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Peter Cochrane's Uncommon Sense: Business Transformation
Why the new economy trumps the old economy every time (or at least almost every time)
Returning for 2004, Peter Cochrane gives us 12 tips to guarantee your organisation is a successful part of the new economy.

Over the past decade there has been a stark realisation that globalisation means increasingly tough competition and in many cases a fight for survival. But unlike in any previous period in our history, businesses face a world that is becoming increasingly fast, counterintuitive and commercially more dangerous. Moreover the perception of what actually constitutes value is increasingly confused.

Are today's investments in the dot-com world any less credulous and long lasting than the purchase of an old master - just paint on canvas with no intrinsic value of any kind and certainly of no direct benefit to society as a whole - or indeed antique furniture, which is just a few sticks of wood. Here we have items fundamentally worth nothing but valued in millions.

In comparison, our world of bits looks ever more solidly founded, with real customers, a service base, knowledge and a growing influence over the lives of everyone. The only uncertainty hinges on real value and that comes down to what people are prepared to spend.

Today we have an absolute focus on measuring everything in terms of money but a wiser choice of metric may turn out to be time. The key to calculating the value of an online business may be how many people are attracted to a website or service and how much time they are prepared to devote it.

Richard Feynman, one of the greatest physicists that ever lived, once said: "I think we can safely assume that no one understands quantum mechanics."

This is probably even more likely to be correct today. Unfortunately there has never been a Richard Feynman of economics or indeed any theories that come remotely close to explaining what is happening within markets. Nevertheless: "I think we can safely assume that no one understands the internet and the dotcom world."

Why is it we lack any models or theories of economics that are worth a dime? My guess is the dynamic nature of relationships and that the involvement of human emotions, creativity and greed result in a high level of unpredictability. But when a Feynman of economic theory does turn up I suspect the key formulae for value will include knowledge, information, access, reach, relationships, time, products and customer base as wholly stronger parameters than raw money.

If we could understand all of this it would be far easier to predict/guess the future. But just looking at the recent history of dot-com stocks, their rapid rate of growth and even faster fall, followed by their steady rise, it is clear that they are not only here to stay, they are here to dominate. Banks, insurers, telcos and many more have already been transformed by the internet but I'm not at all sure many of them see it that way. And it has only just started. There is much more to come.

I watch with interest as technologically celibate managers and politicians pontificate on the pros and cons, the opportunities and dangers of IT they seldom, or never, experience at first hand. Without a positive engagement in and with IT - and I mean actually using it for real every day - it is like watching porn movies and thinking you understand love and sex. Business and technology is also a hands-on game.

Broadly speaking, we are seeing all our commercial focus moving from the industrial economy to the electronic economy. We are realising a freedom of trade and action that borders on anarchy but in a constructive and dynamic manner that may realise the maximum benefit to society and the players. IT not only changes the speed and manner in which we can trade and do business but, more radically, it changes the fundamental characteristics of society.

So what must be done to realise a magical transformation of industry and business? Here is a short list of actions that are self-evident and necessary to ensure future success:

  1. Keep it simple: Create a clear and easily understandable vision. Evangelise and sell to all the players and people involved. Communication is always the vital element.
  2. Under- rather than over-manage: Let go at the top, empower people to succeed and provide the framework in which everyone is a partner.
  3. Seek out supportive relationships: Find companies, organisations and people who salute and support your cause, and with the skills and facilities to satisfy and supply your needs. It is easier to be a winner when working with winners.
  4. Build networks early: The return in any form of network goes as N^n, where N = the number of nodes, people or organisations, and n = an integer >2 .
  5. Invert the rules: The value chain of the new is unlikely to resemble the old and will almost certainly be inverted.
  6. Seek exponentiation: Find the routes to and mechanisms for explosive growth that far exceed the old linear markets.
  7. Focus on customers: The future of business is about sucking up - really sucking up!
  8. Virtualise: Outsource as much as possible - the days of do-it-all have long gone.
  9. Technology: Use the best available - ultimately it costs far less than people - and you cannot win against competition with superior fire power.
  10. Make information free: Let people have access - for without communication and data availability they will be disabled and ineffective.
  11. Reward everyone: Make sure that all involved get a significant slice of any win.
  12. Celebrate the winners - care for those in trouble: Remember the power of praise and the rehabilitating impact of concern and support.
Consider a Fortune 500 company that didn't exist 15 years ago. It manages the expenses for over 20,000 staff with only two people. Everyone is trusted and electronic screening - with a few spot checks on reports lying outside the norm - is all that is required to police the system.

Now consider the governmental or 'old company' approach - no one is trusted and hundreds are employed to watch and police the activities of the rest. The cost is huge and the benefits negligible. People feel untrusted and unloved, while those wishing to defraud the company do it anyway and largely escape because it is unrealistic to devote sufficient resource to detecting and tracking crimes.

IT, the internet and freedom really work - but it is more about changing mindsets and behaviour than technology.

I just stumbled on this column in my 'Oh heck' file - a dumping ground for all those files and documents I have been sitting on. Edited on flight LH448 over Colorado.