A wealthy American lady visits the most famous hat maker in Paris. He sees a long and exquisite tape and immediately falls in love with it. The hat maker takes the ribbon in his hands, makes a few twists with it, and creates a stunning hat. Shiny! The lady grabs it immediately. “How much? “she asks.”Five thousand francs“Responds the hat maker.”Five thousand francs! “exclaims the lady,”but it’s just a tape! “”Ms“says the hat maker,”the tape is free. “
Welcome to the ‘the tape is free’ economy or, in other words, the knowledge economy. What matters is the intellect, the skills, the capacities, the know-how, the human capital. Yes, you need financial capital as a vehicle, but you compete for your ability to create value, and this ability lies more in the intangible thought processes than in the tangible of your bank account. Yes, you need tapes too, but everyone has them. Hat makers are unique, ribbons are a commodity. Industries used to compete on quality. Today quality is the basis, a pass, the minimum entry. Other things like design, fashion or extra services have taken over. Knowledge is now the currency. Companies must define themselves by what they know, not by what they do.
It’s a ‘how-to’ world
There is nothing terribly new in the history of the Parisian hat maker. Value has long been considered to lie beyond the obvious product: either in (a) unique technical know-how, (b) the ability to make tapes to order, or (c) how tape becomes the excuse for Another thing: to sell other more profitable things in the hat maker’s shop, perhaps? In 1999, US companies began offering free computers to anyone who signed a long-term contract for Internet service (Fortune, October 2000). Ma’am, the computer is free. In the UK, and I suspect elsewhere, some mobile phone companies give away the phone as long as you sign up for their airtime service. Madam, the mobile phone is free.
Amazon.com is, on the surface, a bookstore. On a more serious level, it’s a system that knows who you are and what you’ve bought in the past, allowing you to send you personalized recommendations and emails when a new book has been written about something that interests you. At another level, it is a public book review forum where readers can post their own reviews and see what other people think. And on a different, parallel level, it’s an incredible search engine for topics, ideas, and cross-references. Ma’am, this is all free, you just pay for the book.
Long before people started talking about the knowledge economy, the software economy had taken over. A good example of this is the parent company of American Airlines, which made more money from licensing SABER, a software package used by travel agencies and airlines to make reservations, than from the airline’s own traffic. It is a world of “how to”. The software economy is a “how-to” economy.
It is also an economy of access. Access to information, to the client, to people in general, but, above all, to a service. The “material” world is in trouble in the access economy. Microsoft plans to stop selling CD software in colored boxes, rather than providing, for a fee, continuous access to downloadable software from its website, which has the added benefit of being constantly updated. In fact, everything that is programmable can follow the same pattern. As someone once said (perhaps in Silicon Valley), “Don’t own anything if you can help it; if you can, rent your shoes. “It’s rental time, awareness time, access time and intangible asset time. Ma’am, the CD is free, you pay for the use of the ‘how-to’.
Means to an end
It is also a business world of “means turned into ends”, a variant of the world of access. BAA, the owner of London’s Heathrow Airport, makes more money from retail than from all air traffic. Yes, in case you didn’t know, Heathrow Airport is a big shopping mall that has runways for things called planes that move people from A to B. The real deal is in the shopping. It is increasingly common for passengers to spend more money in stores than on their plane ticket. Air traffic is the access to the passenger pocket.
Ma’am, is the traffic free? Not quite, given the ridiculously high prices of airline tickets, especially in
Europe. Here the customer pays for everything: the air transport, the use of the facility (airport tax) and the merchandise purchased while waiting. In other words, pay to be there, pay to wait, pay to shop while you wait, and pay to go.
If someone needs more convincing, they need look no further than the newspapers. The quality
newspaper in the UK costs pennies. The news is the excuse, or the vehicle, of the publicity. Newspapers don’t make money off the news. Yes ma’am, the newspaper is (almost) free. In fact, the world of free newspapers and magazines is growing. I predict that a quality free newspaper will soon become a reality. All you need is another Stelios Haji-Ioannou, president of easyJet, the European low-cost airline, to wake up one day and decide to show the world that it can be done and that money can be made.
What kind of capital moves in this new economy, where intangible assets and access to an asset are more relevant than solid bricks or the possession of the asset itself? The types of capital seem infinite. You can find heaps of conceptual information, references, essays, and entire business models based not just on human, social, or intellectual capital, but lesser-known forms, including structural, consumer, digital, process, and innovation capital. The main challenge for companies is how to measure them.
New economy organizations emphasize them to varying degrees. Skandia, a Swedish insurance company, has long reported publicly on all such forms of capital and their flow in its annual report (Skandia Navigator). Another Swedish company, the consulting firm Celemi, better known for its business simulation game Tango, incorporates an ‘Intangible Assets Monitor’, along lines similar to Skandia. It won’t be long before it becomes the norm for companies to attempt to provide a detailed measurement of intangible assets.
The investor metaphor
But let’s return to the economy of the free tape, where only one thing defines the current times: the triumph of the brain over the hands. Henry Ford used to complain, “Why is it that every time I ask for a pair of hands, a brain comes attached?” Obviously, he didn’t like the attachment. Today I would have minds, occasionally joined with a pair of hands.
In this new world of business, one thing, to me, stands out from the crowd of ideas, new concepts, old concepts masquerading as new ones, jargon, and new business conversations. It is the so-called “investor metaphor”.
At first, the employee was a cost – in fact, it remains a cost in many current business models. In the 1980s, employees became active. In fact, CEOs and human resources (HR) executives around the world told us that employees are the most important assets of a company.
The reengineering / downsizing movement in the Western world and, to a lesser extent, other economies, added little to the credibility of the statement. As a friend of mine used to say, they forgot one word: disposable. Employees are our most important (available) asset. However, “asset” is an improvement on “cost”; after all, you’d rather feel like an asset than a dollar amount on your operating expense report.
A third change in understanding of employees, after costs and assets, is promoted by Terilyn Davenport and others: employees as investors. In other words, investors of (their own) human capital. And what do you do when you have capital to invest? You make it grow by assigning it to a growth environment; You take care of it, you manage it, you withdraw it if it doesn’t grow and, at the end of each year, you look at the return on your investment.
If individuals treat their own human capital (talent, capabilities, skills, knowledge, wisdom) as a
True capital, things are starting to look very different in the HR arena. The workplace must allow for personal capital growth – no one would invest in a negative or no growth environment.
HR departments become more like venture capital providers or incubators, dealing with all those investments. The main role of leadership is to create the conditions for that capital to grow. The investor metaphor applied to employee relations puts “brain value” first; shareholder value is the consequence. And the one who commands is the one who has the capital to invest, not the one who receives it.
There is a profound difference in this new model, beyond the metaphor. It is revolutionary, not just semantic. Silicon Valley, for better or for worse, has followed the investor metaphor more than other places.
People equal brains in the Valley. In reality, the Valley = nuts + (resources x power x glory), according to Michael Lewis, author of Liar’s poker and, more recently, The new new thing. Given the way the Silicon guys jump from company to company and how brain bidding dominates the market, perhaps we should speak of a “mercenary metaphor.” But this is a topic for another day.
In this Brains-R-Us economy, the individual is in charge. The only problem is that the message hasn’t reached a few million people yet. When you do, things will look different. For example, compensation and benefits (C&B) remains largely a one-size-fits-all model. Well, two sizes, part time and full time, plus / minus benefits. The moment is fast approaching “individualized treatment” and an “individualized brain.”
At some point, companies will have to offer a portfolio of C&B: number / allocation of hours (complying with local labor laws but customized and tailored), training packages, sponsored higher education, personalized bonus, family benefits, etc. It will be a “ pick your own ” package with people exchanging the benefits on offer: a ten hour week, four days, sponsored education instead of bonus, no car but daycare, extended vacations, access to unpaid leave and sabbatical.
By 2003, up to 60% of C&B packages in the Western world may be highly customized, according to consultants Towers Perrin. In other words, people will create their own agreements. The Fordian ‘You can have any C&B package you want as long as it is the one we offer here to everyone’ will disappear. The transformation of labor practices in the Western world has yet to see anything.
Ma’am, what I do is free; You pay me for what I know The monthly payment is the last one on my list of
C&B rewards for my investment of intellectual capital. I look forward to the next annual ROI …