NEW CHALLENGES FOR OPERATIONS MANAGEMENT

The 'New Economy' Creates New Challenges for Operations Management



The 'New Economy' Creates New Challenges for Operations Management

Introduction

The so-called "New Economy" is rapidly becoming a major force in world industry. Exact definitions of the term differ, but most include the combination of globalization and high technology, where the key outputs and productive assets are primarily intellectual-information and "knowledge"-rather than physical. Although most popular attention has focused on the internet-related "dot-coms," the information-intensive New Economy is actually much broader. It encompasses software development, telecommunications, and much of the media/ entertainment industries, as well as internet services. Several of its differentiating characteristics (to be discussed below) are also found in such related hardware industries as integrated circuits (ics), computers, and computer gaming devices, and even in biotechnology and pharmaceuticals. Recent efforts to ascertain the growing impact of these industries suggest that about one-third of the U.S. gross domestic product (GDP) growth between 1995 and 2000 was attributable to information technology (rr), as well as half the growth in its Total Factor Productivity (Jorgenson and Stiroh 2000; Oliner and Sichel 2000). A growing number of sophisticated observers are coming to believe that the forces driving the New Economy are fundamentally reshaping the way the world's economy operates, permitting higher sustained rates of growth, productivity, and employment than ever before possible.

Illustrating the financial markets' belief in the power of this New Economy, just before the dot-corn stock market bubble burst in late 2000, over half of the 25 U.S. companies having the highest market capitalization were involved with rr (two others were in pharmaceuticals)up from only three 20 years earlier. Of the 50 U.S. companies that Business Week designated on March 27, 2000 (pp. 124-134) as "Best Performers," as determined by a number of measures, 22 were in rr. Similarly, the great bulk of the almost 50% rise in Japan's stock market between 1998 and 2000, which took place despite the country's overall anemic growth, high unemployment, and fragile banking system, was attributable to New Economy companies. As might be expected, the Nikkei's subsequent fall was also due almost entirely to the collapse of Japan's dot-corn bubble.

Almost needless to say, the excitement associated with the combination of fast growth and leading edge technologies has made New Economy companies magnets for management talent-and particularly magnets for the ambitious young people who attend our management programs. Are we providing these potential managers with a good foundation for managing operations in such companies? Are the same principles that we traditionally have taught in operations management (oM) courses sufficiently robust that they can be easily applied to New Economy operations?

Discussion

The Underlying Assumptions of "Old Economy POM" Let me begin by listing some of the basic assumptions that most of us tend to make when we think about "managing operations"-and which underlie most POM textbooks today. In fact, they are so deeply embedded in our thought processes that we seldom are even aware of how fundamentally they influence the way we look at the ...