Why the New Economy requires a New Management

Juergen Daum’s new New Economy Management Best Practice Center:

What is the new
New Economy ?

The Old Economy:

The economy model of the Old Economy was based exclusively on financial capital – in the management focus are short term profits.

Industrial capitalism, which emerged in the 19th century as a new economic structure, gave rise to the business corporation and its basic management techniques - such as financial accounting –, and was based nearly exclusively on financial capital. Financial capital – money – bought land, machinery and other equipment to produce goods. It also bought labor from workers, needed for the production process. Most work was not very sophisticated and required no specific skills a worker could not learn within a few days. He was therefore easily replaceable. Labor was cheap and abundantly available. The one who owned financial capital – the capitalist - owned everything: the tools to produce goods with and the result of the production process, the product itself. It was the time when mining and steel companies, auto companies dominated the economic landscape and industrial production has been the holly grail for economic value creation in the developed countries.

The New Economy:

The economic model of the New Economy is based exclusively on knowledge and intangible assets instead of financial capital – in the management focus is long term value creation such as increase in market share etc.:

When we talk about the New Economy we're talking about a world in which people work with their brains instead of their hands. A world in which innovation is more important than mass production. A world in which investment buys new concepts or the means to create them, rather than new machines. New kinds of businesses, based on knowledge work, were being created in recent years. Companies that were more flexible, more adaptive, and more fluid in their structures, producing “smart” products and services that featured mass customization, customer participation in product design and manufacture, and the linking of suppliers, distributors, and strategic partners into chains of common destiny. Companies emerged, which have created and own more intellectual capital and value creating potential than traditional businesses. In the most narrow sense, the New Economy company was the dotcom company, which tried to move fast into new (consumer) markets to create market share without any intention to make profits for years. The burst of the dotcom bubble on financial markets gave raise to the concept of the new New Economy.

The new New Economy:

The economic model of the new New Economy is based on a optimal combination of tangible and knowledge / intangible assets – in the management focus is the ability to both create long term value and short term profits:

In the new New Economy the main rules of the New Economy are still valid – such as that knowledge and intangible assets based companies own more value creation potential than tangible assets based and traditional production companies. But at the same time some important rules of the old economy apply – that companies are in business to earn money. Therefore, in the new New Economy, companies have to prove, that their intangible strategy is paying off. They have to prove that through sustainable and increasing short term profits – again and again. And at the same time, they have to show, that they create long term value through constant innovation, by increasing the value of its customer base through improved customer retention, by increasing the value of its human capital constant skill built-up in its workforce, by increasing the value of its partner capital through new alliances and new forms of partnerships, and by increasing the value its organizational capital through improved business processes and through organizational models that reflect the companies new business strategy and provides it with a completive advantage.

Juergen Daum’s new New Economy Management Best Practice Center informs regularly about trends and best practice in the new New Economy. To get the latest information about the new New Economy, register for “The new New Economy Analyst” – a free-of-charge monthly newsletter from Juergen Daum.

Juergen Daum’s new book “Intangible Assets oder die Kunst Mehrwert zu schaffen (Intangible Assets or the Art to Create Value): Unternehmenserfolg im Zeitalter des Intellectual Capital (Successful enterprise management in the Era of Intellectual Capital” provides you with a comprehensive view on current best practice and trends in what companies do, to improve their ability to create value through intangible assets and generate short term profits at the same time. It provides readers with an insight into new concepts for a management system which is able to cope with the sometimes contradicting objectives of generating short term profit and long term intangible value.