Human Capital and Knowledge Management in the New Economy Mario Raich, Dr. Phil., m.raich@raich.net What is the New Economy The “New Economy” is the most virulent part of the Knowledge-Based Economy. It is an important stepping-stone towards it. For this reason, many people wrongly believe that the “New Economy” is already the next stage of the economy. The New Economy is very visible, but so far it is still only a small part of the total economy. Nevertheless, there is no part of the economy that will remain untouched by it. The knowledge-based is the economy succeeding the industrial economy. “Knowledge” is the main raw material. Knowledge is also one of the main outputs of the knowledge-based economy. This indicates that this economy is very different from the previous economies! Obviously, each application of knowledge brings new knowledge or a higher quality of knowledge. Therefore, the knowledge-based economy can also be considered a gigantic factory of knowledge. This will inevitably lead to changes in the knowledge creation and knowledge distribution. The first organizations that feel this change are the business schools, but this change will not stop there. With the Knowledge-Based Economy, we are entering entirely new grounds. Actually, the knowledge-based economy is only a part of the knowledge society. y m no co y l E om ul tu ra l Econ ric a Ag stri y Ind u conom de - b ase l edge con omy ow New E Kn New Economy: The term ”New Economy” describes the industry encompassing all Internet- based businesses, from telecommunications to content providers. Authors increasingly use the term for all new businesses based on speed to market, virtualization, and globalization. In that sense, one can include the bio-tech, the high-tech, and the software industry. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-1 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. We need to take a brief look from a historical perspective to understand what is happening to the economy. The first economy was built around the usage of soil: that was hunting and agriculture. The technology of this economy was handicrafts. The exploitation of the raw materials of the soil combined with capital led to the industrial economy, which used mechanical production technology and mechanic transportation. The increasing amount of information and knowledge combined with the information technology in the late 20th century have led to the development of the knowledge-based economy based on the information technology and the internet. Creativity Dreams of new new things. Knowledge Nothing seems impossible. ? • Information Technology • Knowledge Technology Virtual production/Internet Vi Mind sio Ins Or Inf ns or an pir ga d ati nic ma ex tio pe on • Work n cta tio • Social Acceptance • Meaning Soil Capital • Hunting • Factories •Agriculture •Mass Production Handicraft Technology Raw materials Production Technology Spirit Intuitions and utopias Art Too many unknown hi Paradigm Shifts Every time a new economy appears the fundamental paradigms are changing. We can watch the paradigm shift in our environment. The transformation from the industrial economy towards the knowledge-based economy also triggers paradigm shifts and leads to emerging new paradigms. A few examples: • Economy and management From shareholder value to the healthy enterprise with new models for financing and new management approaches, e.g. integral management. • Education From teaching to learning, i.e. from the transfer of knowledge to knowledge creation. • Consulting From pay for presence and work (daily fees) to pay for value created and participation in risks and opportunities. From telling to doing. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-2 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. •Work From payment for presence and activities to reward for performance, value created and participation in the results. Work as experience, fun and achievement with shared responsibility and shared revenues. • Value creation From the classic chain of supplier, production, customer to the ubiquity of the customer. • Culture From status and power to experiences and achievement. From structure and organization to corporate culture. Corporate culture becomes the key factor for sustainable success. Very important is also the orientation of the new generation: from having and being to becoming: K no w ers hip Ec ledg n on e- Ow en t/ om Ba hie ve m y s ed A c g in o ming ec m b co be ity having ibil having ons es p being nt/R being me Industrial economy eve Power/Status i Ach Issues and problems All these developments are leading to several issues and problems: ⇒ Access and availability of talent, i.e. capable and experienced people ⇒ Actuality and relevance of knowledge and know-how ⇒ Willingness and ability to share knowledge across the company and with all stakeholders ⇒ Adequate management practices for the New Economy ⇒ Organizational form and corporate culture adequate for the New Economy Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-3 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. We can also watch fundamental changes in the marketplace: From Through To Something Everything Right thing Somewhere Everywhere Right place Sometime Always Right time Somehow Perfect Right way Somebody Everybody Customized To deliver the right “thing” at the right place, at the right time, in the right way and customized – not to forget the right price – is quite a challenge. Without the means used by the New Economy, the Internet, the telecommunication possibilities and the new culture, the above mentioned customer requirements are quite impossible to fulfill. This means also that the benchmarks are very high up. It is impossible to match them with just “more of the same”. A lot of creativity, innovation and entrepreneurial spirit is required to cope with the new customers. We will have to cope with many different issues centered around work and its meaning. “Work” is of such importance for us that the meaning of it is central for our own appreciation and self-esteem, it is central also for our acceptance and position in the society. The meaning of work is one of the fundamental drivers of the corporate culture. If you put the triangle of business and organization science, computer science and cognitive science around work, many fundamental questions will pop up. The answer to this questions is the key for the understanding of the corporate culture and the economy in which we live in. New Economy: • New business practices Business • New management practices and organization sciences Transformation of the “classic” industries • e e-B te C odels -C usi ure • om ne ult m ss orp ss m er ce • What is work? • C usine ora • Why do we work? •B • How do we work? Cognitive • Ubiquity Computer • Access sciences sciences • Distribution Information and knowledge: • What is knowledge? • Access and distribution of • How do we create knowledge? • Handling • How do we share, develop and enhance it ? • Ubiquity • How do we apply knowledge? •Artificial intelligence • Creativity and control •Speed and scope of processing Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-4 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. New Industries are emerging The New Economy is also facilitating the creation of new industries. An important outcome is the creation of a new industry out of five established industries: consulting, education, executive search, investment and communication. The new industry is focused mainly on building and accelerating new business ventures. The size of this industry is estimated to be over 12 billion Euros in 2000, growing over 10% yearly. nt tale ost o st dc ces an •S c d •A pee m ive ar • S ut h tC Ve B c e c r ap Ex ear fo s nt usi ita ur ne S ch ist l ar al e C ss Se peci ap S ita Communication l • Ubiquity Integrated Business Acceleration str g du tin g y In sul tin sul n Co Education on ing /C Industry Do ing vs unsel •Coaching vs teaching o • Experience vs theory •C • Access to knowledge and know-how Let’s look at the New Economy In order to be successful in the New Economy, the following ingredients are necessary: • A business idea and a business plan • Experienced people and adequate culture • Smart money • An educated market • Understanding of the technology development • Finance and controlling • Virtual dimension, e.g. virtual communication platform These ingredients have to come together at an enormous speed and in midst of heavy competition. This is the reason why creativity is more important than market intelligence. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-5 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. If you have a good idea, Many people are already working on it. If you think it is impossible, At least a dozen projects are already focused on it. The speed and the quality of the implementation becomes a critical factor. We have two major mega trends in the New Economy: Incubators: driven by VCs, large consulting firms and large corporations People Turning capital Capital into human capital •Scarcity of talent •Growing availability •Scarcity of experience Virtual Platforms: for suppliers and for distribution • New Executive Search • Access • On time recruitment • Speed of access • New Education • Connections We have to bear in mind some fundamental differences: Classic Economy New Economy • Search and recruitment of executives and • Need for experienced executives and specialists is taking months specialists within weeks • Cash is the basis for payment and • Payment and remuneration: cash, options remuneration or stock • Big legacy issues: policies, systems, • No legacies, but uncertainties due to rapid technology etc. development • Structure and organization is dominating • Corporate culture dominates structure and over corporate culture organization • Ownership principle: companies want to • What is not core to the business is outside own as many resources as possible the company • Tenure and age over performance • Performance and knowledge • Production technology driven • Information technology • Value creation process • Value creation for the stakeholders • Work as duty • Work for fun and excitement Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-6 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. The working place is for many people a surrogate for the hunting grounds of the past. This is the reason why it is so dominated by the male population. We need to redefine work as a place for development experiences, where people can mature. A few questions ⇒ Do you have a clear picture of the role of the Human Capital in your company? ⇒ Does the Human Capital represent a real business value, or are you just desperate for talent? ⇒ What are the proofs that you are serious about your Human Capital? ⇒ Have you anchored your ideas about the Human Capital in your strategy, or your strategic framework? ⇒ Do you know your business model? ⇒ Do you have a clear idea about your key stakeholders and their needs, expectations and wants? ⇒ Have you explored your value creation? ⇒ What do you do for the development of your core competencies? ⇒ What is the essential knowledge and know-how you need? ⇒ Do you know the key knowledge professionals in your organization? ⇒ What is the role of HR in respect to the Human Capital and Knowledge Management? ⇒ Is the culture of your company fit for the New Economy? ⇒ Is your corporate culture still tied to the industrial age strategies and behaviors? ⇒ Is your corporate culture supporting flexible strategies and a nimble organization? Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-7 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. Example: Venturix Many companies have already begun to focus on the emerging business accelerator market. First to focus on this market are companies that are directly affected by this transformation, e.g. business schools, consulting companies, executive search companies, venture capital companies etc. However, there are already several newcomers: business incubators and combinations or alliances of the different affected industries: e.g. business schools with venture capital companies, consulting companies with executive search companies etc. One that is covering the whole business accelerator market across Europe is the Venturix Group. The Venturix Group has three legal entities: Venturix Ltd., Venturix Advisers, and Venturix Invest. Venturix Holding • With the wholly owned subsidiary: Venturix Business Services • with Venturix country business units build as start-ups in all important European markets • provides experienced people, best practices and smart capital to the new business ventures in the New Economy in exchange for options, shares, or cash. Venturix Advisers • advises Venturix Ltd. and Venturix Invest about investment strategies. Venturix Invest • provides smart capital to the Venturix client companies. Venturix plans to quickly become the European hub for the New Economy talents and projects. After its full implementation Venturix will be present in all main European markets. Venturix Business Services has a basic structure of seven business service areas. Venturix Business Services venturix.com Venturix Service Invest Venturix Partner n co o cati mm Academy • Venture ni un mu ic Capitalists Marketing Sales ati • Legal com HRS & on Relationships Marketing • Private Marketing New Economy Investors Business • Tax Corporate Ventures Technology ven • Institutional and Business Development • PR turi Development m . Investors co x Marketing .co ix. • IPO Lead m r nt u Finance • Public and Banks ve and Partners Controlling communication Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-8 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. In two to three years Venturix will have over fifteen country business units with several Business Builders, Associated Partners and corporate Associated Partners across Europe. All this is happening in a rapidly changing, unstable and constantly emerging environment. We do not have to emphasize the growing scarcity of talent for the New Economy worldwide. Venturix has developed a business model that allows Venturix and its Associated Partners to tap into the New Economy. The customers of Venturix can pay in any form they prefer: cash, options, stock or a combination of them. Venturix Venturix Business Services Holding. • Human Resources Services • Business and Corporate Development • Finance and Controlling • Technology Development • Sales and Relationships • Venturix Academy • Marketing • venturix.com on New at i Di d uc Business - rec E tI nd res Op nv t a la ha Ventures tio es pi S tm Ca ns, ns an tio ,S en m p ha ts Hu sh ,O res Ca Investments into New Business Ventures Venturix Venturix Country Options, Shares from Invest New Business Ventures Businesses For Venturix the following are key questions: ⇒ Where to find, how to attract, to keep and to develop the necessary talent, i.e. people with experience in the New Economy? ⇒ How to secure the state of the art knowledge and know-how? ⇒ How to be able to select the promising new business ventures? ⇒ How to focus on the European market without losing sight of the global developments? ⇒ How to focus on the core business without limiting it too much, risking to miss new developments? ⇒ Where to find the necessary best practices applicable to the New Economy? A part of the answers can be found in the management of the Human Capital and the Knowledge Management. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-9 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. Venturix’ Human Capital are its Management Team together with their staff, the Business Builders, the Associated Partners, the customers and the people in the networks and the communities of practice. Those people are also the main knowledge carriers. Giving them access to the best practices they need, encouraging them to share their experiences, capturing their best practices, developing the next generation of professionals, building and developing communities of practice; these are some of the important activities. Creating a culture that is attractive and supportive to those types of individuals is the other big challenge. Today we can build corporate communication platforms that can serve many purposes: ⇒ Direct communication within the enterprise, with the key stakeholder and with the interested public ⇒ Information about the enterprise, the strategy and the progress in the achievement of the objectives; information about the key stakeholder; about visions and dreams ⇒ Presentation of best practices ⇒ Actualization of knowledge and know-how ⇒ Knowledge management ⇒ Building of communities of practice ⇒ Training and development; development of the core competencies ⇒ Education of the key stakeholder The virtual platform can allow a continuous dialogue with all interested parties with a high degree of customization. Venturix is building such a platform. It will be the virtual part of the business, linking all key stakeholders inside and outside the enterprise. It will become the main marketing tool of Venturix. However, the main purpose is the development of a corporate culture that will encompass all key stakeholders: customers, employees, managing and associated partners, investors, communities of practice and the Venturix Academy. The Venturix culture is based on “becoming”, where life is a discovery journey, a discovery of new and unknown territories, with a lot of excitement and fun, but also uncertainty and risk. It is also a culture where “participation” is important: all key stakeholders are participating in this journey and its results. This means lots of creativity, innovation and entrepreneurship. It is much about exploring uncharted territories and creating new ways of working and doing business. The main driver of the industrial economy, i.e. “hard work,” is not enough. “Working smarter, not harder!” is the new core belief. Not more of the same, but new, different, better ways: this is what Venturix stands for. The main purpose of entrepreneurship becomes the creation of new “things” that have value for the society. It is not the pure possession of as much as possible. Possession leads to obsession with having and being, creation leads to a discovery adventure. The journey becomes as important as the goal. After all, our life is just a journey and only experience generates experience. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-10 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. The strategic framework of Venturix is based on the principles of the New Economy. It begins with the definition of the business model. Each enterprise has a somewhat distinct model, and most companies still have to discover what their business model in the new reality will be. The fundamental idea of a business model has a two-sided definition: on one side is the definition of the capabilities to create and to deliver values and which core competencies are needed for this purpose; and on the other side is the definition of the values expected, needed and wanted by the key stakeholder. The decisive point is the level of matching between these two sides. Following is an example of a generic business model: •Research & Development •Convincing the customer •Design and Development •Contract with the customer •Production •Service providing •Solutions •Experiences Key stakeholder •Competition •Requirements and needs How do we know what is feasible? •Alternatives •Expectations • Time •Resignation •Wishes and dreams • Space • Speed •Quantity • Quality • Price • Needs and wants of • Our capabilities to create a group of people and to deliver values (Key stakeholder) Matching • Core competencies •Values expected, needed and wanted Leads to: • Sustainable growth Resources: •Healthy company Time, money, people, technology knowledge Taking care •TP, IP, VP •Possible solutions of the Customer •IC, KM •Available technology •Procurement How do we know •Supply chain what the customer • Partnerships wants and expects? ? After the definition of the business model, the next important step is the clarification of the purpose of the enterprise and the understanding of the emerging context (external and internal). After these two elements are established, the strategic direction can be described. A next step is the definition of the key stakeholders and the exploration of their needs and expectations, dreams and wishes. This leads to the definition of the corporate objectives. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-11 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. The result can be a matrix such as the following: Key stakeholder Needs and expectations Values expected by the Corporate objectives of the key stakeholder key stakeholder • Owner/Shareholder • Management team • Employees • Strategic partners • Customers • Suppliers • other It is good practice to assign certain members of the management team the responsibility for a corporate objective, to make the whole process visible and transparent to all key stakeholders and to report on a monthly basis the progress against the corporate objectives. This report needs to be accessible to all key stakeholders. The next step is the elaboration of the value creation, which is not a chain or a process anymore. The best way to do it is to define the core elements of the value creation and to group them around the way the customer or the consumer is using the output of the organization. When all this is defined, it makes sense to work out the necessary structure and organization, i.e. the management processes supporting the value creation: general management, finance management, HRM, knowledge management, marketing, sales management, production, innovation, business development, quality management, etc. Usually, this effort will yield ideas for strategic initiatives, i.e. all initiatives linked directly to the value creation. The strategic initiatives are then converted into projects or actions. External emerging context Internal emerging context Organization •Purpose •Values Emerging Emerging strategic initiative Created strategic initiative Strategic Direction Äussere Umbegung Value Creation Results Corporate Objectives •Key Stakeholder Requirements Expectations •Organization Needs Wishes and dreams STOPs •Society Stakeholder Knowledge: Emerging Emerging •Key Stakeholder for the value creation and strategic initiative strategic initiative the STOPs Culture, LEM, Change and Transformation, Knowledge, ,$ SD-1.PPT Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-12 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. We also have to define and develop the core competencies of the company and the key individuals. Once this is done, it becomes quite obvious which knowledge has to be managed and how. It is good practice to consolidate all this into a business plan focused on the purpose and the values that have to be created. Different factors of integration for Venturix have been established in order to secure the integration of the complex set-up of Venturix: ⇒ The CEO is the “Chief Enterprise Officer,” he is the key facilitator and integrator. ⇒ The CCO, who is responsible for the coherence and is supporting the internal co- operation he is the “Chief Culture Officer”. ⇒ Common objectives of the management team with transparency of the objectives and the progress of achievement ⇒ The virtual platform venturix.com ⇒ The communities of practice ⇒ The shared values of becoming, fun and excitement, and participation A very important element of Venturix is the Venturix Academy, which is responsible for the education and development of the key stakeholders. It is built on the handicraft model, where we first have the apprentice who learns the basics, then the journeyman who learns through practice, and finally the master who learns by helping others to learn. The Venturix Academy is preparing a series of on-line modules on the New Economy, a series of on-site encounters with key people from the New Economy and specific assignments in New Business Ventures under the supervision of the Associated Partners. In this way Venturix Academy is creating New Economy Masters. The content and the process are driven by the needs and expectations of the New Economy Business Ventures and the participants’ needs and expectations. Some fundamental shifts that are beginning to affect our life are: Work From doing to thinking Education From teaching to learning and development Consulting From telling to doing Reward and From paying to participation recognition People From performance to life balancing; From having and being to becoming; From career to portfolio of experiences Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-13 the New Economy, in Knowledge Economy, August 2000 at www.raich.net. Summary The Knowledge-Based Economy is the economy that is replacing the industrial economy. The “New Economy” is a stepping-stone towards it. We can watch paradigm shifts and emerging new paradigms right now. The ways of doing business and managing are changing fast. New industries are emerging. One that will have a huge impact on the further development is the business accelerator industry, coming out of the transformation of five existing industries: executive search, venture capital business, consulting, education and communication. Management of the Human Capital and Knowledge Management are important tools helping this transformation. The newly created Venturix Group is aiming to become the hub for the New Economy talent in Europe covering the whole business accelerator market across Europe. Recommended Literature • Stuart Crainer and Des Dearlove, Generation Entrepreneur, FT.com, Pearson Education Ltd. 2000 • Mario Raich, The Knowledge-Based Economy, Zurich and London 2000 • Mario Raich, Managing in the New Economy, Knowledge Economy (virtual magazine), in www.raich.net, part 1 March 2000, part 2 April 2000. • Geoffey James, Industrial Age Management Becomes a Museum Piece! UPSIDE Today, URL: http://www.upside.com/texis/mum/news/?id=34712c12e • Andrew Boynton and James Pulchrano, E-business and your company: Lessons from Silicon Valley, IMD, Insights for Faster Learning, May 2000. You can find this article in word format on www.raich.net, Knowledge Economy, August 2000. Right to Copy. The source to quote is: Mario Raich, Human Capital and Knowledge Management in 0-14 the New Economy, in Knowledge Economy, August 2000 at www.raich.net.