From the perspective of a world that is apparently teetering on the edge of another recession it is easy to understand why some people might think that the only lasting effect of the new economy will be the ending of the requirement for men to wear ties in the office.
After all, even though manufacturing is still in a slump, the former champions of the digital age are hurting even worse. Not long ago, most computer companies found it hard to put a foot wrong. Now, Hewlett-Packard and Compaq are attempting to merge their operations in an effort to halt falling sales and cut costs, while others are retrenching. In mobile phones, the picture is even bleaker. Job losses, profits warnings and mounting debts are the order of the day. If anything, matters are still worse among those businesses supplying these former go-go sectors with equipment.
The about-turn in fortunes has been so rapid and so dramatic that it would be quite understandable for FDs to live up to their reputation and say they always knew this new economy stuff was all a load of nonsense – particularly if they were among those who found themselves on the losing end when “internet strategies” were being initiated a couple of years ago.
However, tempting as it may be to take this view, it would be quite wrong to do so. The new economy may be ailing, but its legacy is already clearly going to extend beyond the introduction of a different dress code.
Finding a way to make money out of it may be proving difficult, but the internet has not gone away. Nor will it. It has quickly become not just an everyday method of communication, but also another way of getting goods and services to market – a delivery channel in marketing speak. The internet has over-ridden hurdles based on size and international boundaries, and has increased the pressure on people in all aspects of business simply through the speed of response it enables and the ensuing raised expectations.
But – as no FD will need reminding – it has not changed the fundamentals of business. It seems that some of those who now find themselves in the deepest trouble believed all the rhetoric coming from gurus and management consultants about the new economy changing the rules of the game. The truth is that, like other revolutions, it has tinkered with them – without altering the basic principle that if you do not make money, eventually funds run out.
Leave aside the matter of whether the industrialised world really needs many more powerful or clever computers and mobile phones. The present situation can be seen as a classic example of how markets – and bubbles – work. The new approach was fine so long as everybody played along, but once a few investors starting itching for a return, the whole market got nervous and collapsed. Just as inevitably, there is no shortage of folks who were wise after the event.
At the same time, there does not seem to be quite so much noise coming from those gurus and consultants who saw the new economy as a revolution.
Perhaps enthused by the possibilities of technology through their proximity to those making it, they urged companies to be bold in embracing the new order.
Exciting – and indeed plausible – as this sounds, it does not appear to have been the right course. Among the companies that seem to be faring best in these difficult times are those which might dabbled in the internet, rather than betting everything on it.
WH Smith, for instance, was not a particularly fancied company back in the mid-to-late-1990s. But it has gone a long way towards turning itself around in recent years – partly through embracing the new technology, but probably mainly through sprucing up its stores.
Tesco, by contrast, was already highly rated. But in embracing the internet, the supermarket group did not – as some suggested – make that side of the business a separate entity. Instead, it integrated it.
The lesson of the new economy and its apparent collapse is not especially novel. It is simply that in business a little caution goes a long way – fortune favours the brave, not the foolhardy. Being brave means doing something knowing the risks rather than simply being reckless. So it is time for FDs to remember that working in partnership with their chief executives means giving wise counsel – not just cheerleading.
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