The New Economy
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Is there really a “New Economy”?
What the New Economy isn’t
– it does not mean no inflation or no business
cycle, or the stock market will rise forever
The New Economy means two broad trends
– the globalization of business
– the revolution in IT
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What the Survey Says?
The Economic benefits of the IT revolution
could well be big, perhaps as big as those
from electricity. But the gains will be
nowhere near enough to justify current
share prices on Wall Street.
- The Economist (Sep 23 2000)
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Peter Drucker on the IT revolution
The Information Revolution cannot be compared with
the Industrial Revolution. What is happening now is
far more profound. The real analogy is the first
information revolution triggered by Johann
Gutenberg and the invention of moveable type.
Gutenberg's revolution -- and today's information
revolution -- differed from the Industrial Revolution
in two crucial respects. First, it spread much faster
socially. Second, it immediately changed not just
methods of production, but what was produced.
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The advent of Network Economy
The era of computers is over
– to connections rather than to computations
Fast cycle of “find, nurture, destroy”
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The fast cycle of
“find, nurture, destroy”
Wealth flows from imperfectly seizing the
unknown
The ideal environment is to nurture the agility and
nimbleness of networks
To domesticate the unknown is to abandon the
successful known
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Is “friction-free” capitalism a
mirage?
Technology markets don’t display much efficiency
– Monopolies
– Transition costs (e.g.Y2K)
– Inferior technologies may be selected
The IT productivity paradox ….
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New Rules for the New Economy
Twelve dependable principles for thriving in a
turbulent world
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New rules for the new economy
1. The Law of Connection
- embrace dumb power
2. The Law of Plentitude
- more gives more
3. The Law of Exponential Value
- success is nonlinear
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New rules for the new economy
4. The Law of Tipping Points
- significance precedes momentum
5. The Law of Increasing Returns
- make virtuous circles
6. The Law of Inverse Pricing
- anticipate the cheap
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New rules for the new economy
7. The Law of Generosity
- follow the free
8. The Law of the Allegiance
- feed the web first
9. The Law of Devolution
- let go at the top
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New rules for the new economy
10. The Law of Displacement
- the net wins
11. The Law of Churn
- seek sustainable disequilibrium
12. The Law of Inefficiencies
- don’t solve problems
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The Roots of management thinking
Strategy Tools -->
Industrial Organization theory -->
Microeconomic theory -->
(Energy) Physics
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The ball-in-a-bowl system
Metaphor of closed equilibrium systems
What’s needed is a model of a world where
innovation, change, and uncertainty are the
nature state of things.
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Complex adaptive system
Example: Anthills
Key characteristics:
– open, dynamic systems
– interacting agents
– emergence and self-organization
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What is the new economics?
Economies are complex adaptive systems, rather
than the closed equilibrium systems they have
long been thought to be.
Not just that economies are like biological
systems, but that the two spheres follow the
same deep laws.
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Key components of the new economics
Wisdom -- cognitive behavior
Webs -- Agents interact in a dynamic web of
relationships
Waves -- co-evolution
Would-be worlds -- different research techniques
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Early thinking on management
Focused vs. robust strategies
– evolution is cleverer than you are
Competitive advantage vs. continuous adaptation
– the Red Queen Effect, You have to run faster and
faster just to stay in the same places
Conservative operator vs. radical innovator
– simultaneously conservative and radical
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Early thinking on management (Cont.)
Routinized vs. diverse
– evolution strikes a balance
Scale vs. flexibility
– Beyond a certain level of scale and
complexity, a system’s adaptiveness will drop
off rapidly in a “complexity catastrophe”.
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The challenge in the new economy (a
complex adaptive system) is to be
both a competitor and an evolver
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