Transition to New Knowledge- and Innovation-Driven Economy: Key Features (Your first-ever Business e-Coach)

New Economy

Key Features of the New Rapidly Globalizing and Changing Knowledge Economy

Today, we are living in a chaotic transition period to a new age defined by global competition, rampant change, faster flow of information and communication, increasing business complexity, and pervasive globalization. The pace of change has become so rapid that it took a different type of firms to be dominant and marked entirely new era of business. This new environment is also characterized by "more far-reaching technological advances, and a consumer who has adjusted to this quicker pace and whose fickle preferences are revised with the speed of a television commercial."⁵

ISSUE

OLD INDUSTRIAL ECONOMY

NEW KNOWLEDGE ECONOMY

Markets

Economic Development

Steady and linear, quite predictable

Volatile - extremely fast change, with explosive upsurges and sudden downturns, and chaotic - the direction of the economy's changes is not perfectly clear⁴

Market changes

Slow and linear

Fast and unpredictable

Lifecycle of Products and Technologies

Long

Short

Key Economy Drivers

Large industrial firms

Innovative entrepreneurial knowledge-based firms

Scope of Competition

Local

Global hypercompetition

Competition: Name of the Game

Size: The big eats the small

Speed: The fast eats the slow

Marketing: Name of the Game

Mass marketing

Differentiation

Enterprise

Pace of business

Slow

Appreciably faster with ever-rising customer expectations

Emphasis on

Stability

Change management

Business Development Approach

Strategy pyramid: vision, mission, goals, action plans

Opportunity-driven, dynamic strategy

Success Measure

Profit

Market capitalization

Organization of Production

Mass production

Flexible and lean production

Key Drivers to Growth

Capital

Resources: people, knowledge, capabilities

Key Sources of Innovation

Research

Research, systemic innovation, knowledge management, integration, new business creation, venture strategies, new business models

Key Technology Drivers

Automation and mechanization

Information and communication technology, e-business, computerized design and manufacturing

Main Sources of Competitive Advantage

Access to raw materials, cheap labor, and capital for conversion; cost reduction through economies of scale

Distinctive capabilities: institutional excellence, moving with speed; human resources, customer partnership; differentiation strategies; competitive strategies

Scarce Resource

Financial capital

Human capital

Decision Making

Vertical

Distributed

Innovation Processes

Periodic, linear

Continuous, systemic

Production Focus

Internal processes

Entire value chain

Strategic Alliances with Other Firms

Rare, "go alone" mindset

Teaming up to add complementary resources

Organizational Structures

Hierarchical, bureaucratic, functional, pyramid structure

Interconnected subsystems, flexible, devolved, employee empowerment, flat or networked structure

Business Model

Traditional: command-and-control

New: refocused on people, knowledge, and coherence

Work Force

Leadership

Vertical

Shared: employee empowerment & self-leadership

Work force characteristics

Mainly male, high proportion of semi-skilled or unskilled

No gender bias; high proportion of graduates

Skills

Mono-skilled, standardized

Multi-skilled, flexible

Education Requirements

A skill or a degree

Continuous learning

Management-Employee Relations

Confrontation

Cooperation, teamwork

Employment

Stable

Affected by market opportunity / risk factors

Employees Seen as

Expense

Investment

New dimensions in Business Space get constantly created. Forces like technological breakthroughs, economic growth, market evolution, shifts in customer tastes, social changes, and political events can expand or shrink Business Space. Vast amounts of new Business Space created today change perspectives. This unoccupied territory represents a land of opportunity for the technological and strategic innovators who can see or create it faster than their competitors do. The opportunities are great, but so are the competition and the chance of failure.⁵

Today's growth era produces huge discontinuities, creates new industries and destroys old ones, and accelerates global economic growth in the process. "Expectations are rising everywhere; human creativity is flowering in every field. Emerging economies are industrializing, and everyone is joining the digital revolution of boundless information and seamless electronic commerce. The ideas, technologies, and capital to satisfy new needs flow freely."⁶

Business Space, technologies, processes, and business models become more complex. That is because new characteristics are added frequently, but subtracted infrequently. The dimensions of Business Space keep increasing, adding complexity and furnishing attractive new opportunities for those who can successfully navigate in the new environment. This complexity also inhibits greater size and greater value creation.⁵

Information is becoming readily available around the globe at an unprecedented pace. Customers, competitors, and innovators have instant access to each other. Technological change, especially change in information and communication technology, delivered the Information Age and converted it to the Knowledge Age.⁵

Knowledge and continuous learning are now critical elements of success. In the new economy, the knowledge component of products and services has increased dramatically in importance and has become the dominant component of customer value. The shift to knowledge as the primary source of value, makes the new economy led by those who manage knowledge effectively - who create find, and combine knowledge into new products and services faster than their competitors...More

Dramatic changes in competition, technology, and workforce values are causing organizations to search for new and more human ways of increasing productivity and competitiveness. The biggest changes have been due to the impact of information and communication technology. The ability to access vast information resources within a matter of minutes and to communicate across huge distances at ever lower costs and improving quality and convenience is transforming the way people and companies interact.

Globalization is not new, but today it's more rapid and pervasive. Distance is becoming a shrinking barrier. Markets are globalizing rapidly, as are the companies that compete in them. Considerable share of sales of companies come from outside the headquarters country. Geographic proximity is no longer essential for people for working together. World trade economy is growing at more than five times the rate of world gross domestic product.

Competition is now based more on capabilities than assets. New competitive dynamics led to greater instability in the profitability of companies. New products, services, and competitors are emerging with blinding speed. Competitive pressure has been intensifying and it is becoming harder to achieve market leadership and to stay on top.

Specialized skills are increasingly required by companies, yet these skills are what makes employees more mobile in the marketplace. New skill requirements foster changes in the relationships between employers and employees. No dimension of the business environment is changing faster than the dynamics between employer and employee.

The relationship between the company and its people is changing rapidly. Ever increasing emphasis on knowledge and capabilities means that people become even more important. In the rapidly changing business environment, companies cannot promise long-term employment any more. At the same time, knowledge workers have also become more mobile in the marketplace - the old-style employee loyalty is dead. Due to evolving demographics (e.g. dual career couples are the norm now), family values and personal time are at premium.

Capital markets have evolved significantly. New investors are more informed, innovative, and activist, and have themselves become agents of change by demanding superior performance and corporate transparency.