Like a few people I know, I slavishly follow the economic news from around the world.
Sure, I have a casual background in economics, but I've always thought of economics as the engine that powered so much of human activity. That, and demand for EMC's products and services are somewhat correlated with economic swings :)
My current fascination is the US economy -- not only is it the largest by some measures, but -- historically -- it tends to often go through key transitions before other regional economies. It's not a bad "early barometer" to watch strong forces play out globally -- if you're watching carefully.
Without getting delving into politics, I think the current US economy can be best described as "uneven" or even "lumpy". At an aggregate level, there's the perception that there's not enough growth or job creation to get things moving in the right direction.
Indeed, the current round of spectacular policy debates seem to arise from fundamental disagreements regarding what to do about the situation vs. any disagreement that there's a serious challenge at hand.
For me, I see the US as a tale of two very different economic models being measured as a whole: the tail end of a successful-but-getting-tired legacy model, and the early days of its powerful successor.
Focus on the legacy model, and I see a picture of a running-out-of-steam economic model with few attractive options left for substantial rejuvenation.
But focus on the newer model, and it's easy to be dazzled by the potential for growth and prosperity.
Thinking About Economic Growth Without delving too deeply into current economic thinking, one popular thought stands out in this context: when you care about creating growth and jobs, it all boils down to worker productivity. e.g. how many people are working, and -- more importantly -- how much economic value is created by each employee or contractor? Sure, I have a casual background in economics, but I've always thought of economics as the engine that powered so much of human activity. That, and demand for EMC's products and services are somewhat correlated with economic swings :)
My current fascination is the US economy -- not only is it the largest by some measures, but -- historically -- it tends to often go through key transitions before other regional economies. It's not a bad "early barometer" to watch strong forces play out globally -- if you're watching carefully.
Without getting delving into politics, I think the current US economy can be best described as "uneven" or even "lumpy". At an aggregate level, there's the perception that there's not enough growth or job creation to get things moving in the right direction.
Indeed, the current round of spectacular policy debates seem to arise from fundamental disagreements regarding what to do about the situation vs. any disagreement that there's a serious challenge at hand.
For me, I see the US as a tale of two very different economic models being measured as a whole: the tail end of a successful-but-getting-tired legacy model, and the early days of its powerful successor.
Focus on the legacy model, and I see a picture of a running-out-of-steam economic model with few attractive options left for substantial rejuvenation.
But focus on the newer model, and it's easy to be dazzled by the potential for growth and prosperity.
Economies with high employment and high worker productivity tend to historically outperform those with relatively lower productivity.
The global economic pecking order often gets redefined when one player finds a way to dramatically increase their per-worker productivity, e.g. China. Correspondingly, stagnation in worker productivity often correlates with a stagnant economy -- add your own examples here.
Classifying Economic Activity By Underlying Model
You'll have to look hard to find others using this particular descriptive model, but -- for me -- it does a decent job of describing what I've been observing for a while now. In my somewhat unusual world view, the activities of the private sector are the fundamental engine of the economy -- it generates the tax revenue that pays for government investments.
I believe that when the private sector does well, so does the public sector -- indeed, we all collectively tend to do well when the private sector is expanding.
As I frequently interact with many companies across the spectrum, I'll offer up my own two-part model that's helping me understand what I'm seeing.
First, there's the "classical" economy: goods and services that are built on a historically labor-and-process intensive model. There's nothing unique here, it describes just about every traditional "physical world" business you and I are familiar with: manufacturing, transportation, services, etc.
In this context, IT is mostly used to "automate" what was once essentially a physical set of activities. No matter how whiz-bang the technology (or how much is spend on it!) you'll still see the structural bones of the legacy business model underneath.
In stark comparison, there's the "information" economy: goods and/or services that are designed to be information-and-expertise intensive.
When you come across it, the entire business model has been designed (or re-designed!) around some very smart people with access to enormous and powerful information resources. You can't easily find the antecedents of a traditional labor-and-process business model.
To be clear, this not entirely about the latest round of high-profile social sites with spectacular valuations (although they're not a bad example); for me, it is *any* business model that's been redesigned from the ground up to depend heavily on massive amounts of information complemented by very focused expertise.
Classification Isn't Always Obvious
If you're intrigued by this particular two-part classification approach, you can't arbitrarily assume that one vertical or another belongs in one category or another.
Take something as important yet familiar as "health insurance" in the US. You'll find many players firmly entrenched in the classical model, a few new and very intriguing players in the new model, and all sorts of players trying to transition from old to new.
Ditto with finance, manufacturing, transportation, energy, education, etc. etc.
When I meet with customer who's clearly in the first category, there are a few things I can guess about their business without even asking.
For starters, they're probably not hiring in a big way, or -- more concerning -- might be going from layoff to layoff. You go to their website and look what's open, and there's the odd hard-to-fill position here or there, but it looks strictly tactical, and not strategic. Certainly, you don't get the feeling that they're on an economic growth agenda.
From an IT perspective (my primary interaction with these companies), IT is generally seen as an expense, not an investment. You talk to the IT leadership team, and it feels that they're frequently getting tired and worn-down -- major challenges, no budget (or reduced budget), and so on.
Although I'm as much a fan of IT cost savings as the next person, you can't save your way to prosperity, folks.
When I meet with a customer who's in the second category (or moving in that direction), you get an immediate sense that they're seeing either dramatic growth, or the potential of seeing that growth very soon.
You go to their website, and they're looking for some pretty smart and ambitious people -- a lot of them. They tend to value culture and attitude vs. specifics on the resume or CV. You talk to their IT team, and -- yeah -- they're busy, but it's a *good* busy. They've signed up for the mission of supporting an information-centric business model, and all that it entails.
For them, IT is clearly seen as a fundamental investment that's expected to pay off in huge ways, and not just another line item expense to be cut when times get tough.
When New Is Embedded In Old
Yes, I meet plenty of IT organizations whose companies are either firmly in the classical model, or firmly in the information-centric one. Once you figure out where they're coming from, the discussion is familiar -- it's either 95% old school, or 95% new school.
More frequent -- and more challenging -- is when you see the bright elements of a new model embedded in the old one. Most of the organization (and investment) is slavishly supporting the legacy, and -- somewhere in all the IT projects -- there's a few very cool ones trying to get out -- ones that have the potential of transforming the business in a meaningful way.
For example, a strategic shift from B2B to B2C. Or perhaps a move to delivering expertise via online applications and interactions vs. phone, email and customer visits. Maybe recognition that there are a handful of roles in the company that really generate most of the value, and rallying the IT investment behind them.
Occasionally, a realization that big data analytics can do more for the business than simply answer rote queries faster :)
There's more, but -- during the conversations -- you'll find one or more gems in the IT agenda that are clearly emblematic of a new economic model, and a significant departure from the old.
What Do You Tell These People?
When I see this situation -- and it's frequent -- I used to be at a loss at what to do in front of the customer, right there and then. Do I launch into extended discussion around my personal macroeconomic theories and information-based growth levers, et. al.?
Yeah, right.
Instead, I offer up a quick (and often palatable) talk track around "investing for growth" vs. "investing in improving current operations". The business has to make decisions along those lines; I argue that IT (as part of the business) has some decent latitude about how it sees its own investment options.
A relevant example is the shift towards cloud and IT-as-a-service. Is it all about saving money? Or perhaps accelerating new initiatives in the business?
One transformation, two distinct outcomes.
Back To Economic Growth
I believe that any realistic formula for economic growth involves increasing per-capita productivity.
When you look at per-worker productivity in any information-and-expertise intensive business, they appear to be in an entirely different league than the ones from a previous era. Indeed, many developing countries are now starting to think in terms of investment in "information infrastructure" in the same way they'd think about transportation, communication and other infrastructure investments.
Developed economies, perhaps less so -- at least at a public policy level.
If you agree with me that information and expertise will underpin the majority of future successful economic models, the potential role of an IT professional can be an interesting one indeed.
The recipe for future thriving business models may now include smart people who understand the newer forms of technology, and how those can be used to create entirely new businesses that aren't simply a reprise of familiar approaches.
I'm just waiting to see the first industry IT thinker describe themselves as "creator of economic wealth".
It's not as outrageous as it sounds.
By: Chuck Hollis
