The Death of Old Economy Relationships

The new economy has impacted lives…yours and mine!  This was my opening statement on Friday 10 March 2017 as I delivered the keynote at the HR Expo Africa. The theme was "Managing New Economy Efficiencies (and Old Economy Relationships). 

Paul Keats and Phil Young noted that for over 100 years, the strength of major economies like the United States was determined by “traditional” manufacturing, automobiles. steel, oil, and chemicals. Today, economy is determined by information technology, communications and intellectual capital. New Economy is “the economy in which, companies or firms or entrepreneurs around the world are working on the basis of the Internet and in which, their organizational and innovational logic is embedded in the internet or related information technologies”. New economy is based on three major features: productivity, global environment and networking. Information is the new raw material, and when it is applied to products, companies, and entire businesses, everything changes.

In the new economy, commerce occurs in cyberspace. This presented a new challenge for human resource management. Electronic networks break down boundaries and walls. Concepts, ideas and images, not things, are the real item of value. Wealth is no longer vested in physical capital but in human imagination and creativity. Entrepreneurs exploit the internet as a platform to showcase their inventions and creativity, turning it and simple ideas into lucrative business ventures. We used to talk about challenging the status quo and driving change. Disruption is the new Change. Disruptive innovations are made possible because they get started in the part of the market that incumbents overlook.

According to Pierre Nanterme of Accenture, Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000. Instagram was founded by Kevin Systrom in January 2011. A month later, it had one million users. On April 3, 2012, it was released for Android phones, and downloaded more than one million times in less than a day. Later that month, Facebook agreed to purchase Instagram for approximately $1 billion.

Nick Denton started Gawker Media out of his apartment in New York in 2002. In 10 years, the company grew into a multi-million-dollar empire. Denton was an Oxford-educated journalist before deciding to begin his empire. After working at IBM for 17 years, Craig Newmark was introduced to the Internet and created a site for local events. Craigslist, known as the first “internet commune” was born. Within five years, Craigslist spread to 70 countries with 20 billion-page views per month.

Peter Thiel realized that an online payment system would be needed for the future of the Internet and founded Paypal with Max Levchin. The company went public in 2002 and was sold to eBay for $1.5 billion later that year. In 2004, Thiel made a $500,000 angel investment in a growing social network called Facebook, in exchange for 10.2% of the company. The rest is history.

David Karp launched Tumblr in 2007. Within two weeks, it gained 75,000 users. It currently hosts 209.3 million blogs and was acquired by Yahoo! for $1.1 billion. Zoom, Uber, Ali Baba, Airbnb and Facebook have disrupted the old economy with their business models. Alan M. Webber observed that knowledge workers, not the company, own the means of production - their knowledge. They can take it out the door at any moment. As someone once said, “We are living in a new economy - powered by technology, fueled by information, and driven by knowledge”. Traditional HR practices will not work in a VUCA world.

The image at the top of this article shows the co-creator of the computer mouse, William English. He built the first mouse in 1963, using an idea put forward by his colleague Doug Engelbart while the pair were working on early computing. It would only become commonplace two decades later, when personal home computers became popular.

In Human Resources in the On-Demand Economy, Professor Wayne Cascio observed that companies like Uber and Airbnb ushered in a new type of labour force where the terms "employee" and "employer" take on new meaning. There is a shift from ‘I need to hire a person’ to ‘I need to complete a task.” Technology brought new global employment opportunities closer to employees. Employees that provide customers with split second solutions are wondering why HR cannot provide fast and more qualitative responses to people-related issues. The new economy is open to business. Are you?