The Digital Economy

Promise and Peril in the Age of Networked Intelligence

by Donald Tapscott

It is fairly widely accepted that the developed world is changing from an industrial economy based on steel, automobiles and roads to a new economy built on silicon, computers and networks. Many people talk of a shift in economic relationships that’s as significant as the previous displacement of the agricultural age by the industrial age. There are new dynamics, new rules and new drivers for success.

A dozen overlapping themes are emerging that differentiate the new economy from the old. By understanding these, you have the precondition for transforming your business for success.

The Twelve Themes of the New Economy - (Taken from Chapter 2)

Theme 1: Knowledge

• The new economy is a knowledge economy. Information technology enables an economy based on knowledge. But notwithstanding the rise of artificial intelligence and other "knowledge technologies," knowledge is created by human beings - by knowledge workers (professional and technical workers now outnumber industrial workers by almost three to one) and by knowledge consumers.

Theme 2: Digitization

• The new economy is a digital economy. In the new economy, information is in digital form: bits. When information becomes digitized and communicated through digital networks, a new world of possibilities unfolds.

Theme 3: Virtualization

• As information shifts from analog to digital, physical things can become virtual—changing the metabolism of the economy, the types of institutions and relationships possible and the nature of economic activity itself. In the new economy, there are (to name a few) the following:

• Virtual alien. People working and participating in one country’s economy who are physically located somewhere else - for example, "virtual data entry workers" who live in India. Virtual aliens are often, technically, illegal aliens.
• Virtual corporation (virtual enterprise, extended enterprise, interenterprise). The conjunctional grouping, based on the Net, of companies, individuals and organizations to create a business.
• Virtual Mall. An environment on the Net in which like things can be found, as in "virtual shopping mall" or "virtual shoe sale."

Theme 4: Molecularization

• The new economy is a molecular economy. The industrial hierarchy and economy are giving way to molecular organizations and economic structures. The word molecularization is awkward but helpful.
• The analogy is helpful in understanding the new economy. The new enterprise has a molecular structure. It is based on the individual. The knowledge worker (human molecule) functions as a business unit of one. Motivated, self-learning, entrepreneurial workers empowered by and collaborating through new tools apply their knowledge and creativity to create value.

Theme 5: Integration/Internetworking

• The new economy is a networked economy, integrating molecules into clusters that network with others for the creation of wealth. The new paradigm in wealth creation is possible because of computer networks that are digital rather than analog and because of a shift in the style of networking from the host computer, hierarchical networks of the past to peer-to-peer webs based on the Internet model.

Theme 6: Disintermediation

• Middleman functions between producers and consumers are being eliminated through digital networks. Middle businesses, functions and people need to move up the food chain to create new value or else they face being disintermediated.

Theme 7: Convergence

• In the new economy, the dominant economic sector is being created by three converging industries that, in turn, provide the infrastructure for wealth creation by all sectors. In the old economy, the automotive industry was the key sector. The dominant sector in the new economy is the new media, which are products of the convergence of the computing, communications and content industries.

Theme 8: Innovation

• The new economy is an innovation based economy. Indeed, a key driver of the new economy is innovation, including a commitment to a continual renewal of products, systems, processes, marketing and people.

Theme 9: Prosumption

• In the new economy, the gap between consumers and producers blurs. As mass production is replaced by mass customization, producers must create specific products that reflect the requirements and tastes of individual consumers. In the new economy, consumers become involved in the actual production process.

Theme 10: Immediacy

• In an economy based on bits, immediacy becomes a key driver and variable in economic activity and business success. The new enterprise is a real-time enterprise, which is continuously and immediately adjusting to changing business conditions through information immediacy.

Theme 11: Globalization

• The new economy is a global economy. As the world economy continues to globalize, the need for stay-ahead management becomes even more crucial. Ad hoc alliances, strategic partnering and, above all, information technology will be vital for the future. Collaboration is going beyond the old boundaries.

Theme 12: Discordance

• Unprecedented and social issues are beginning to arise, potentially causing massive trauma and conflict As we stand on the frontier of the new economy, we can also see the beginnings of a new political economy that will raise far-reaching questions about power, privacy, access, equity, quality of work life, quality of life in general and the future of the democratic process itself. As tectonic shifts in most aspects of human existence clash with old cultures, significant social conflict will tear at the fabric of structures and institutions.