This site has been archived on
All Issues Table of Contents Acrobat PDF version

New Business Paradigms

Horace Mitchell, ETD
Director
European Telework Online

Innovate or decline: why businesses will either change or fail in the new networked economy
The new business paradigms
Different contexts, different responses
Europe and the Fifth Framework Programme: strength through differentiation

Innovate or decline: why businesses will either change or fail in the new networked economy

Image From the smallest village store to the largest multinational enterprise, from the oldest established business to the latest start-up, all businesses are affected by the changes that accompany the development of a networked economy. In some places and some market sectors changes are already highly visible. In other places and sectors the changes are more subtle and may not yet have been noticed by many businesses. In some places the changes may not have much impact for several years. Change is made certain by a number of distinct but interrelated factors that are outside the control of businesses, governments and institutions. The main factors include:

Such changes are not new - indeed the pattern of change and even its direction can be traced back for centuries. What is different at the turn of the twentieth and twenty-first centuries is the pace of change. The kind of change that formerly took thirty or forty years - or much longer - to trickle through from inception to widespread impact can now occur in a few years. In some sectors market change occurs on the basis of months or even weeks rather than years. A change that takes thirty years is effectively invisible - we as individuals (managers, employees) do not notice the changes in terms of their impact on our everyday business activities and environment. Today's changes have a distinct and noticeable impact. As a simple example, in 1997, with the exception of a few specialist suppliers almost no advertising in Europe mentioned the Internet or any form of electronic communication with the advertiser; by 1999 in many European countries a high proportion of advertising across the spectrum from consumer goods to business services carries the advertiser's Web address.

Superficially, this proliferation of websites might be taken to indicate an underlying change in business activities and practices. Sadly, this is not the case. A very high proportion of organisations have "added on" a website and the visible signs of e-commerce activities to their existing operations but without seriously contemplating - let alone implementing - substantial change within the organisation or in its general approach to relationships and markets. Most of the real change and innovation is contained within a relatively small number of (mainly) new businesses or arms length investments by existing businesses. Many of the "add on" websites are very shallow in content and only lightly connected to the main business.

While there are many factors associated with this superficiality of approach, the most significant factor is a lack of personal engagement with and understanding of the new networked environment by both key executive decision-makers and operational line managers. The new environment is different in subtle as well as obvious ways - it has to be experienced to be understood. This chapter explores the main changes listed above in terms of five "new business paradigms". The discussion and conclusions are rooted in both direct experience of implementing and sustaining a large network of cooperating websites with support from the ACTS project European Telework Development (ETD), and in close observation of a wide range of web and e-commerce activities. Flexible working methods pervade and are influenced by each of the new paradigms. In each case some examples are given; the full spectrum of opportunities and technologies is covered elsewhere in this book.

The new business paradigms

Image

Paradigm 1: the well-connected customer

Customers are the main focus of any successful business - including, today, public services as well as commercial enterprises. If customers like us and our products and prices they come back for more - and tell some friends. If they have a problem they may or may not come back (dependent on their range of choices) but they tell many more people about bad service than they tell about good. New Business Paradigm #1 is the "well-connected customer". As customers start to use the Internet they multiply their ability to find out about and compare competitive products and services and they multiply their ability to "tell the world" about bad service, unreliably products or rip-off pricing. They also develop the ability to "network" with other customers to tell each other what they think about us and our products and - if we really upset them - to gang up to demand better treatment. The Internet enables customers to communicate more easily and cheaply with consumer organisations, their member of parliament, trading standards offices.

Response to the well-connected customer

There are two obvious responses to the well-connected customer:

Both responses can be enhanced through new flexible working methods and networking technologies. For example, we can provide live contact on demand, using email, voice or video, using customer service teams in different time zones to provide extended hours or even 7/7, 365/365 response or by using home based staff to respond to out of hours calls at times of low demand without the staff needing to travel in to an otherwise deserted office building.

Paradigm 2: workforce unchained

Most of our current labour market laws, regulations and employment practices are based on the circumstances, ideas and needs of the industrial era, when most workers were "production line" workers, whether in a factory, a typing pool or an accounting department. Workers were (at least metaphorically) chained to their machine or their desk. They came and went at fixed hours decided by management, undertook a relatively fixed set of tasks decided by management, and sought permission of their supervisor before doing anything that broke the routine. A high proportion of workers stayed in the same occupation or trade for their working life, many staying with the same company. Today's and tomorrow's workers are relatively unchained. This is seen in two ways - the general structure of companies, with fewer "production" workers and more people engaged in design, development, planning, marketing, selling and customer relations; and general trend for less supervision and more self-reliance or team working, even in production tasks. Workers in the newer occupations move readily from employer to employer and from sector to sector. Like customers, they have greatly increased communication capabilities - they can network with each other electronically across the company and with contacts in other companies. They are expected to think and respond to circumstances and opportunities rather than slavishly follow a pattern. An increasing proportion are self-employed or have more than one employer.

It is important to emphasise that the shift from "being managed and supervised" to self-management is still far from general. Many individuals - even in the most progressive enterprises - still prefer the more sheltered environment of doing a "steady job", working regular hours, doing what is expected of them. But across society and work as a whole the trend is clearly towards a higher proportion of self-actualists who prefer (and are more effective through) self-management. The pace of the trend depends on the industry sector and to some extent on geography: it is faster in countries that have a tradition of more lightly regulated labour markets, which often coincides with a society in which individualism is more highly prized. Workers' individual propensity to welcome self-management also depends on local (sectoral or geographic) levels of employment - where unemployment is high, people are more inclined to cling to the security of "old practices". But the model is very clear in the newer, trend-setting occupations and in areas or sectors of high employment and shortage of skills; where these lead the rest of industry will follow, over time.

Response to the unchained workforce

The whole idea of flexible working is at least partly a response to the idea of an unchained workforce. If workers have to be motivated rather than supervised, why should they not decide for themselves where and when to work as well as what to do on a day to day, hour to hour basis? This approach may be disliked and rejected by some managers and by some workers. It needs two-way trust - trust by the manager that an employee who is not physically present really is getting the job done; trust by the employee that being out of sight will not mean being left out of career opportunities, important gossip, or social connection with colleagues. It also needs all the people in the enterprise to understand and support the enterprise's business goals and to connect their own success to the success of the business - fully flexible working cannot coexist with old-style "them and us" styles of management or industrial relations. When these basics are achieved, self-motivated, self-managing people deliver better results for the business as well as being better able to manage the relationship between work and other aspects of life.

Open communications within the enterprise is an important element of trust-building, as well as being important in ensuring that everyone shares a common understanding of the enterprise's goals and priorities. New network technologies play an essential part in open and effective communications, especially in the context of managers and staff who no longer occupy the same physical space from 9 to 5.

Paradigm 3: assetless enterprises

From an economic standpoint the most interesting new paradigm of the new networked economy is that of new business enterprises being developed without any of the assets we have traditionally associated with industry. The new business may own no buildings (the people work at home), no inventory (websites and all the means of communication are paid for on an as-used basis) and no physical plant (the newest enterprises focus on knowledge and information not physical goods or services). Such a business can be started from a very low capital base since its only initial assets are the energy and know how of the person or team starting the business. This doesn't mean that business generally becomes asset-free; we do still and will continue to buy and use a very wide range of physical goods and services. However, the example of the new asset-free enterprises does point the direction for all organisations: an increasing dependence on the skills, experience, know how and motivation of people, coupled with a relatively reduced significance of tangible assets. Increasingly, we see a trend for the more tangible aspects of enterprises to be outsourced - buildings are leased or rented rather than owned; logistics of warehousing and distribution are contracted out to specialist companies; ownership, maintenance and management of information systems and networks are contracted to other specialists.

For existing businesses a major challenge of the new environment is that new forms of competition can emerge very rapidly as innovators and entrepreneurs take advantage of the assetless enterprise concept to build businesses with national, regional or global reach very quickly and with a minimum of investment in conventional assets and machinery. In information-oriented sectors such businesses can challenge in both production and distribution. In sectors with more tangible products the newcomer can transform marketing, sales and distribution methods.

Increased dependence on "knowledge and know how" raises interesting questions of ownership and valuation - we can own the desk someone sits at and the systems they use, but we cannot own the person - who may announce at any time that they are leaving to work for another company or to become self-employed.

Response to the shift from tangible assets to know-how assets

There are three main responses:

Networking technologies and systems are the basis of knowledge management. Only when an enterprise and all its knowledge workers are effectively networked can we hope to start the process of knowledge sharing and knowledge accumulation. Some organisations have already implemented enterprise-wide networking (e-mail, web and other information sharing methods) before starting on knowledge management; others commit to a knowledge management strategy and implement or enhance their electronic networking systems and practices to support this. Either way, effective enterprise-wide electronic networking is an essential element of any enterprise's response to the new networked economy.

Networking methods are also at the heart of effective, low cost innovation watch, the results of which are, of course, added to the corporate knowledge base!

Paradigm 4: reversing values

The idea of reversing values is one of the least recognised and least understood of the new business paradigms. Value reversal occurs when a value chain changes direction. Put most simply, the "supplier" pays for the "customer", rather than the customer paying the supplier. Actually it is not so very new: value reversal has been a commonplace of newspapers and the broadcast media for many years. The new aspects are its much wider application, linked with the development of a networked economy, and the way that it can occur rather suddenly, changing market conditions and expectations in a sector. The shift in the newspaper industry occurred slowly and almost imperceptibly. Initially, the whole costs of a newspaper were reflected in its cover price, paid by the reader. Then advertising started to cover some of the costs. Today, there are many magazines and newspapers delivered free of charge to the reader and funded entirely by advertising. But it took a hundred years from the general acceptance of advertising to the wide availability of free-to-the-reader journals. In the networked economy we are already seeing a spectrum of innovations that embody value reversal. Only a very few years ago the few available electronic networking services (for example CompuServe and AoL) charged all users both a fixed monthly subscription and a time-based usage charge. Access to some of their content and services was included in the subscription, much of it carried either time charges or premium charges. Nothing was free. Today a dominant majority of websites - networked economy equivalents of newspapers - are either entirely free to the user or carry a high proportion of free content so as to attract users. "Free" internet services, innovated by the UK consumer electronics retailer Dixons in late 1998, now proliferate in countries with well developed competition in their telecommunications markets; one of the UK's free services is provided by AoL under its NetScape brand. Some USA Internet service providers have offered "free" PCs to customers who will commit to a particular period of subscription - the hardware becoming seen as an essential vehicle to connect additional customers, rather than as an item of customer value in itself. Internet advertisers pay website owners on the basis of "per customer" - the number of times the ad is seen or the number of times a prospective customer clicks through the ad to visit the advertiser's site. Some phone services providers are experimenting with provision of free access to the phone network for those customers who will agree to hear a short advertising message during each call they make. This is an innovative extension of the long established (but recently proliferating) expectation that when I phone an advertiser he pays for the call not me. Some Internet services pay users a premium for their "surfing" time based on a combination of the value generated from deeper knowledge of the surfer's interests and activity patterns. Many software suppliers offer some of their range free of charge - including almost all suppliers of web browsers. New technologies will enable almost every product or service to be networked. An example already in limited use is connectable chips embedded in everyday items such as clothing or footwear. Instead of the value chain ending when the product leaves the shop, it continues throughout the life of the product. Consider the value that can be realised if the customer agrees that his shoes may "report" their pattern of use. At no cost or effort the customer can disclose deep information about behaviours and preferences - the lifeblood of marketing, new product development and social planning.

Response to value reversal

What is happening is a shift in our understanding of values. Instead of customers providing money, they are providing their time and attention or information about themselves and their activities. The new value generated is almost always intangible. The balance of values shifts from tangible in favour of intangible. The new network technologies enable this shift to be applied in new ways that can have a sharp impact on markets. Traditionally a particular product or service has a market price that stays within a narrow range of values - the market has had low-price suppliers and premium-price suppliers but the difference has usually been marginal. Today we see much wider gaps opening up - the low-price level becomes zero or near-zero or "dressed up as zero", while the premium price may well remain where it was. Value reversal has a potential impact in every sector of business and of public services. All businesses should be at least aware of the possibilities so that innovation - when it arises - will not be a total shock. Entrepreneurial managers and businesses should think through their own chain of values - from production to consumption - and consider how the informational values created or unlocked by networked connections between customers, products and makers can be used to innovate in their own market.

Paradigm 5: infinite variety

Proliferation of choice is the fifth of our new business paradigms. As individuals and as organisations the most significant effect of new networking technologies is to broaden our range of choices - what to do, how to do it, and where. Each of these choices has a two-way effect. As an employee I can choose whether to work at home or to travel to an office; but the same technologies give my employer the choice of whether to recruit local people who can and will wish to come to the office or more distant people - in another town, another country or another continent. Similar new choices apply in almost all aspects of business. As a publisher, I can "stick with books" in the belief that the traditional book has survived the advent of movies, radio, TV and that there will still be a market for books whatever happens in the networked economy. Or I can branch out into multimedia, or online publishing. Following the value reversal approach, I may decide to offer my product free of charge in one medium while still charging a premium price in another medium. New technology seldom displaces older technologies; it simply adds variety of choice and cost. Buying a chair, I can choose the mass produced item using the latest materials and production techniques, or I can buy or (commission) a hand-crafted one made in very much the same way and as it would have been made 200 years ago. Buying software, I can spend an hour online downloading it across the Internet, or I can have it delivered by mail order, or I can walk or drive to a store and buy it across the counter. Typically, the latest technologies and methods provide the best deal in financial terms, but this is not always what I want. I can enjoy a fine opera performance on TV at no direct cost, or on CD or video for 20 (euro), or I can take a seat at the Opera House which, including travel, may well cost me 200 (euro) or more. Future technologies will enable me to virtually attend" the Opera House, with a much more realistic sense of presence than today's video, but many people will still pay a premium in terms of time, money and effort to attend "the real thing". Today we have more live performances of opera than happened before the advent of films, TV, video and CDs. In medicine, telemedicine methods allow a distant specialist to "look over the shoulder" of the on-the-spot paramedic and assist treatment there and then, rather than the patient needing to travel to a distant hospital or treatment centre. Emerging technologies will enable the surgeon to operate on a patient at a distance - already in some forms of surgery the human specialist operates through the medium of computer controlled robotics rather than with scalpel in hand. But many patients will still welcome and prefer the friendly face and touch of nursing and medical staff rather than the (perhaps more consistent) attentions of computers. Competent medical systems, operating through networks, will detect, diagnose and prescribe treatments to citizens in their own homes or at their workplace instead of the patient visiting a clinic; some citizens will welcome this, others will prefer the human touch. In all such cases we will be faced with choices, often between older methods at a higher cost or newer methods that are more cost-effective. Ultimately it is a question of what the citizen/consumer is prepared to pay - through direct choice of product and price in commercial activities, through taxation and the democratic process in public services.

Becoming a networked enterprise
Figure 2: Becoming a networked enterprise


Response to infinite variety

History - and today's businesses - abound with examples of people and organisations resisting change or apprehensive about the potential effects of change. But the history of technological and marketing innovation shows that innovation is almost always accompanied and followed by growth, and that most innovations expand the range of choices rather than displacing existing methods. We still use pencils and paper, a century after the introduction of the typewriter and half a century into the information technology era. But innovation does favour the innovator and does put new pressure on the business that watches innovation rather than welcoming and embracing it. The key response to proliferating innovation and apparently infinite variety is to:

Becoming an effectively networked enterprise is one of the keys to innovation in management and marketing. The networked enterprise is more aware of change, responds faster to change and to new ideas, and is more resilient to shocks.

Different contexts, different responses

Image

Contextual differences in European Union countries

Agriculture

Services

Information workers

Self-employed

SMEs

% of economy (GDP)

% of workforce

% of companies

EU Highest

21

73

54

34

86

EU Lowest

2

56

24

8

56

Source: European Telework Development

In business - and in the policies and programmes of governments - it is essential to condition our response to the new networked economy and its technologies in ways that reflect the local context. The five new business paradigms depicted above reflect a worldwide set of developments, but each of them must be taken in the particular context of an enterprise, an organisation, a country or a region. The context for this book is European, and particularly Europe's Fourth and Fifth Framework Programmes for research and technological development. Europe is a region of very wide differentiation. Europe as a whole differs considerably from the USA as an environment for the networked economy; countries within Europe differ considerably as local environments; and regions within a country can also differ considerably. Analysis by European Telework Development (above table) highlights the extent of these differences.

Although the networked economy is so often called a "global" phenomenon, most companies' existing operations deal with customers in a relatively small geographical area. The challenge of "going online" looks very different for a financial services business in Frankfurt which already deals on a world wide basis, compared with a small consumer retailing business in Ferreira do Alentejo, whose only experience of foreigners is the occasional tourist taking back roads from Lisbon to the Algarve. A further ETD analysis points up the differences in the nature of the "online opportunity" dependent on the geographical characteristics of a company's existing and potential markets.

Local differences in networked economy opportunities

IT as % of GDP

IT per capita (ECU)

Business PCs per 100 white collars

PCs per 100 population

USA

4.53

1075

105

46

Japan

2.61

745

24 1

12

Western Europe

2.34 2

460 3

55

17

EU highest

3.45

803

84

33

EU lowest

0.88

84

34

8 4

1

The low level of PCs in Japanese business is to do with both culture (lower use of written communications than in Western businesses) and technology (belated introduction and acceptance of simple ways of keyboarding a version of Japanese characters. In recent years PC use in Japan has accelerated sharply and, as shown by the table, general levels of ICT investment are higher than the average of Western European countries.

2, 3

Both IT per capita and IT as a % of GDP have been lower in Europe than in the USA or Japan since EITO started reporting these data, indicating that differences in intensity of use of ICTs are increasing rather than reducing.

4

The number of PCs per 100 population is a reasonable measure of the general opportunity for companies and public services to adopt online methods for direct-to-the-home consumer-oriented marketing and services in the local economy

Source: European Telework Development,

(derived from EITO, 1999)

Local differences in networked economy opportunities

Clearly, there is a world of difference in the opportunities facing an enterprise based in a place with an average of 8 PCs per head of population and those where penetration is six times higher.

A further issue is the varying ability of organisations to cope with change. Work in the Network of Centres of Competence in Electronic Commerce presents the dilemma for smaller firms in a graphical way (Figure 3). Here are just four of the many ways a company might (or should!) respond; it is likely that messages from government, from intermediaries and from advisers are urging several or all of these (and more) concurrently:

Figure 3: The dilemma for small firms
Figure 3: The dilemma for small firms: choosing the timing and direction of change and innovation.

No small firm has the management capacity and resilience to drive successfully into all of these plausible strategies concurrently; indeed the same is true of many large enterprises!

Given these very substantial differences in the underlying market environments of companies, and the differences in their abilities to respond, what kinds of guidance can be offered? Further work in the Network of Centres of Competence suggests an approach to analysing the position of a particular organisation.

Enterprise preparedness for online innovation

Constraint indicator

Opportunity indicator

Strength of existing business?

Struggling, serious problems

Buoyant, profitable

Existing market geography?

Very local

Strong export orientation

Existing market Internet penetration

Low

High

Potential market geography?

Very local (personal service)

Global

Management capacity to cope with change?

Low, conservative

High, change oriented

Cultural embeddedness of product line

1

Culturally intense

Culturally neutral

ICT experience

Low, no computers

Extensive, actively networking

1

Some products and services can be marketed across cultural boundaries with little or no modification to the product or the marketing effort; examples are primarily in the business-to-business domain. For other products (particularly some kinds of consumer items), either the product or the marketing effort must be culturally adapted. An example of cultural adaptation of a product is the provision of keyboards and associated character sets supporting the "azerty" layout and French accents, as compared with the "qwerty" layout of keyboards used in most English language countries.

Source: Centres of Competence workshop, 1998

Indicators that assist diagnosis of appropriate responses by smaller firms

The fact that the analysis for a particular business shows all or mainly constraints on the indicators should not be taken to suggest no action with regard to the networked economy. There may well be opportunities for the business to address its constraints and problems using networked economy methods. However, low ratings in the table do suggest very strongly that the business should avoid "doing the obvious", as recommended by the plethora of books, pamphlets and online advice exhorting companies to "get on the web" and develop e-commerce capabilities. A very high proportion of this advice derives from the USA experience, which is quite different from the situation in most European countries and indeed most countries world wide. Local advisors need to think creatively about the realities of the networked economy from their local perspective and tune their advice to those realities.

Europe and the Fifth Framework Programme: strength through differentiation

Image The difference between USA and European ICT investment levels is very widely misinterpreted. Many commentators suggest that Europe is "a couple of years behind" and that what happens in the USA today will be reflected in Europe tomorrow. The data show very clearly that this is not the case. Some European countries are close to or even ahead of the USA in their use of PCs and in their level of Internet take-up, but their local approach to and use of the Internet is not a simple parallel to the USA, it reflects cultural as well as economic differences. Other European countries are much, much more than "a couple of years" behind. Economic differences mean that there is no serious possibility of these countries "catching up" or even reducing the gap, even if this were to be a desirable outcome. This is also true for Europe as a whole - the USA continues to invest twice as much per head of population compared with Europe. Enlargement of the European Union will introduce new countries whose per capita investment capacity is below the current EU average, further increasing the difference between Europe and the USA. The difference is endemic; it will not be bridged by either natural market forces or government intervention.

Fortunately, this does not mean that Europe cannot do as well or even better than the USA in adapting to and capitalising on the emergence of a networked economy. The obvious conclusion from the data is that the basis of success for Europe must lie in differentiation not emulation of the USA experience. Europe has excellent capacity to innovate; we should apply that capacity to differentiation. Considering the future of the global networked economy, the differences between countries within Europe can become a strength rather than a weakness. As well as regions such as North America with higher per capita investment capacity, there are many parts of the world with much lower per capita incomes and spending power. These countries and their citizens need and will buy into the networked economy, but their approach will (of necessity) be different according to their economic strength and their local cultures and societies. Europe, as a Union and single market of countries that vary considerably in cultures and economic strength, is a good exemplar and testbed for differentiated approaches to the networked economy in terms of both technology requirements and the commercial and social applications of technologies.

It is impossible (and undesirable) for European technology developers and decision makers to ignore the USA experience, which currently dominates the online environment and the design and supply of some of the technologies. Europe must closely observe and learn from that experience, and be prepared to emulate when emulation is appropriate. But Europe must also observe and analyse in order to differentiate. Excellent experience of different responses to the networked economy has been gained through the Fourth Framework Programme by including researchers and users from across the spectrum of economies and cultures. However, the emphasis has usually been on finding commonalities ("cohesion" and "consensus" to use the Eurojargon) rather than investigating and analysing differences. It is essential to Europe's success as a provider as well as user of networked economy solutions that the Fifth Framework Programme pays much more attention to differentiation. This means a focus on lower cost technologies and products as well as higher performance; this emphasis is not naturally attractive to research and development organisations and needs to be forced through. It means looking for differences in the response to technology from different communities; this is not naturally attractive to the developer who wishes to prove that his new system is widely applicable - again the focus on differentiation needs to be forced through. The same applies to implementation strategies and programmes - national and local governments need to find ways to make their programmes "appropriately different" rather than emulating or excelling each other's programmes.

In order to be "different" one has to answer the question, "different from what?" The idea of strength through differentiation place more rather than less emphasis on three aspects of technology development and deployment:

If European governments and enterprises accept and understand the need for differentiation and the opportunities it presents, there is plenty of scope for Europe to play a central (and profitable) role in the evolution of the global networked economy. In global terms (and across much of Europe) the game has only just begun!

The next section of this document: Developing a Reference Model for Networked Flexible Work through Industry Trials