Dot com highlights gap between old and new

The frenzied activity on the Stock Exchange in recent weeks has created a focus on two camps – the old economy and the new. The old economy, characterised by large-scale employment and current profits, struggling to preserve a foothold in the FTSE 100 index, and the new economy, with staggering capital values, few staff and hoped-for profits, achieving a listing without much apparent substance.

This has been greeted with horror by commentators, either from the viewpoint that the perceived success of the dot.com economy is the forerunner for a “South Sea Bubble” crash when reality sets in, or the shift from old to new further disables the capital-hungry companies of the old economy from obtaining finance to reinvest.

There could be a positive outcome. For years old economy firms have complained the City has taken an over-cautious view on future profits, valuing companies by disposable, tangible assets, not intangible, intellectual capital. Now the stock market darlings are entirely without tangible assets and all about intellectual capital.

Karl Marx was right. Professor Kjell Nordstrom of Stockholm School of Economics says 70 per cent of assets are in the brains of employees, customers, suppliers and the community in today’s networked world. The debate over the new and the old economies could be the opportunity for the issue of intellectual capital in the old economy to be recognised and valued at last.

The old economy is on the back foot with the City. It needs to prove development of 70 per cent of its assets – that is, people – will lead to business development and profits. But the City is clearly listening to the previously taboo argument over intellect and future profits.

HR has a central role in this. What is different about the conclusion in relation to assets and brains is our understanding that culture makes the difference. We have always had brilliant people doing brilliant things but in their specialist “silo” mentality areas. The challenge is to get knowledge transfer or sharing across boundaries.

So how is it the dot.com companies convince stockholders? These companies are generally networked, vibrant, non-hierarchical and focused on talent-producing and implementing ideas. They seize opportunities and encourage synergy between people – in other words, they are agile.

HR has the key role in the old economy of creating agility of response going beyond quality, cost and delivery – the world-class measures of the 1980s and 90s. This agility is a function that needs to be learned from the new economy. It is not about HR being a rule-maker and enforcer; it is about accelerating change to produce the right culture. If we don’t do this, more of those dot.com companies will oust the old economy ones employing thousands, creating decline and uncertainty. If you think the Rover situation is bad, you ain’t seen nothing yet.

By Professor Clive Morton, Independent HR consultant, author and former vice-president of the IPD

Tel: 01733 552535, e-mail: clive.n.morton@talk21.com