“New Economy” theories are usually popular during booms. After the party is over, more conventional ideas inevitably come back into vogue.
However, things are clearly changing, despite the dismal times. The way businesses function and compete has altered considerably and, most likely, permanently. While this probably won’t bring about a revolution in productivity, it is already creating big changes in how companies are managed and how they succeed.
The fundamental difference is that, while in the old economy promoting efficiency and organizing work reigned supreme, in the emergent new economy inspiring the passions of employees to create and innovate is far more important.
The Organization Economy
When Alfred Sloan created the modern corporation at General Motors in the early 20th century, what he really did was create a new type of organization. It had centralized management, far flung divisions and was exponentially more efficient at moving around men and material than anything that had come before.
He called it “federal decentralization.” Management would create operating principles, set goals and develop overall strategy, while day-to-day decisions were performed by people lower down in the structure. While there was some autonomy, it was more like an orchestra than a Jazz band, with the CEO as conductor.
The idea transformed American industry and culminated in the “Nifty Fifty” conglomerates of the 60’s and 70’s. Back then, it was widely believed that a basic set of management principles, if conceived and applied correctly, could be adapted to any kind of business. Managing an organization was largely a logistical exercise. Things needed to get from point A to point B as quicklyand cheaplyas possible.
Many of those same principles are still taught in business schools. The world, however, has changed considerably and there are four factors that are shifting value from organizing structures to focusing passions.
1. Atoms vs. Bits
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