Go Fixer » Economy

THEME 6: DISINTERMEDIATION

admin — Mon, 08 Feb 2010 07:19:48 +0000

• Middleman functions between producers and consumers are being eliminated through digital networks. Middle businesses, functions, and peopie need to move up the food chain to create new value, or they face being disintermediated.
If your company has in its midst agents, wholesalers, distributors, retailers, brokers, or middle managers, it’s time to do some serious strategizing (or career planning if you are one of them). All these roles in the past have been in the business of executing transactions, brokering, or in general boosting the faint signals that passed for communications in a predigital economy. Disintermediation is changing the signal pattern. Musicians and their producers won’t need recording companies, retail outlets, or broadcasters when their music becomes a database entry on the Net. Food producers won’t need wholesalers or supermarkets when customers can replenish supplies weekly by accumulating entries in their shopping-list database and take delivery at home. Hotels won’t need travel agents to execute hooking transactions when everything can be done by would-be travelers “.helicoptering” in a geographical information system (GIS) over their destination city.
Take the case of consumer goods manufacturers being squeezed giant retailers like Wal-Mart demanding consignment sales and razoi margins. Manufacturers could use the new infrastructure to sell direct the network, thereby eliminating intermediary retail channels. An ek tool and small appliance company such as Black & Decker could provide video or interactive programs on, say, home renovations featuring the tools. Or they may develop a cooking series, this week discussing I cuisine that features their pasta maker, food processor, and micro oven. As such, they become infotainment companies providing cur (for a fee or not) on the Net. In the process, the large retailers become intermediated. People still like to go to the movies, but the home video market is now bigger than the Hollywood movie industry.

THEME 5: INTEGRATION/INTERNETWORKING

admin — Mon, 08 Feb 2010 07:14:16 +0000

• The new economy is a networked economy, integrating molecules into clusters that network with others for the creation of wealth.
When Ron Ponder took over as the do of AT&T in 1994, his central challenge was to create the network infrastructure for AT&T to segment its markets, to create a molecular delivery system. “We’re creating a new operating model for the business,” says Ponder. “We’re creating the ability for unique segmentation for a customer market of one. But, you can’t do this transformation without the new technology—it enables you to go from one paradigm to the other.”
The new paradigm in wealth creation is possible because of compute networks that are digital rather than analog, and because of a shift in th style of networking from the host computer, hierarchical networks of th past to peer-to-peer webs based on the Internet model. As the bandwidth of such networks grows to achieve full multimedia (integrating data, te audio, image, and video media), the opportunities for such new institutional structures grow dramatically.
The new networked organizational structures are not simply the
ation of process-oriented organizations in which “stovepipe” hi,cin processes are reengineered horizontally to save costs and impr responsiveness. Nor is the change simply a shift to team-based structi. (although the business team is central to the new enterprise). Rather is a radical rethinking of the nature and functioning of the organizati and the relationships between organizations. The new organizatin dubbed by the Alliance for Converging Technologies as the “Tntt’rn worked Enterprise,” is a vast web of relationships including all levels and business functions in which the boundaries inside and outside are permeable and fluid.
The new technology networks enable small companies to overcome the main advantages of large compariies…conomies of scale and access to resources. At the same time, these smaller companies are not burdened with the main disadvantages of large firms—_deadening bureaucracy; stifling hierarchy, and the inability to change. As larger companies disaggregate—beco me clusters of smaller molecules that can work well together….. they gain the advantages of agility, autonomy, and flexibility.
The Intemetworked Enterprise will be a far-reaching extension of the virtual corporation because there will be access to external business part- tiers, constant reconfiguration of business relationships, and a dramatic increase in outsourcing. The Internetworked Enterprise will behave like the Internet, where everyone can participate and the total effort is greater titan the sum of the parts.
The overall economy will act in the same way Networks of networks along the Internet model are beginning to break down walls among companies_suppliers, customers, affinity groups, and competitors. We will see Ihe rise of internetworked business, internetworked government, inter- networked learning, and internetworked health care, to name a few
Every economy needs a national information infrastructum. This is lie utility of the twenty-first century-._a broadband highway for a broadltaimd, high-capacity economy. And every organization needs to plug into Un,s utility with an enterprise information infrastructure The new infrasirlicture will change economic activity as significantly as did electrification. Just as business and wealth creation would be unthinkable today Without electrification, so the new economy would be impossible without the power of information.

THEME 4: MOLECULARIZATION

admin — Mon, 08 Feb 2010 07:10:52 +0000

• The new economy is a molecular economy. The old corporation is being disaggregated, replaced by dynamic molecules and clusters of individuals and entities that form the basis of economic activity. The organization does not necessarily disappear, but it is transformed “Mass” becomes “molecular” in all aspects of economic and social life.
The principal economic unit of the industrial economy was the corporation. The roots of the command-and control hierarchy were in the uth and military bureaucracies of the agricultural age but were extend- to become the firm. The objective of every CEO and board was to increase the corporation’s size, revenue, and profit. The traditional hierarchy has been in deep trouble for years now because it was poorly equipped to respond to the new business realities. Conventional wisdom of the past decade has called for more responsive, flatter, team-based structures. The most significant movement to create such horizontal, process-oriented structures is business process reengineering (BPR). However, as Riel Miller, an economist working with the Alliance for Converging Technologies, put it: “The necessity of adding knowledge at eveiy step in the value chain is beginning to call into question the familiar notion of the firm as an organizational unit. The Net may be, at one and the same time, the source of both the demise and salvation of the firm as we have known it.”7
More than fifty years ago 1991 Nobel Prize winning economist Ronald Coase asked why firms exist. Why are there groups of people working together under one organizational framework? He wondered why there is no market within the firm, Why is it unprofitable to have each worker, each step in the production process, become an independent buyer and seller? Why don’t the draftspeople auction their services to the engineer? Why is it that the engineer does not sell designs to the highest bidder?
One of the main answers to these questions has to do with the cost of information. Producing a loaf of bread, assembling a car, or running a hospital emergency ward involves a number of steps in which cooperation and common purpose are essential to making a useful product. An emergency room, where each doctor bids for nursing services in an attempt to get the lowest price, while at the same time determining if the nurse is actually capable of assisting with the operation, might provide fully functioning market but not a particularly useful product for a dead patient. Similarly, holding an auction before the axle assembler would pass along product to the chassis assembler might slow down the line. It would be even less efficient if the information on engineering viabili
and compatibility needed to be purchased on the shopfloor marketpl at eve!)’ step.
What makes a pure market impractical is the time and cost of acq ing the information needed to undertake complex production proces What is being sold? What is the quality of the labor? What is the qualit the raw material or intermediate input? What is the price for the
product? How will it be sold? By whom? With what kind of information marketing? Who will finance the production process, and how much financing cost? The ensemble of functions within a firm consist not only a series of discrete products but also the infrastructure of collaboration, A clear framework and strict regimentation worked on many battlefields and in many marketplaces of the past. The role of the overarching infrastructure of the firm or army was clear and indivisible. But today, as Miller puts it: “The Net does not change the rules, but it changes what is possible. It opens up new horizons for what is economically and practically feasible. The costs of information and coordination are dropping. More than ever we are in a position to create wealth by adding knowledge to each product at each step.”

THEME 3: VIRTUALIZATION

admin — Mon, 08 Feb 2010 07:07:26 +0000

• As information shifts from analog to digital, physical things can become virtual—changing the metabolism of the economy, the types of institutions and relationships possible, and the nature of economic activity itself
In the new economy, there are (to name a few) the following:
• Virtual alien. People working and participating in one country’s economy who are physically located somewhere else—for example, ‘Mi.tual data entry workers” who live in India. Virtual aliens are often, technically, illegal aliens.
• Virtual ballot box. Any information appliance (TV, telephone, computer, kiosk, etc.) from which citizens can vote.
• Virtual bulletin board. Message Maestro, hyperlinked to other boards. Push pins not required.
• Virtual business park. “House” business resources on the Net to help companies rapidly create virtual corporations. As in Bell South’s Media Park, which provides resources for the creative community.
Virtual congress (aka virtual hearings). Legislative hearings held ft multiple locations a synchronously (in multiple time dimensions).
• Virtual corporation (virtual enterprise, extended enterprise, interenterprise). The conjunctional grouping, based on the Net, of companie individuals, and organizations to create a business.
• Virtual coupon. On the Net, encouraging you to buy, for example, peanut butter.
• Virtual government agency. Many different government agencies have a similar purpose are linked by networks to deliver services a single window to the public, as in “entitlements” virtual agency. • Virtual job. Individual contract work conducted on the Net. Not to be confused with unemployment.
• Virtual mall. An environment on the Net in which like things can be found, as in “virtual shopping mall” or “virtual shoe sale.”
• Virtual market. Any place in cyberspace where people shop.
• Virtual office. Anywhere The location of work for the nomadic office worker.
• Virtual reality. The overriding 050/moron for virtuajization
• Virtual sex. Interactive multimedia sexual experience with digitized partner(s), in the future involving kinesthetic feedback.
• Virtual stockyard. Electronic auction of stock using interactive workstations. Stock do not need to be moved to a physical yard to be sold. Now replacing many physical stocl’ards, as at Calgary Stockyard Ltd., which conducts two-thirds of cattle transactions electronically.
• Virtual store. The store on the Net that isn’t there, routing consumers to suppliers (aka virtual retail, virtual wholesale, virtual distribution).
• Virtual village. The grouping of individuals, independent of location, who share a broad set of common objective and subjective interests. Extends to village life, main street, village square, village clown.
• Virtual water cooler Places on the Net where people can engage in informal, even playfiul communications such as those that occur around the (physical) water cooler. Sometimes called a MUD (Multi-User Dungeon).