Four years ago, a company offering disaster-recovery services for businesses was founded in the UK. Today it has 70 employees and 30,000 square feet of office space, which none of them use except for the occasional meetings and seminars. If a client of Catalyst Technology Solutions7 is hit by fire or flood, or if computers malfunction, they can reload the company data on to the Catalyst system, temporarily move into the available office space if necessary, and continue to operate as if the crisis had never happened.
Catalyst's staff are the shock troops of the network economy who work from home, at their clients, or wherever it's convenient for them to do so. Its chief executive says of his workforce: "I trust them, that's the key." Employees working without a manager peering over their shoulder involves a high degree of trust, and typically report much greater effectiveness due to fewer distractions and enhanced commitment. "I can be in the Bahamas and still know what is happening, just by plugging in my computer."
This virtual workforce, talking to each other and clients over the network, is the key to the company’s structure and enables it to keep costs lean and ahead of the competition. It is typical of new, small, but often rapidly growing, firms built around and fully exploiting the new converging technologies of computing and telecommunications. It is typical of the way businesses are considering how their organisations, markets and opportunities are changing as worldwide spending on such technologies has overtaken investment in machines and factories8. "Our competitors find it impossible to copy us", says the chief executive, "because they are stuck in a culture which involves people siting in offices with a manager in a glass-fronted office watching them and shouting when he wants attention."
Work in Europe, as in other advanced economies, is developing rapidly in the directions illustrated by the Catalyst example. This offers immense opportunities and poses profound challenges for everybody involved – employees, employers, the self-employed, families, communities, governments. Whether in Europe we can respond successfully, and create prosperity around new high quality work, depends upon understanding what is happening, and taking appropriate action – including necessary risks – whilst remaining true to the established European traditions of social inclusion and quality of life. Above all, it means doing so in the context of the burgeoning network economy.
Sceptics argue that although companies like Catalyst might be able to exploit a competitive advantage over other businesses through the imaginative use of new technology, there has been little positive return in improved output per worker from the global hi-tech spending spree. However, this productivity paradox now seems to be changing to a productivity bonus, at least in the USA and the most advanced northern European countries, especially in areas such as business services, according to the normally cautious Alan Greenspan, the Chairman of the US Federal reserve, as well as to independent analysts, the International Data Corporation (IDC)9.
This new situation is due to a change in the nature of the spend on, and the nature of the exploitation of, Information Society Technologies (ISTs). IDC’s analysis shows that with much of the plumbing in place (infrastructures and computer hardware), the most advanced countries are now spending much more on improving the flow of information, so that the software and services markets are the fastest growing and most dynamic. Greenspan also points out that there is always a lag between the introduction of new technology and companies fully exploiting it10. Changes to organisational structures, and not least to awareness and attitudes, tend to take longer than changes to technology. Wealth in the network economy flows directly from innovation, not from optimisation, and there is always a stage during which new technology is initially used to do existing things better, faster and cheaper, before sufficient awareness and experience develop to enable full exploitation of the potential of new technology for doing completely new things in innovative and creative ways11.
The revolution being brought about by the network economy is much more profound than the digital revolution.The grand irony of the late 1990s is that the era of stand-alone computers is over. All their major consequences have already taken place; computers have speeded up our lives a bit, and that’s it12. What is now important is communication between computers: connections rather than computations. And since communication is the basis of wealth creation, of culture and of the way we live and work, changes here are indeed momentous. The critical technology conjunction of the network economy is the simultaneous impact of two developments: the microcosm world of the microprocessor, as computer chips become embedded in an increasing array of products; and the macrocosm world of the network as these chips relentlessly connect everything to everything else. This includes direct selling between producer and consumer through ‘dis-intermediation’, direct contact between organisations and firms and direct cooperation between the individuals carrying out work with colleagues and clients. This friction-free economy reduces costs and improves quality, as well as increases economies of scale and scope through the global nature of the network.
Trading on the Internet is now exploding. In 1998 it is likely to be US$20 billion, three times more than in 1997. By the year 2,000 it is expected to rise to US$1,000 billion, about one sixth of total world trade13. Seventy per cent of this enormous growth results from trade between companies, whilst 30% is due to direct sales to consumers14. Advertising on the net is also taking off, for example by 240% between 1996 and 1997, corresponding to US$1 billion15. If the telephone changed the economics of retail banking, the Internet is now cutting the costs of transactions even more with immense implications for all sales and distribution functions. The Internet is changing not just the shape of industries but also the way they are run.
Such changes in economic chain value are paralleled in the workplace. For example, the number of software programmers is growing enormously and the Internet itself is generating employment, such as web page designers, on-line marketers, call-centre operatives, etc. Company web-sites in the future will not be, as is now typical, an add-on, but the company’s living centre. How the company’s web-site works is how the company works. All this means that the workforce required is vastly different from any other in history. Typically, younger people who have grown up with the technology have the imagination and natural skills necessary16. These include skills that previously were strictly non-vocational, such as in the fine arts where artistic talent is needed to make web-sites appealing and intuitive, or the communication, personal relations and caring skills necessary for both electronic and physical networking. To some extent a new generation gap is growing up, so that perhaps the Internet really will liberate management from the iron grip of old style "bosses". All this is shifting power from suppliers to customers and from management to workers17. Consumers and workers have immediate access to all information via the Internet, thus spelling the death-knell of the old inward-looking, hierarchical business model and heralding a new model which looks outwards to the customer and to society and which fully integrates all workers at all levels.
Clearly, there are threats as well as benefits for Europe here, and these are surveyed in section 2.2 below. The challenge for Europe is to make the opportunities real and visible so that enterprises and individuals are encouraged to get on-line and to develop the necessary skills. The role of government at all levels is crucial here, as experience from both North America and Europe shows. For example, the US Government has long had a procurement policy that requires all tenders and communication to take place on-line. A current example from Denmark shows how a simple change in the tax laws can trigger a dramatic effect on household use of computers and the Internet, directly contributing to a large increase in telework.
In the summer of 1997 a small change in the Danish tax laws took place which meant that a computer supplied by an employer for private use in an employee’s home is not subject to tax as long as it is also available to be used for work-related tasks. As a result many, especially larger, companies initiated schemes in which typically 75% of employee households are being supplied with a pentium computer, often also including a printer, modem and Internet subscription. In return, employees are required to take a so-called PC-driving license course in their own time, which includes the possibility of distance training arrangements, although the employer pays all charges.
About 35,000 Danish employees took advantage of such schemes during the second half of 1997 and about 150,000 are expected to do so in 1998. This is one of the factors which has recently pushed Denmark to the top of the world league table for the number of households with a computer at about 53% by the beginning of 1998. By the summer of 1998, about 17% of all Danish households had an Internet connection, compared with under 8% a year before18. These developments, in the context of the relatively low cost of ISTs in both absolute and relative terms, the highly developed educational sector and highly trained and qualified workforce, as well as the highest GDP per capita (after Luxembourg) in Europe, provide an ideal environment for telework and related tele-activities. As a result, some estimates now put the incidence of telework in Denmark as high as 15% of the workforce19, although depending upon definitions a more realistic estimate is between 5% and 10%, compared to less than 0.4%, one of Europe’s lowest, in 1994 (see also sub-section on Denmark in section 3 below).
The same country, however, also provides a lesson in how institutional inertia can block desirable developments, as Denmark presently trails most other countries in Europe (including Turkey but excluding Portugal and Luxembourg), in the use of the Internet for electronic trade, i.e. for the purchase and selling of goods and services20. This lowly position is mainly the result of the continuing failure amongst Danish banks, retailers’ organisations and the government to agree about conditions for using the very popular Danish electronic payment-card over the Internet.
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