In 1919, there were 2,000 automakers in the United States. Today, there are two-and-a-half.
That’s indicative of the speed at which the world economy changes. Business models spring from seeds, mature and die, only to serve as fertilizer for the next crop of strategies. It’s a volatile time, one without any clear answers. But there is hope for businesses looking to thrive and succeed in the New Economy.
“Business is moving in dog years,” says Steve Samek, managing partner of U.S. operations for Arthur Andersen, who stopped in Cleveland recently to explain his views on how to survive the transition and to expound on his new book. Samek, along with Arthur Andersen’s Richard E.S. Boulton, worldwide managing partner of strategy and planning, and Barry D. Libert, consultant and lecturer, co-authored “Cracking the Value Code.”
According to the book, these are the four realities of the New Economy:
- New business models are emerging, based on unique combinations of assets, including technologies. Businesses are composed of assets — tangible and intangible.
- New business models create new risks. But risk in the New Economy encompasses upside opportunity as well as downside threat.
- New processes and tools are needed to manage both new business models and new risks. How a company builds and manages its unique portfolio of assets is what drives economic success.
- Transparency of information is vital to value creation in the New Economy. But decision-makers need better access to information than what they are getting today.
The challenge, then, is to develop a business model to adapt to those realities. Samek offers four steps to creating a business model for the New Economy.
Design a model for value creation
The first objective is to decide how you use your assets. Those assets, according to Samek, are customer assets; employee and supplier assets; physical assets; financial assets; and organization assets. A company’s leaders can utilize assets in a variety of ways, including, building, enhancing, connecting, converting and blocking.
“The winners today are those building powerful new combinations of assets to create value for their entire value chain, including customers, employees and investors,” he says.
Master new risk
Samek and his co-authors define three types of risk: environment — uncertainties affecting the viability of your business model; process risk — uncertainties affecting its execution; and information for decision-making risk — uncertainty over the relevance and reliability of information that supports your decisions.
Samek creates a risk chart with two axes — the severity of the risk plotted against the likelihood of occurrence. Every company must decide the level of risk at which it is comfortable, but the authors caution, “You can’t create a business that doesn’t take risks. If you try, you will create a business that doesn’t make money.”
Manage your asset portfolio
Every asset has a life cycle. Fixed assets such as building sites are less important. So are older technologies, employees and even customers.
“Managing asset life cycles … comes down to knowing how and when to acquire, manage, renew and shed an asset — all the assets that create the value of a business. And the key to timing is in the marketplace,” Samek says.
Measure and report what matters
“In the New Economy, companies will need to continuously measure and report all assets at fair value to all users,” Samek says.
Cisco Systems is the classic example of a company doing just that. Through an intranet and a number of applications, it can “close its books” worldwide in one hour.
The New Economy demands new measures, Samek says, not just historical financial data. For example, investors will want to know the cost enterprises incur for every customer they gain. Companies will be compared on every bit of data, which Samek calls “information tagging.” Daniel G. Jacobs ([email protected]) is senior editor of SBN.
