Has strategy changed in the wake of the recent economic frenzy and subsequent downturn? Is the New Economy finished? Has the Old Economy returned? At this point, most managers understand what the advent of the Internet implies — operating efficiency for most companies, a terrific channel for some and a fundamentally new business opportunity for only a few. So is it back to “strategy as usual”?
The answer is no. While many executives were focused on the implications of the Internet, a more powerful force was quietly transforming the economic playing field. Globalization. Massive in scope, deep in impact —and ironically, almost unmanaged — globalization is the increasingly deep interrelationship among countries, companies and individuals. The connections may be cultural, as in the case of global brands like Sony, or environmental, as in global climate change and overfishing of the oceans. The connections may be technical, as in the case of the Web and wireless communication, or financial, as in the linking of major stock exchanges and the proliferation of NAFTA-like trade agreements. Globalization, not the Internet, is the fundamental driver of the real New Economy.
Density of connections throughout the world affects corporations by amplifying instability. Even small events in one location can affect events in another, in often oblique and nonlinear fashion. Cold weather means increased coal usage in England that can trigger acid rain in Ukraine. Economies of scale at a smattering of Australian wineries can affect life in rural France. AIDS activists in South Africa can threaten the profits of the pharmaceuticals industry. The scale and pace of change are particularly challenging to predict. Wall Street expected that a correction would follow dot-com mania, but no one anticipated the correction’s magnitude and speed.
The international power structure, or lack of one, further amplifies instability. For almost five decades, the geopolitics of the post-World War II era were shaped by the two principal Cold War combatants. Today, although the United States is dominant and the European Union is asserting a more unified point of view, free trade and transparent markets are the forces shaping commerce, not any one nation. The Internet speeds communication. Invention spreads almost overnight. Yet no one is in charge. In the era of globalization, it is not obvious whether major political leaders, such as British Prime Minister Tony Blair, or business leaders, such as AOL Time Warner’s Steve Case, have much economic clout.