An Introduction To The Basics Of Economies Business Essay

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An economy can be defined as "the system of activity connected with production, trade and consumption of goods and services of a region, country or others (not necessarily geographic) areas" (John et al., 2008). In an economy, organisations make use of raw resources like labour, raw materials to manufacture product and services which are then purchased by consumers.

Old economy

According to (Robinson) 2000 the old economy was an economy which occurred between the years 1938-1974. It was an economy in which business related activities such as buying and selling activities were done without the use of information communication technology. The old economy aimed at standardised production and competitive advantage was achieved through the fast and economic manufacturing of standard product. This economy focused on incremental cost reduction and a national market place.

New economy

The new economy can be said to be an economy that evolved as a result of the use of technology such as the internet in business related activities. According to It is an economy based on entrepreneurship, knowledge creation and sharing innovation, creativity and utilisation of information technology for developing and selling new products and services (Combe 2006). It is important to note that the new economy does not replace the old economy it only transforms it.

Technology has played an important role in the transformation from the old economy to the new economy, the internet for instance using the World Wide Web (WWW) is being used almost everywhere in the world today for various business activities, ranging from ecommerce to electronic business.

The purpose of this work is to highlight the difference between the old economy and the new economy using three perspectives which are the namely: business perspective, the consumer's perspective and the economic perspective. This work will discuss two issues under the business perspective which are Organisation and production, for the economic perspective this work would compare the following issues between the old and new economy: market, and competition. Finally this work would discuss the issue of 'the buying habits of consumers' under the consumer's perspective.


An organisational structure can be said to be "a formal allocation of works roles and administrative mechanisms to control and integrate work activities including those which cross formal organisational boundaries" (Faulkner 2002). The ways task are structured, structured and coordinated in an organisation are defined by an organisation's structure.

Hierarchical structure was the form of organisational structure during the old economy, the hierarchical structure of the old economy was typical of Max Weber's characterisation of a bureaucracy (Boddy 2005). The hierarchical structure during the old economy allowed for standardised mass production of goods and exercise strict managerial control over the activities. This structure tended not to flexible and was highly bureaucratic (bandyo-padhay 2002). In the old economy duties and functions were well defined and decisions were made at the top, this organisational structure also involves rigorous reporting requirement. One major advantage this structure had is, having a clear and defined path of command, certainty and order. It also ensures that policies are applied consistently throughout the organisation and a uniform image is seen and presented outside the organisation. Communication in the hierarchical structure was usually vertical, as the top management passes instruction down to the lower member of organisation. Lower members of the organisation thus send queries and questions to those above them in the hierarchy, when the need arises. A major disadvantage of this structure is that of communication, communication is usually very slow due to the many layers present in the hierarchy (Boddy 2005). Also there tends to be little moral for staff at the bottom in this type of organisational structure. It also tends to be slow to environmental changes, compared to the network or vertical structure adopted in the new economy.

High and increasing competition in the new economy has put the old hierarchical structure under pressure, their layer were both expensive to maintain and inflexible, thus many organisations restructured their organisations by removing the layers and giving authority to smaller business units or cross -functional project teams(Boddy 2005). This resulted into the emergence of a virtual team or network structure. In the new economy the hierarchical structure began to give way to the virtual teams or network (team) structure. Lipnack & Stamps (1997, cited in Ahuja and Carley 1998) defined a virtual team as "a group of people who interact through interdependent tasks guided by common purpose", "these people works across space, time, and organizational boundaries with links strengthened by webs of communication technologies". Virtual organisations can be said to be made up of a group of companies, acting as one company to fulfil a need in the marketplace (Combe 2006). In the virtual structure task were allocated to a team of people with appropriate skills thus utilising the best and most appropriate knowledge to achieve particular task. The organisational structure tended to be decentralised and flexible compared to the hierarchical structure adopted in the old economy which was centralised and rigid. Decentralisation in an organisation has to do with the ability to distribute decision-making authority throughout the organisation (Weihrich & koontz 2005). The virtual structure adopted the use advanced technology and was capable of responding to market demand quickly. This structure is also democratic compared to the hierarchical structure adopted in the old economy, since employees had better means of expressing their opinions and ideas (bandyo-padhay 2002). The main resource in every network link is its communicative link and ability among its workers.

An example of a company that transformed its organisational structure from centralised(hierarchical)structure to a decentralised(network) one is Daimler-Benz, in 1996 it changed it simplified and decentralised so that its organisation unit could adapt quickly to organisation changes(Weihrich & koontz 2005).


Production management used to be defined as those activities necessary to manufacture products, however, it has been redefined to include activities like purchasing, warehousing, transportation and other forms of procurement of raw materials through various activities until product reaches the buyer (Weihrich & koontz 2005).

During the old economy mass production was the method for production. Organisations produced large quantities of standard products at very low cost which are then 'pushed' to the consumers. Thus in this production strategy there was need for sales and marketing organisation. This was a supplier driven system. This strategy also requires the creation of large factories and specialised department like accounting, and personnel to coordinate activities in the factories. Factory workers in this method of production never knew nor cared about the needs of their customer's needs, however products were very cheap and affordable to customers (Turban et al 2008). The mass production technique was used to satisfy the tastes of majority but not all customers, however this had a major disadvantage of excluding such organisation from the emerging new market of consumers, who were enlightened by wider Tran border communication facilities and wanted specialised products. In this method of production all product are stored in a large warehouse until customer need them, also all customers receive the same type of products. Machines or robots do the main physical work with people assisting the machines.

Unlike the old economy the new economy is a consumer driven economy, there has been an increasing demand by consumers for high quality and customised products. This has lead to what is termed 'customization'. Customization is the process of meeting the specific need of a particular customer. Most companies have to comply with their consumer's needs to sustain their competitive position, this has resulted to a more flexible method of production. Technology made it possible for organisations to meet customers need. The internet has helped market more transparent, helping customers easily locate organisation who best meet their needs. Unlike the old economy the new economy has a flexible production so product can be tailored to meet the taste of consumers. In the new economy according to Kanter in Harvard business review editorial (1992, cited in Papazoglo and Ribbers2006) 'modern organisation involves thinking like customers not like a producer' which has been the norm in the old economy. In the new economy Organisations have to be flexible to the tastes and wants of their customers. As long as the demand for customization was small it could be met.

An example of this is a car production organisation in which customers are told to pay a little more money for customization and wait a little longer to receive their customised car. Another example of an organisation which does customised production in large (mass customization) quantity is Dell computers, a customer could log on to the dell web site and describe the specification of laptop he want relating to the memory space, processor speed, motherboard type laptop colour and get it delivered in a few days, compared to the old economy where a customer has to pick a specific laptop model manufactured for all. Production in the new economy involves the integration of production, services and feedback received from individual customers.


Competition is a very crucial in every organisation operating in a commercial environment. According to (BNET Business Dictionary) Competition is defined as rivalry between companies to achieve greater market share, of customer, Competition often leads to product innovation and improvement at very lower prices.

During the old economy competition was local and between organisation within the same region or state, competition in this era was limited to organisations within the same country (Combe 2006). However in the new economy due to efficient and effective telecommunications, good transport link, and also the availability of capital organisations have driven to a global scale (Boddy 2005). In the new economy organisations are not limited by boundary of their country. This resulted into global Competition. In the new economy competition is on a global and international scale, we now have multinational and transnational companies. Technology advancement has lead to customers all over the world wanting the same product. The internet has also been major factor that has lead to this transformation. The global scale of the internet has lead to a strong increase in competition on a global scale, as organisations now come from various geographical boundaries to compete for the same market (Paoazoglou and Ribbers2006).

The operation of large organisation on a local scale is not enough, organisations in the new economy are now going on a global scale for various reasons. One reason for this is customers in the local market have become small for some organisation therefore organisations want to get more customers worldwide. Another reason is in the new scale most organisation see the world as a single market place contrast with the old economy where organisations see market with respect to countries. Factors which attracted organisation to particular state during the old economy include low tax, cheap land abundant low price labour, adequate natural resources good transportation network and other infrastructure. However in the new economy infrastructure emphasises more of information flow to physical infrastructure like roads information infrastructure is more essential and also the need for not just cheap labour but educated and highly skilled labour (J.P Robinson.2000). Products in the new economy are developed as identical local brands with standard practised and a centralised management. It also involves a high degree of centralised planning with major decisions made at the centre (Boddy 2005). In the new economy global competition is encouraged by the removal of market borders between countries.

An example of a country which experience tremendous an increase in global competition is the United States in which its import and export growth between the 1960 and 1997 was of 1.5 times faster than its domestic growth(J.P Robinson.2000).

Another example of an organisation which competes globally is Mac Donald's restaurant opened by Ray Kroc in 1955 in the United States by the year 1995 it had over 18000 restaurants in 89 countries by the year 2001 Mac Donald's had more than 29,000 restaurants in 121 countries of the world. Great percentage of the restaurants profit comes from international operations (Weihrich & Koontz 2005).

Industry structure

The structure in the old economy was based on manufacturing (Combe 2006). Manufacturing involves the transformation of raw materials into finished product. Manufacturing has to do with the production of tangible and physical goods. Industrial structure in the old economy concentrated more on the manufacture of tangible products like cars, shoes, airplanes e.t.c.

In the new economy the manufacturing sector has taken a setback given way to the service related activities. Service activities are activities which involve the transaction of intangible activities (Boddy 2006), an example of a service related activity is lecturing in a university, rendering Legal service. There has been a shift, the new economy differs in various way from the manufacturing structure adopted in the old economy. Services have to do with the rendering of intangible and non physical product. Services are labour intensive, cannot be mass produced, and cannot be stocked. It also involves a high degree of interaction with the customers, contrast with manufacturing in the old economy which there is rarely physical contact between customer and manufacturing plant itself. In the new economy there has been an increase in the number of people that provide intangible product like schools, banks e.t.c. for example in North America Service has improved three times that of the manufacturing sector. In the new economy most industries are migrating from the manufacturing sector to the service sector (Daft 2000).

An example is the transformation of General Electric from production to service. General electric a company known for production of variety of products ranging from magnet scanners to magnetic resonance imager recently started providing service related product such as maintenance of medical systems and overhaul of aircraft engines, service and maintenance of power plants, servicing of railroads and rendering help in cooperate computer network. This resulted in the up to 60 percent of General Electric's (GE's) profit. (Weihrich & Koontz 2005). Another example is the Royal Bank of Scotland group (RBS) the manufacturing sector is divided in to three areas which are telephony, operation and service. RBS since 1999 get as increase income of 14 percent a year while staffs in the manufacturing sector have remained static (Boddy 2005).

Buying habits

Buying habits can vary in so many ways, it is primarily concerned with why consumers buy things, how they buy what they buy and why do they buy. People buy what they buy for various reasons.

In the old economy consumers made most of their purchases at stores and marts, also in the old economy, people buy things at specific shops not out of great emotional conviction but simply because their role models, parents or mentors on Television does so. Customers in the old economy always tend to express this type of pseudo loyalty contrast to in the new economy customers are information empowered and more selective about where and how they spend their money. Customers in the new economy before buying things they compare the prices and quality of what they are buying with other products, read and discuss about new product (Lewis &Bridger 2001). Consumers in the new economy whenever possible try to avoid try to avoid mass produced and marketed goods. Also in the new economy most consumers preferred making their purchases online rather than going to a store to get the same product.

A recent survey by the national statistic showed that in 2009 18.31 million people have internet access and out of this number 64 percent of all internet users in the United Kingdom have ever purchased goods and service on the internet. Also of this figure 83 per cent (26 million) had purchased within the last three months, with little difference between the proportions of men and women who made recent purchases.