Understanding economic change

The new normal?!

1st Course

The secret to higher

GDP per person is
working smarter,
not harder.

 What is different now, at present?!

intangible activities and realities,

competences and jobs associated with them,
exchanges and transactions they determine,
value and wealth that they create

induced
transformations
in production and
trade

The new type of economy that is emerging is more about

a shift of mindset relating to building and extracting
value.

The intangible economy

The bicycle dilemma

Easy to practice
Difficult to explain

The central relationship

Agricultural economy
Man
Nature

Industrial economy
Man
Machines

Intangible economy
Man
Ideas/Images

Value creation intangible content

 Three dimensions

Supply: Intangible assets

Intermediate production factors used by businesses to generate
value added and create artifacts

Demand: Intangible artifacts

Final consumption products

Transformation process: Service activities / intangible

activities
Economic system: Dematerialization logic
New rules of:

business organization
competition
valuation

The Intangible Economy

Intangible
Assets:

-Patents
-Licenses
-Brands
-Know-how
-Corporate culture
-Human capital
-Reputation
-Clients

Intangible
Activities:

- Research&
Development
- Programming
- Advertising
- Intermediation
- Tourism
- Consulting
- Entertainment
- Communications

Artifacts:
-

Projects
Software
Reports
Ads
Financial products
Tours
Studies
Shows, movies
Transmissions

DEMATERIALIZATION LOGIC

Intangible Assets

Wide recognition of importance in:

Aggregate economic growth

Corporate performance and survival

Persistent disagreements on:

Scope and definition

Valuation

Accounting definition:
identifiable (separable) non-monetary sources of probable
future economic benefits to an entity that:
lack physical substance,
have been acquired or developed internally from identifiable
costs,
have a finite life,
have market value apart from the entity, and
are owned or controlled by the firm as a result of past
transactions or events.
Management definition:
non-physical sources of value (claims to future benefits),
generated by innovation (discovery), unique organizational
designs, or human resources practices

 Accounting approach

Intangible Assets

..or management approach

Tangible assets

Tangible
assets

Intangible
assets

Intangible assets

Taxonomy of Intangible
Assets
Brands

Product
Company
Intellectual Property: patents, trademarks, know-how
Publishing rights
Licenses
Human capital
infotainment
Corporate culture
Information
Relationships with customers and suppliers

Intangible Assets
Which scope and perimeter ?
Intellectual
Property

Accounting
definition

Corporate
culture

Suppliers

Know-how
Brands

Licenses
Human capital
Publishing
Rights
Firm perimeter

Clients

 highly heterogeneous - between categories but

also within a given category
revenue-generating capacity of an intangible
asset is much more uncertain than that of a
physical investment
difficult to separate
often interact with each other
do not follow the classical progressive
depreciation rules
raise the issue of ownership

IA Valuation
- business circumstances Company sale, merger or acquisition;
Sale, purchase or licensing of separable
assets;
Lawsuits involving IP infringements;
Tax liability calculations;
Corporate alliances;

R&D management.

 Market Capitalization methods (MCM) - difference between a

company's market capitalization and its stockholders' equity as
the value of its intangible assets
Tobins q ratio - stock market value of the firm divided by the
replacement cost of its assets;
Return on Assets methods (ROA) - average pre-tax earnings of
a company for a period of time are divided by the average
tangible assets of the company.
EVA - adjusting the firms disclosed profit with charges
related to intangibles. Changes in EVA provide an indication of
whether the firms intellectual capital is productive or not
Discounted Cash Flow (DCF) method - determines the economic
value of an asset by looking at its cash generating potential.

 The originals created by authors, composers,

scientists, architects, engineers, designers, software
writers, film studios, orchestras etc. - intangibles that
have no physical dimensions or spatial co-ordinates of
their own and have to be recorded and stored on
physical media such as paper, films, tapes, disks etc.

entities:
over which ownership rights can be established
of economic value to their owner
intangible - no physical dimensions or co-ordinates in space
may be used to produce, even mass produce, copies
can be traded and re-traded in the same way as material
goods.
can also be instantaneously transmitted electronically.
ownership
may be transferred to another economic unit
is often legally recognized through a copyright or patent

 All artifacts are joint products, combining intangible

content with physical support or a set of supports
The same content can now be easily and cheaply
replicated and associated with various physical
supports
The dissociation of content and support has led to
the proliferation of intangible artifacts in two ways:
it has lifted capacity constraints limiting a large-scale
consumption of intangibles.
the same content provides a source for a family of artifacts

Intangibles Artifacts
Consumption specificity:
joint (always consumed with other
products, tangibles or intangibles)
non-destructive (the same artifact
can be consumed repetitively either
by a same consumer or by a
different one)
non-subtractive (or non-rival) (ones
consumption does not reduce anyone
elses consumption)

Intangibles Artifacts
Sharing:
Multi-audience
Network externalities
Purchase
Consumption

=
=

consumption
purchase

Production
Volatility of valuation - pricing of

intangibles focuses on content

TARIFF DETERMINATION
SYSTEM

Pricing intangibles

Material support
Access
Use
Services
Bundling and unbundling

Focus on content volatility of valuation

Planetary haggling
Toward real-time pricing
...and individualization

 Abundance of accumulation
Information overload infoglut
Consumers new modes of consumption:
Zapping
Surfing
Browsing

Suppliers renew their offerings

cannibalization

Wager economy
+
Launching Costs
Customer
Loyalty

Products

Probability of success

Abundance

Managing low probability of success

Dematerialization logic
2. Interpenetration
From segmentation to overlapping

HOME

OFFICE

LEISURE

WORK

ENTERTAINMENT
PRODUCER

INFORMATION
CONSUMER

Dematerialization logic
2. Interpenetration

Changing boundaries of the firm

Company

Suppliers

Employees

Clients

Company

Before

Now

Employees

Clien
Suppliers

Externalisation

Internalisation

Dematerialization logic

2. Interpenetration

Changing economic relationships

New linkages
Monitoring

Sub-contracting

Production

Intermediation

Value chain shift

Producer

Distributor

Distributor

Consumer

Services

Dematerialization logic
3. Indeterminacy

Structural ambivalence

Indeterminacy

Wider range of choice of business strategies

Economies of scale

Value chain shift

Increasing returns

Market renewal

Concentration

Fragmentation

Dematerialization logic
3. Indeterminacy

Economies of scale and economies of skill

Processing

Economies
of skill
Differentiation
Coordination

Distribution

Innovation

Economies of scale

Dematerialization

An unsettling logic

 increase in competition - need to define new

strategies to adapt to such changes
products - more complex, with higher knowledge
content
along the production process - knowledge-intensive
phases of production have become more important.
at the firm level - new governance forms organization as network within the firm and between
the firm and its environment
The relevant unit of analysis in the study of firms
competitiveness - the network of which the firm is
part, rather than the single firm

NETWORK ENTERPRISE - main trends:

its organization is structured around process, not task;
it has a flat organizational hierarchy;
the work process is organized on the basis of teams;
customer satisfaction is the primary measure of business
performance;
the structure of reward is based on team performance;
the maximization of contacts with suppliers and customers is an
integral part of the business process;
information and continuous training of employees at all levels are
considered critical to business success.