**The new New Economy is combining the strength of the old and New Economy**

News categories: the new New Economy Economics, enterprise and business strategy

Pessimism about the so called “New Economy” is growing as the US economy is slowing down and financial markets are downgrading technology stocks. But when “dot coms” close down operations and run into bankruptcy that does not mean, that the basic philosophy behind the “New Economy” was wrong. Analysis proves, that the combination of brain power and knowledge, of information technology and the Internet (a major the transportation device for knowledge), and of the globalisation of business organizations and markets (the vehicle to leverage knowledge in a condensed form as knowledge products on a large scale) still can generate exponentially much more value for both shareholders and stakeholders as the traditional (industrial) manufacturing company model (see also “the book of the month February 2001”)

While “dot com” companies have often been the face of the Internet Economy, interestingly they made up a very small part of it. Only 9.6 percent of the firms studied by the Center for Research in Electronic Commerce of the Graduate School of Business at the University of Texas at Austin (…here the complete report) can be classified as “dot coms” with 95 percent or more of their revenues from the Internet. The same study revealed, that the Internet Economy supported an additional 612,375 jobs in the first half of 2000 and directly supports three million workers in the US. And Internet related jobs are not created just in Information Technology: 33% are created in sales and marketing, 28% in IT, 17% in operations/manufacturing, 12% in accounting/finance, and 10% in general/admin/exec (see the same report).

What does the actual New Economy crisis mean ?

It’s simply the correction of the irrational exaggerations on financial markets in the last 2 years. Fundamentals like profits, cash flows and stock valuations based on realistic future earnings have always and will always be the basics for companies which are in business to earn money. Some people in the last 24 months just forgot about it. But it is also true that it is much more complex to manage profitability, especially sustaining profitability in the new New Economy (that is how I will call it from now on). Because in the new New Economy the basic business rules of the old economy still apply, companies have to manage for short term profitability and long term based value creation (last based on intangible assets and knowledge) at the same time. And that requires more sophisticated management instruments as traditional financial and management accounting – something many “dot coms” did not care about so much.

So what is the new New Economy ? Here my understanding:

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.

In my upcoming book “Management in a new New Economy: How to exploit intangible assets to create value” I analyse in depth these new challenges. The book provides readers 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. In addition it includes detailed case studies and interviews with international thought leaders like David P. Norton, co-author of the Balanced Scorecard concept.

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