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Where All The Work S Hiding

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Martin Burns

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User since: 26 Apr 1999

Articles written: 143

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:

  1. Physical Capital


    This is the stuff the company owns - manufacturing sites, distribution

    centres, telecommunications infrastructure and so on.

  2. Working Capital


    Money in the bank and stuff you can sell very quickly

  3. 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.

  4. 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
      )

Nearly all companies have a focus, and the easiest way to work out what it

is is to ask the question 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

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:

Metacapitalism

Means & 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

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.

Figure 3 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 know

how a hiccup in one of their supplier's suppliers will impact the delivery

of 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:

  1. 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

  2. Margin Growth - slick integration with suppliers will reduce the time cost

    associated with transactions

  3. Revenue Growth - the flexibility enabled by this change will allow the

    company to expand quickly into new markets, both in geographic and product

    development.

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.

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.

Useful Link

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.

Martin Burns has been doing this stuff since Netscape 1.0 days. Starting with the communication ends that online media support, he moved back through design, HTML and server-side code. Then he got into running the whole show. These days he's working for these people as a Project Manager, and still thinks (nearly 6 years on) it's a hell of a lot better than working for a dot-com. In his Copious Free Time™, he helps out running a Cloth Nappies online store.

Amongst his favourite things is ZopeDrupal, which he uses to run his personal site. He's starting to (re)gain a sneaking regard for ECMAscript since the arrival of unobtrusive scripting.

He's been a member of evolt.org since the very early days, a board member, a president, a writer and even contributed a modest amount of template code for the current site. Above all, he likes evolt.org to do things because it knowingly chooses to do so, rather than randomly stumbling into them. He's also one of the boys and girls who beervolts in the UK, although the arrival of small children in his life have knocked the frequency for 6.

Most likely to ask: Why would a client pay you to do that?

Least likely to ask: Why isn't that navigation frame in Flash?

The access keys for this page are: ALT (Control on a Mac) plus:

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