Bald Guys Studio

Over the past decade there has been a lot of talk regarding the importance of people in the New Economy. But in a world of downsizing, re-engineering, mergers, and divestitures, slogans such as "People are our most important asset" ring hollow. If you look at the behavior of many executives and human resources managers, you'd have to conclude that people are treated more like a variable cost than an asset.

Setting aside the lip service, there actually is a fundamental change underway. In the coming years we will measure the key assets of a firm not by sizing up its plant (machinery, buildings, land, and the like). Even traditional capital—financial assets—are fleeting. In the New Economy, human capital and networked knowledge are the foundation of wealth creation. Firms that understand this change have a chance of succeeding, and those that don't will fail and cease to exist.

Let's look at some new themes and their implications for business strategy and management.

Human capital becomes paramount

In an economy based on brain rather than brawn, there is a shift toward knowledge work. Innovation drives everything and competitive advantage is ephemeral. Firms must constantly seek new ways to create value. Whole sectors of the economy are being wiped out as traditional agents, wholesalers, brokers, retailers are disinter mediated—replaced by bits flying through networks and by new intermediaries who deliver value through the Web.

Call it human capital, intellectual capital, or knowledge capital. In an economy like this, the only assets that really count are intellectual assets—knowledge contained in the brains of knowledge workers and in networked digital documents and databases.

Imagine if Microsoft had not corrected its error of four years ago. Management clung tenaciously to the view that it was a PC company at a time when the Net was beginning to make "personal computing" an oxymoron. One of the most highly capitalized companies in the world was close to missing the boat. It was not money that saved Microsoft. It was human capital. Microsoft was replete with the asset required to convince management that a shift was imperative.

Viewing people as capital? Isn't that a bit Orwellian, you ask?

Actually, it would be a big improvement over being treated as a variable cost. Arguing that employees should be given the high status of capital is not dehumanizing people—it is recognizing that, increasingly, knowledge workers, not money or physical plant, are the key to wealth creation.

Labor is no longer a commodity. And in the battles shaping up among Netscape Communications, Lotus, Microsoft, Oracle, Yahoo!, and other software companies, there is almost no labor in the traditional sense. The knowledge and creative genius of the product strategists, developers, and marketers are the key. What counts is a company's ability to attract, retain, and grow the capabilities of knowledge workers and provide the environment for innovation and creativity.

An organization will be competitive only if it can learn faster than its competitors. Any firm can have the same technology as another company; any product can be copied. In the new race to the finish line, lifelong organizational learning becomes the only sustainable competitive advantage.

Because production is based on knowledge, there are vast new opportunities for improvements in quality of life—for societies that can make the transition and effectively distribute the social benefits. In the old economy, workers attempted to achieve fulfillment through leisure. The worker was alienated from the means of production, which was owned and controlled by someone else. In the New Economy, fulfillment can be achieved through work, and the means of production shifts to the brain of the producer.