companies and their customers are changing profoundly, and the interpenetration or overlap is becoming ubiquitous.

This requires an Agility of thought in seeing the new patterns, responding to ever-changing conditions, and in being able to discard a successful product, service, or way of working to make room for the new. Yes, there is continuous change but, as Kelly suggests, it is better thought of as churn, a creative force of destruction and genesis. "Churn topples the incumbent and creates a platform ideal for more innovation and birth. In this chaotic churn is life-giving renewal and growth."

The last of Kelly's twelve rules is the law of inefficiencies. His theme is that we should not focus on solving problems, but instead on seizing opportunities. "In the Network Economy, productivity is not our bottleneck. Our ability to solve our social and economic problems will be limited primarily by our lack of imagination in seizing opportunities, rather than trying to optimize solutions."

The Knowledge Economy

There is a wonderful richness in the articles of both Goldfinger and Kelly, to which it is impossible to do justice in this short article. At the same time, even though they imply the growing importance of the human element, neither is explicit in this regard.

There are limits to an economy built on transforming scarce raw materials into finished goods and services. There are unlimited possibilities for growth in the knowledge economy as we tap the abundance of our human imagination to seize ever-changing opportunities.

Instead of fitting into the mechanical order of a hierarchical organization, we will be more like what Thomas Stewart of Fortune calls, "Me, Inc."— networked and collaborative teams as creative individuals. Each of us is now responsible for our own intellectual, emotional and perhaps even spiritual development.

As the "telecosm of connectivity," to use Kelly's phrase, is expanded, the quality of human interaction becomes the critical gating factor. As we move from control to collaboration, we need to pay more attention to human energy, to human values, and to human integrity. If we are continually forming and reforming teams rather than playing assigned rolls in a rigid hierarchy, people are going to be much more choosy about those with whom they want to work. Who has integrity? Who has ideas they will share? Who creates an environment where people feel respected and valued? These will become self-regulating systems and self-organizing processes.

The agile enterprises are the ones that will have invested in "culture" and "values". They will have high ethical standards, and they will expect their people to be full persons, intellectually and emotionally. New resources are becoming available. Ken Blanchard, Michael O'Connor, and Jim Ballard have just published a book, Managing by Values, that is a simple and direct way of raising the values question in a company. Brian Hall, in his book Values Shift: A Guide to Personal and Organizational Transformation, and Benjamin Tonna have developed a richer framework for seeing key patterns among and between key individual and organizational values. In India, Professor S.K. Chakraborty has been doing pioneer work at his institute in Calcutta on values and management. He taps the riches of Indian traditions to help executives begin to achieve an inner integrity to their work.

The new rules of the Knowledge Economy are more than rules; they really represent a new spirit. Perhaps it would be better to call the undergirding values, or perhaps guiding principles, as Steven Covey does. This spirit helps us understand what is, but it also helps us envision what might be. The process of bringing into being what might be, the co-creative process, is really the driver of the new economy, the Knowledge Economy. Instead of fitting in, we are learning to outfit the world, and ourselves, in new and exciting ways. Agility of thought and nimbleness of spirit will be the defining characteristics of the next economy. The arena is open to all who are ready to make the effort to equip themselves with the attributes of not only accomplishments and unique capabilities, but also openness, honesty, vision, passion and integrity.

Editor's Note: Will the spirit of the new Knowledge Economy indeed be as open, as replete with opportunity, as Charles Savage suggests?

Economic prosperity in the Age of the Network depends on two primary factors:

  • The stability that derives from the consistent rule of law
  • Global openness to flows of currency, goods and people

Technology and the Internet do indeed empower the individual. They empower those who freely use their abilities to succeed in the marketplace of commerce and ideas, but also empower those who perceive that same freedom as a threat to be destroyed. While global communication makes knowledge of markets and opportunities available to all, it also shows the unfortunate in the less developed regions and the poor pockets of developed   countries how the more fortunate live. This amplifies frustration, which in turn feeds destruction.

The Internet empowers Jeff Bezos to build amazon.com instantly into a global bookstore and Marc Andreessen of Netscape to become an instant entrepreneurial success. But it also empowers the destructive hacker, the propagator of viruses, the global drug entrepreneur, and the terrorist and anarchist for whom destruction of freedom is itself a lofty goal. Technology is a powerful force multiplier, but it is quite indifferent as to how that force is used.

The wonderful possibilities that follow the widespread prosperity implicit in the openness and the ensuing unregulatability of the Internet depend upon the fundamental questions of societal organization and the human spirit. Consideration of these is a timeless debate, which is at the core of the great milestones of human experience— from the Bible to Shakespeare to our great modern literary and artistic works.

It seems to me that the future will fulfill the promise outlined by Charles only if we work diligently to ensure that the forces of light keep the forces of darkness at bay. That is— as has always been the case in human history—an uncertain struggle in which success cannot be taken for granted.

References

Goldfinger, C. "Intangible Economy and Its Implications for Statistics and Statisticians." Eurostat ISTAT Seminar, Bologna, Italy, February 7, 1997.

Kelley, K. "The New Rules of the New Economy: Twelve Dependable Principles for Thriving in a Turbulent World," Wired, September 1997.


1977 John Wiley & Sons, Agility & Global Competition, Vol. 1, No. 4, 10-13

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