Back in the old days (circa 1999), many people assumed that the New Economy was all about doing everything online, particularly when it came to delivering all your personal needs without having to do mundane things like go to the shops.
Well it was and it wasn't - that was a very simplistic view based on the most visible application of the New Economy to most people. The surprising thing is that despite the collapse of the obvious New Economy, the Real New Economy offers a quite staggering amount of work for people with experience in web technologies, but it's not where you might expect.
The Real New Economy What the real New Economy was and is all about was something both more mundane yet far-reaching. It's about what makes a company truely valuable and how stock-markets recognise this.
alt="But I don't need my toothpaste delivered dot com - a spoof 'New Economy' ad" align="right" vspace="5" hspace="5" border="1" width="198" height="127">This is not the whole story of The New Economy, only what the public saw. Think iceberg...
Source: blowthedotoutyourass.com Why does this matter? Because in most countries (and certainly for the stock exchanges where the larger companies are listed), the board's main responsibility is not to make profit, but to keep the share price up. So companies will tend to chase those activities valued by the stock markets. And the useful thing from our perspective is that the way to increase how stock-markets value companies requires internet technologies.
Company Valuation I - Basics There are a small number of elements to how investors value companies:
Nearly all companies have a focus, and the easiest way to work out what it is is to ask the question
- Physical Capital
This is the stuff the company owns - manufacturing sites, distribution centres, telecommunications infrastructure and so on.
- Working Capital
Money in the bank and stuff you can sell very quickly
- Human Capital
The people who work for you, their skills, experience, expertise and credibility. Why did Transmeta hire Linus Torvalds? For his coding expertise? Only incidentally. It was so they could tell investors
We have the Linux head honcho working for us. Similarly, if Richard Branson retired from Virgin, it would materially affect how the company is valued.
- Brand Capital The thing your customers buy when they hand over their money, including:
- the product or service itself (the 1st wave of branding),
- the aspirational lifestyle associated with the product or service (the second wave of branding)
- the set of values, experiences and ideas that your product or service represents (the third wave of branding - for more on this, see John Grant's The New Marketing Manifesto)
If you took away everything else, could the company survive to rebuild itself?. So for a traditional telecoms provider, if you took away the wires they run, they wouldn't have anything left to build from. Many business and design consultancies are named after their founding principals, whose vision and expertise is what you're paying for. And if you took away the name "Coca-Cola", what would you have left?
Company Valuation II - The Old Days In the old days, for most companies, the thing which made them valuable tended to be the Physical and Working Capital available to them, because those were the things which locked out new competitors. Sure, you can design a new car, but if you can't make it and globally distribute it, you're not going to worry Ford. So the valuation of a company looked a bit like this: Figure 1: A highly valued company, using traditional company valuation methods. There's a heavy investment in Physical Capital, lots of money in the bank, the people are focused on production and the company pushes products out into the market.
Source: MetacapitalismMeans & Schneider. This kind of focus also has an advantage in hard times: if it all goes wrong, you can sell off some of your assets to tide you over - another advantage to entrenched successful companies.
Company Valuation III - The New Economy In The New Economy, companies were valued on a very different basis, rewarding companies not for how much stuff they owned, but for how well they could create and satisfy demand for their products and services. This sprung from idiot-savant questions like
If you're Ford, why do you build cars? Because markets were increasingly aware that the most important thing that Ford did wasn't to buildcars, but to design and sell cars. So it didn't actually matter who makes the cars, as long as they get built to Ford specifications. Ever looked at a beer bottle? Chances are it'll have small print along the lines of
Brewed under license from... which essentially means that the name on the label isn't the name of the brewer - the brewers just used the recipe approved by the brand owner. Figure 2: The company's effort is focused on their brand, and on creating "pull" from customers. So most staff are in a marketing function, and the company actually owns very little physical infrastructure.
Source: Metacapitalism Means & Schneider. So who does all that work? The mantra of New Economy companies is
If it isn't core to how we're valued, outsource it. Who built the PC you're reading this on? Chances are it isn't the company whose name is on the casing. This approach gives companies a lot of flexibility - if I want to expand my US-based operation into India, I don't have to build factories and distribution networks, I just outsource it all. Or alternatively, if the people building the laptops with my name on them aren't doing a good enough job, I can replace them. Alternatively, if I'm the OEM involved, I can make laptops for a number of brands. In a sense, it's the McDonalds model of franchising turned up to 11. align="right" style="margin:5px;"> Figure 3: None-core tasks are outsourced to an ecosystem of suppliers.
Source: Metacapitalism Means & Schneider. It is possible to see a future in which brand-owning companies choose not to do anything except own those brands. It becomes possible to run a global company, valued amongst the top companies in the world, with a staff of a dozen people. And you'd move those dozen people to whoever offers the most tax-efficient location such as certain cantons in Switzerland. Those dozen people will essentially be project/procurement managers, as even the activities of marketing will be outsourced.
Where the Work Is Now this isn't abstract theory. It has a direct impact on generating a large amount of work for people with skills in web technologies over the next couple of years. But that work isn't going to be at the front end, facing customers, because most brand-owning companies already have customer-facing sites, which is only going to be tweaked, or at best redeveloped if it's not actually producing business value. No, by far the greater amount of work over the next few years is going to be on the supply-side, hooking systems together, producing extranets and so on.
What do New Economy companies demand from suppliers? All the transparency of having the work inhouse, combined with all the flexibility of having it outsourced. New Economy companies in all industries will increasingly demand ways of working currently expected in the IT Hardware sector - Just In Time delivery, which can only be fulfilled by ensuring that demand is filtered very rapidly back through a responsive supply chain. They will also demand visibility of that supply chain, so that they knowhow a hiccup in one of their supplier's suppliers will impact the deliveryof the end product This will require that all supplier relationships are collaborative - for the purposes of the supply chain (but not anything which touches my balance sheet or restricts that supplier's ability to supply other companies), my supplier is considered to be one of my sub-holdings, employing my staff, and with their systems fully visible to me.
So where is the work going to be? As companies move from the old-economy, capital-focused model to the new economy, brand-focused one, they will need to be able to outsource all non-core activities while retaining the transparency of effective collaboration. The way they will do this is using internet technologies - extranets, online marketplaces and integration between systems, and this is work which takes time, skill and knowledge of internet technologies.
My core skill is visual design, not technical integration. Will there be work for me? Yes, some - particularly where the integration is an extranet, seen by people (as opposed to systems interfacing directly). However, the amount of visual work required to put together an almost certainly template-driven extranet won't be great compared to the number of man-days which will go into the integration piece. (The limitation to the amount of visual design required for a site by template-driven sites is true of customer facing sites too by the way)
We're in a downturn, with revenues falling. How can companies afford this? Because this is work which affects the capital valuation of a company, it will tend to be funded from the capital released by disposing of all those Physical Assets, plus available Working Capital. There's also an upside to this beyond simple capital market sentiment. This transformation will also enable:
The imperative for all these elements hasn't gone away because of the dot-com bust, or the general economic downturn, or September 11th. If anything, the appetite has increased to try to reduce the downward spiral in stock prices - companies not seen to be doing their best to hold up market caps suffer loss of investor confidence.
- Decapitalisation - the cost of work in progress and of physical assets are born by someone else, thus allowing that capital to be used for core activities
- Margin Growth - slick integration with suppliers will reduce the time cost associated with transactions
- Revenue Growth - the flexibility enabled by this change will allow the company to expand quickly into new markets, both in geographic and product development.
But I don't work with companies the size of Nestlé It doesn't matter. You'll notice from Figure 3 above, that the suppliers are also transformed into New Economy companies. Even if the suppliers don't have market capitalisation reasons for doing so, by virtue of being on a supply chain to a company who demands New Economy transparency and flexibility, they will be forced to adopt this model. Once you get down the supply chain a few stages, you're not dealing with multi-billion pound enterprises, but with small players with small budgets, and in between, mid-sized companies. It's not called a supply chain for nothing...
So there you go - there's lots of work coming up over the horizon... if you're smart about where to look.
If you don't want to fork over the cash for a paper copy of Metacapitalism, there's the Metacapitalism website.
Important Disclaimer While much of the content of this article is somewhat in line with the thinking of my employer, this article is neither prompted nor endorsed by them, and contains opinions which may not be theirs and does not represent any solicitation by, or representation of them. Neither does it contain any priviledged information to the best of my knowledge.