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The Unrealized Potential of the "New Economy": A More Profitable Business Model
by John G. Carlson

 
   
 
   

Much has been written about "New Economy" businesses versus "Old Economy" businesses. And with the demise of dot.com mania, many are writing off the late 1990's as just the latest era of Wall Street excess. The question now being asked is -- was there, and is there any sustainable "New Economy" business model?

There IS a "New Economy" business model, but it is not removed from the "Old Economy" business model; rather it augments and humanizes it. B2B and B2C are only parts of this new business model, which is centered in a firm's people wherever they reside globally in the chain of relationships for both products and services. People are connected on Corporate Intranets and the Internet providing an expansion of the business potential of a firm's global management system.

Directly managing all of these human assets and relationships is how all firms in today's services economy can finally capitalize upon the benefits of the "New Economy" to achieve a more profitable business model.

Centering Your Firm in Your People

Typical business models are composed primarily of financial assets. However, traditional financially-based management systems limit executive perspective. Human assets and relationships are not a central part of these management systems, except partially through CRM, Customer Relationship Management Systems, or maybe through a patchwork of added business metrics.

CRM, however beneficial, does not change the fundamental organizational perspective to human-centered. Firms do not consider the costs / benefits of directly managing all human assets and a wide range of untraditional human issues on their cost structure and revenue generation capabilities.

Family matters are an example of these human issues. Usually they are addressed peripherally as part of Human Resources or Employee Assistance Programs. The problem is that many executives, managers and supervisors do not make the connection with best operational practices, whereby family issues are dealt with up-front through responsive work and business trip scheduling, reasonable overtime levels, promotion of vacation time use, and a host of other ways. Wasteful costs result that more than offset the perceived near term productivity gains from non human-centered business practices.

Centering your firm in your people means profiling a comprehensive set of human issues that are not commonly considered in traditional "people management." Instead of delegating human issues to Human Resources or separating employee issues from customer issues, a comprehensive approach involves taking a complete view of your firm's people of all types, including:

o Full-time and part-time employees and their family members
o Temporary staff, contract staff and consultants
o Consumers and employees of customers
o Employees of suppliers, service providers and partners

With a comprehensive profile of these critical human assets, executives will be surprised by how much more business leverage they have but do not commonly exercise. Simple human process change such as treating everyone as a person with care and respect has a huge multiplier effect across the enterprise, enhancing revenue generation while reducing overall costs.

Applying Portfolio Management to Human Assets

Instead of acting upon a comprehensive profile of human assets and relationships, most executives are faced with an informational hodgepodge. Management is indirect, not direct, "siloed" by department or function, and complicated by delegation. Instead of human issues being integrated, they are fragmented between Human Resources, Legal staffs and outsourced service providers. Any information resides in diverse parts of the company's overall management system.

When it comes to managing these human assets, executives need the benefits of portfolio management that most have used so successfully in optimizing their financial assets. Active portfolio management involves discarding flawed financially-based metrics such as FTE (Full Time Equivalents) and headcount statistics and replacing them with careful profiling of all of the firm's core and non core assets and relationships.

The purpose of such analysis is to identify revenue generating capabilities and full costs, built up from core human assets. For example, key administrative and support staff that leverage top executives and revenue-generating sales and operational staff are core assets. Well-trained customer service operators and billing and payables clerks are often core assets, not candidates for constant reductions. On the other hand, R & D and Information Technology staffing and related spending can be viewed less emotionally as a source of cost reduction.

Core assets are leveraged and process gaps eliminated through active portfolio management. Oftentimes, reducing the use of overtime, temporary staffing, contractors, and service providers while bringing key people and the relationships they possess back inside the firm reduces overall costs and generates higher revenues. Or outsourcing key functions can be accomplished in a systemic, not a piecemeal manner.

Achieving Human-centered Organizational Design

A human-centered organization cannot be dependent on financially-based management systems alone. They provide the wrong indication of cause and effect in achieving maximum profitability. A better way is to assess the full profitability potential of core human and other assets at defined asset utilization levels rather than to look at revenues and costs incrementally based on product lines, service categories, departments and expense categories.

Adding up all the ways better management of human assets increases revenues and reduces costs can be quite challenging. It may include times when supervisory management does not properly support return to work in the case of an acquired disability. Or it may involve stopping constant changes to weekly work schedules that lead to employee dissatisfaction, reduced productivity and resignation. Or it could mean getting the word out that working flexibly and smart, rather than constantly long hours, is what the firm values and will reward.

The overall focus in fully utilizing human and other assets is on having the right people in place at the right time, highly motivated and trained, with the right incentives to do a good job individually and in groups and across the enterprise. Eliminate or change anything that comes in conflict with this goal. Analyze existing programs and processes in terms of how they provide:

o Information
o Education and Training
o Tools and Systems
o Support for all of the firm's human assets, whether they are employees or customers.

A More Profitable Business Model for All Firms

The human-centered firm generates its "asset-based" revenue and cost models from its core human assets. Then it considers how Tangible and Intangible, Intellectual Property, Assets further leverage them. These may be key technology assets such as corporate data centers, software-based tools and network bandwidth. Or they may be patents, business process and business logic, and unique software code and content. "Operating" assets such as these work with key human assets to increase revenue generation and cost efficiency.

In our Internet-based world, a firm's global management system must extend outward to influence, not control, key assets and relationships for mutual benefit. Firms are implicitly responding to this change by using telecommuting for staffing and by paying for home computers for staff members in the case of Ford Motor Company. However, providing equipment, software and network access is not the same as fundamentally changing corporate focus to being human-centered in all internal and external business relationships, which are ultimately human relationships.

To gain the full benefits of the "New Economy," a major shift will first be required in how senior executives and operating management view their people. Assets, unlike resources, are not consumable. Building revenues and costs up from core human and other intangible and tangible assets within and outside the firm means balancing two countervailing pressures:

o Getting more out of core assets in terms of utilization
o Extending the life cycles of core assets through a series of systematic actions

New "Asset-based" revenue and cost models demonstrate the financial advantage from making this shift to achieving balance as a human-centered firm. Profitability in terms of operating margins can be increased at every revenue level because revenue generation is enhanced and wasteful costs related to poor people management of employees, contractors, consultants, consumers, and others is eliminated or at least minimized.

Discarding obsolete business practices that degrade the value of human and other assets would position most firms today to reap the benefits of a human-centered business model:

o Employing fewer people
o Keeping them in place and highly motivated, rather than churning or stressed out, disgruntled and angry
o Motivating them by paying them well in general, plus more based on performance
o Providing training, tools and supports for their home life as well as their business life

The benefits of the "New Economy," which engender a more profitable business model, are sitting there ready to be grasped within most firms. The technology is either in place or available. The pieces are there, but the overall management system is lacking. The problem is not a technology issue. It is a human issue among senior executives in how they choose to organize and operate their firms in today's boundary free, information-driven economy to maximize full profitability potential.

Yes, there is a sustainable "New Economy" business model. It is human-centered.


     
   
     
   

The Author

 

John G. Carlson is the founder and President of System Change, Inc., a methods-based consulting firm featuring Assessment Services. The firm's URL is www.systemchange.com . John can be reached at jcarlson@systemchange.com.

     
   
     
   
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Copyright 2001 by John G. Carlson, System Change, Inc. All rights reserved.

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