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Know the economy 2.0

Yes, there is a new release of the economy.
It feels just like when Apple releases a new iPod. Suddenly your old model is obsolete and although you hang on to it for a while, believing it functions just as well as the newer model, you secretly know there's no real, long-term hope. We all know how this little scene is going to end. You can't use the new software, the hardware freezes/starts behaving erratically and with no efficient way to fix it you slowly come to terms with the inevitable upgrade.

Our economy is not just a little sick - likely to spring back to life as normal with a little medicine - it is obsolete and needs to be replaced with a new model that reflects our altered attitude towards consumption, credit, information and investment. The proof of the demise of the old economy came when friends of mine in a large financial institution told me that all the economic models that they use have been thrown out because they simply don't work anymore. The only rational explanation for this is that there are new rules, new market dynamics, new forces and new influencing factors driving the economy. Economists in the financial industry are being forced to use old fashioned methods of decision making - namely, getting really smart people into a room and looking at every single piece of data and trying to work out what the *%&@ is going on – if that’s not a new economy I don’t know what is.

In order to take advantage of this new economic system we quickly need to attain a deep knowledge of its operating principles. Any business that wants to survive will have to understand these if they are to evolve their business. (I love the evolutionary metaphor - The meteor has hit and the world will be full of dinosaur carcasses very soon. Both big and small businesses will survive but the big ones had better start changing fast otherwise the smaller, nimbler creatures will start eating their lunch,or them.)

I can't pretend to know all of the new rules - I’m not sure anyone can - but I have a few observations that I feel are worth listing here as a start. Please feel free to add to them. Different perspectives will greatly help our collective ability to get a handle on what's really going on.

So, here are my 5 new rules:

1) Everyone knows everything.
The information infrastructures that we have built mean that business planning should start with the assumption that everyone knows everything. Employees, managers, customers, analysts, shareholders, competitors and suppliers have greater access to information than ever before and can publish that information incredibly easily. Sooner or later if information is available it will be publicly available and as a result we can no longer increase profitability, productivity or competitive advantage by assuming the people we are doing business with only know what we have chosen to tell them. This has profound implications for how we manage organizations, manage channels, market products, create perceived value, decide pricing, establish wages or fees for services provided from abroad, negotiate deals and create partnerships between individuals and organizations.

Already some companies are experimenting with open source, peer-to-peer communications and total transparency solutions with partners and suppliers.

It seems that more ‘open’ approaches to business have two evolutionary advantages. Firstly, we don't need to spend quite so much time and money managing information flows, spin, PR, keeping secrets etc. Information in an open-system flows to those who can make use of the information and is essentially ignored by those who have no use for it. Management no longer decide or spends time and money managing who needs to know what and everyone has open access to all the information they need to do their job efficiently.

The second evolutionary advantage is that an open system allows everyone to contribute to everything and as a result you are often surprised by who knows what and how willing they are to share their knowledge for the greater good. If, for a moment, we assume that everything that can be known is already known by someone, somewhere, then a very efficient way of finding information is to ask if anyone in an extended community knows the answer. (Think: Yahoo answers, “Ask the Audience” Lifeline on Millionaire etc.). It is amazing the network intelligence that exists within large organizations that never gets used because of management and information hierarchies. Early adaptors include: Google's use of Peer2peer technology, Pixar's use of collective creativity.

2) Big purpose replaces big strategy.
In this new economy things move fast. During the manufacturing era you could spend a long time planning and strategizing how you go to market, what your brand should be like (the brand wheel/footprint/essence etc), who your core consumer is etc. You could be creative with the gamesmanship of positioning because the truth of ‘who you are’ was invisible to all but those on the inside. You could take your time because the manufacturing and distribution capabilities of your business were probably tightly controlled thanks to patents and aggressive litigation. These barriers meant that it was highly unlikely that anyone would be allowed to muscle in on the action while you pontificated and strategized for as long as you liked.

In the new global economy the monopolies of manufacturing have been eroded and controls over distribution are breaking down because of the creation of new channels. Strategic gamesmanship is likely to slow your evolution and while you work out how to sell an undifferentiated product with manufactured benefits or brand values it is likely that someone with a real differentiation or real purpose will burst onto the scene. Being true to a genuine purpose (beyond making money) is what creates brand values and real, meaningful difference (vs. perceived differences) is what creates a market position. As we move in to an economy that is not driven by over consumption and credit, products with real utility and value will triumph. If you don’t have either, no amount of PowerPoint, big strategy off-sites, or corporate responsibility strategies will protect you from a competitor with real different and a real purpose. (There are more companies like Method to come.)

3) Do more than you say. Just look at how much money is spent by businesses today managing what they say publicly and manipulating how they are perceived. It’s an excuse for not really doing anything. The dinosaurs of the old economy lived and breathed spin, manipulation, lobbying, deception and misrepresentation through tightly controlled media and discrete communication channels. They had little respect for their audiences or the consequences of their actions on the world at large – covering them up, brushing them under the carpet and just getting on with the business of making money. (In August there was a case of Canadian bus company suing to stop an internet based car-pooling scheme - what a dinosaur!).

As channels become less discrete and media channels multiply and become less controlled, individuals start broadcasting their personal experiences of brands in social media. Ultimately, anyone who looks for it can get a pretty complete picture of a company's behavior and judges them based on what others say they do, not what they say. The evolutionary advantage here is that companies that focus on 'doing' rather than 'saying' are forced to start working with the communities they serve. Turns out, when you focus on 'saying' you become overly self interested but when you focus on 'doing' your actions tend to be genuinely constructive, collaborative and dare I say more creative.

4) Pure innovation is an unnecessary expense.
Innovation is a very expensive process. Look at the amount of money the big fashion houses spend creating new looks and new styles only to have them ripped off, almost immediately, by the high street fashion shops like Zara and H&M. Similarly the cost or real technological innovation at the labs of IBM and Xerox did little to ensure their technological leadership in the long term. There are just too many innovations these days for us to adopt them all and 'fast follower' brands make buying at the bleeding edge something only a small niche of enthusiasts are interested in. The era of over-consumption defined innovation as giving us more new things to consume. In the new economy we see innovation slightly differently - more focused on finding better, more sustainable ways to do the things we already do. Whether that’s building homes; moving people and things from one part of the world to the other; sharing information and educating people; communicating with each other; feeding ourselves and our families; entertaining people or expressing our creativity. There is so much business potential in innovating new, more efficient and collaborative ways to do the things we already do. We don't need more, we need better. The innovators in the new economy will be feeding from the same sources as the big dinosaurs, just more efficiently and effectively.

5) We don’t need middlemen.
Consumer needs will remain the same but the power of the middleman is on the decline. The number of channels to market for content, products and services will continue to increase as will the consumer demand for these things. However, increasingly there is more opportunity for these producers to have direct relationships with these customers - cutting out the middle men - the retailer, the re-seller, the broadcaster, the publisher and the record label. If you use these middle men think about other options which will establish a direct relationship. If you are one of the middle men, make sure you adapt fast to add real value to the customer relationship - e.g. as curator or educator. We can't wait to see how political action will change now that Obama has the email of 13 million people. He can cut out the media filter and have a direct dialogue with his most active and vocal supporters. There's a lesson there for all of us.

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