Sustainable Competitive Advantage for the New Global Enterprise

Only Knowledge Matters A Retrospective and Prospective View

Revised

A whitepaper from David M. Sherr

New Global Enterprises

david@NewGlobalEnterprises.net

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Table of Contents
Executive Summary ............................................................................................................ 2 The long game of Only Knowledge Matters ................................................................... 3 Competitive advantage from knowledge is an infinite, global game.............................. 4 1865-1918: Two wars made United States into strongest economy in a globalizing World .............................................................................................................................. 6 The Civil War sets the stage: an Industrial North defeats the Agrarian South ........... 6 World War I completes the transformation: financial center of the universe shifts from London to New York ......................................................................................... 7 Going forward: That 20th Century US advantage is gone ............................................... 8 Frequent, near-continuous enterprise change inevitable ..................................................... 9 Impact on the New Global Enterprise ............................................................................. 9 Impact on products and processes: The Production of Means .................................. 10 Impact on people: Continual Learning ..................................................................... 10 Invariant processes within continual transformation ........................................................ 11 Core competencies of the New Global Enterprise ........................................................ 11 Enterprise resizing path ends at a New Global Enterprise ........................................ 11 The Invariant Processes of Knowledge Management ................................................... 12 Intellectual Capital Management .............................................................................. 12 Commitment Management........................................................................................ 12 Business Process Management ................................................................................. 12 Knowledge Transfer.................................................................................................. 12 What to do about all this? Transform! ............................................................................. 13 1. Customer focus is necessary, but not sufficient ........................................................ 13 2. Innovate in management and through organizational redesign ................................ 13 3. Operate from first principles not with best practices ................................................ 13 4. Alter legacy thinking and deliver legacy systems as flexible services ..................... 13 5. Build environments conducive to learning and knowledge creation and transfer .... 14

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Executive Summary
Only Knowledge Matters: it is the last bastion of competitive advantage. It is an infinite gameknowledge continuously commoditizing knowledge. Ergo, the New Global Enterprise innovates and morphs frequently to remain competitive. And so, products, processes and people must change, near continuouslybut NOT the Ecosystem. So, if markets are constantly changing as are the processes to accommodate and support them, what are the invariant processes of the New Global Enterprise? Do invariant processes exist at all, or, is everything continually in flux? Knowledge Management is the immutable Core Competence of the New Global Enterprise. There are three subordinate, invariant processes that form the New Core Business Process Infrastructure: (1) Intellectual Capital Management, (2) Commitment Management, (3) Business Process Management, and, (4) Knowledge Transfer. The current, wide-scale corporate activities in down-sizing and right-sizing with the concomitant outsourcing of non-core processes logically leads to a New Global Enterprise. Resizing devolves an enterprise and its component business units into the Handy Cloverleaf organizations: Core Managers business strategy models and IP are the Intellectual Capital, out-sourcing/in-sourcing contracts are the Key Commitments, Business Process design is the central core competence, and, selecting/switching Tactical Partners and allowing the Adaptable Workforce to operate efficiently and effectively requires Knowledge Transfer both to and from them. The essential characteristics of the New Global Enterprise are agility and flexibility in organizational boundaries, processes and communications across those boundaries while ever increasing the ability to produce and consume large quantities of information. The challenge is to build the Enterprise per the Handy Cloverleaf model by focusing on the invariant business processes that are defined, operated and measured by an organization that is lean and agilemade of a small set of Strategic Managers who define the Intellectual Capital, a group of Tactical Partners with whom Key Commitments are made, executing Business Processes with the Highly Adaptable Workforce to and from whom Knowledge Transfer is effected on a need-to-know basis with them and the Tactical Partners.

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The long game of Only Knowledge Matters

The year 1993 was one of convergence for a key force and a fundamental idea. It was a year of a great synthesis that has held in good stead to this day and, most likely, for years to come. The key force, the World Wide Web, was in its inchoate commercial form and about to form the World Consciousness. It would destroy any advantage that people or companies held in the arena of having special information or control of information. From May to September 1993, the Program Committee organized the Networking Track for the Annual UniForum Conference (the largest Unix business conference of that day) to include tutorials and sessions on the Internet. The fundamental idea, the postulate that Knowledge is the last bastion of competitive advantage, was introduced by Lester Thurow, then Dean of MITs Sloan School of Management. He was the Keynote Speaker at the InterOp Conference (focused on networking and communications), May 1993 in San Jose, CA. As he was an Educational strategic manager, his main thesis was that education was the paramount economic infrastructure for any country wanting its citizens to compete in the world economy. The World Wide Web would become the key new infrastructure for the 21st Century. Thurow formulated the expression mechanism for the specific memes drawn from two books: Charles Handy (The Age of Unreason, 1989) and Alvin Toffler (Powershift, 1990). These memes are focused in the commoditization of factors that consign competitive advantage followed by the resulting changes in enterprises and people. Handy explicated the loss of tribal knowledge from reduction in the skilled labor forces in English speaking countries. The impending retirement of Baby Boomers would change the organizational structure of enterprises (radical streamlining) and the way in which people would allocate and manage their time into portfolios of work, family and leisure. Toffler foresaw the power of the World Wide Web and Internet in reducing asymmetries of Information between consumers and providers of products and services. Moreover, he described the Powershift from production-controlled to consumercontrolled markets. The new global communications infrastructure allowed consumers to drink deep from the Wellspring of the Internet, and thus they became not just knowledgeable and quite effective in driving efficiencies into markets. Dr. Thurow was confluent with Handy and Toffler by attributing the effect of this shift to the economic supremacy of Knowledge. The long journey to the reign of Knowledge as competitive king began first with Natural Resources as the sustainer of competitive advantage. These were superseded by Capital Availability. And further Capital Availability was eclipsed by Technology Ownership. Then, the path ended in Knowledge commoditizing Technology Ownership to become the last bastion of competitive advantage. Knowledge Management is the thread that weaves these ideas together. In his 1993 InterOp Keynote, Thurow opined about the four stages of sustainable competitive advantages to support his arguement for more funding of IT and Business Research in Higher Education. In this whitepaper, the stages have been embellished with the color and tenor of an historical setting and corresponding controlling agents. They have been
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worked and refined in the past dozen or so years to a point beyond where Thurow may disown the conclusions drawn here. So be it. Knowledge is the ultimate reusable and renewable resource, limited only by the experience and mental capabilities of the entire human race, now over six billion strong. A one-in-a-million thinker denotes potentially more than 6,000 people. So we all have lots of company in our seemingly unique thought processes. And this is only of those living now! I have maintained for a very long time, moreover, there are no new ideas and that is a very old idea itself.

Competitive advantage from knowledge is an infinite, global game

Now to the argument for the Sherr Corollary to Thurows Only Knowledge Matters Postulate: Competitive advantage from knowledge is an infinite, global game. Economic globalization is not a new phenomenon, going back over 700 years. It scaled up dramatically after Marco Polo established the diplomatic relationships between Popes Nicholas IV, St. Celestine V and Boniface VIII and the Great Kublai Khan in the 1290s. Two hundred years later, Columbus discovered the New World. This is said with full apologies to Leif Erikson and St. Brendan. Leif and St. Brendan arguably did it four and nine hundred years before Columbus, respectively. However, these two explorers did it without the intent of general economic exploitation. This whitepaper is about economic exploitation in the most benign sense, of course. In broad strokes, the first important date for the sake of the Sherr variant of Thurows argument here is the 15th Century which nominally ushered in the beginnings of Capitalism. It was at that point in history when availability of Capital began to commoditize Natural Resources as the conveyor of sustainable competitive advantage. Availability of Capital itself was to start being commoditized by Technology Ownership Rights and the concomitant Industrial Revolution at the close of the 18th Century. The Industrial Revolution continued into the 20th Century until the 1970s when the Computer-Communications revolution kicked into overdrive facilitating Knowledge and its Management as the ultimate commoditizer, even of itself. Before 1400, the main source of competitive economic advantage was Natural Resources. It was protected or garnered via geography and armies. Many civilizations flourished during this period, Sumerian, Egyptian, Asia Minor, Mediterranean, Mayan, Incan, South Asian, Chinese, Mongol, Meso-Mexican, to name a few. They all had natural resources as the center of their advantage which was protected or garnered via geography and/or armies. While Trade and Exploration existed during these times, it did not automatically support sustainable advantage. With the invention of the large sea worthy sailing vessels and the general availability of Capital from the early Renaissance surplus production, Natural Resources were commoditized as advantage sustainers. It is posited here that perfection of the horse collar in the late 11th Century allowed a great increase in agrarian production in Europe. Marginal lands were able to be brought into production. The population,
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however, tracked the with the food increases (thank you, Rev. Malthus) which did not allow for much surplus generation. Plus, the Feudal social organization concentrated wealth in the lords and kings who indulged in extravagances and wars. Enter The Black Plague in the 14th Century which decimated the a third of the European population without concern for class or age. All of sudden, the serfs who did the work and the vassals who managed and conveyed the wealth to all the Feudal lords literally fell away from the socio-political body. Feudal estates lay dormant and a great depression ensued with the attendant social disorder. The Church was faltering in its ability to collect its tithes while the ranks of the priests and new entrants were decimated by plague, as well. Order was fragile and lack of food precipitated unrest. The fabric of European society frayed beyond repair. By the beginning of the 15th Century, the Lords of Germany made a radical offer: they offered wages for workers to resurrect their idle lands. Presto, the seeds of a wage economy were sown with a free market in labor. Now there was a direct connection to how much a person worked and what they received for it. When land was brought back into production, the more fertile areas were revived first, thus, making the production even more effective. Together with the higher-yield fields, motivation of the workers to produce and, most importantly, having to feed only two-thirds of the former population, huge surpluses were generated. Add to this the plundering of gold, silver and other resources from the New World which greatly increased the money supply. All tolled, it added up to the critical mass for Capital generation which commoditized the advantage of natural resources as explorers and traders connected to the World distributing Natural Resources readily anywhere. Geography and armies grew as the entire world was discovered. The surpluses and extracted booty served to capitalize more explorers and traders who were the facilitators of Capital as the Mercantile Capitalist Revolution swept through the Western World, much as it is doing in China today. These Dukes, Kings and Popes of the Capitalist revolution invested heavily in the arts and sciences and technologic innovation, despite the Churchs antipathy for the likes of Copernicus, Galileo and their heliocentric theory of the cosmos. Martin Luther attacked the hegemony of the Church from the inside with his 95 Theses of Worms, nailed on the Church door one day in 1517. Guttenbergs introduction of the printing press in 1453 had precipitated the Protestant Reformation by creating free enterprise in God. The first major use was to print Bibles and other collections of philosophy and ideas. Prior, Bible replication was the exclusive province of monks in monasteries since the decision of the Council of Niacea established the official version in 325 ACE. In the 15th Century, a 1200-year monopoly was broken. Not only was it more efficient (about 50 time faster since it took a monk about six months to copy a bible), but it was also more accurate. More importantly, it wrested the interpretive control of the word of God away from the Church. Ready access to Bibles allowed common people to read it and have opinions about the origin of the cosmos. Carlos Ginsburg in The Cheese and the Worms relates an exemplary story of the persecution of an heretical miller during an
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inquisition in Germany in the 17th Century. The monopoly may have been broken, but religious doxology did not surrender easily. Today the fight is for Creationism (thinly veiled as Intelligent Design) to have equal secular educational standing in expanding quarters with Evolutionism. By the 18th Century, Technology Ownership began to supersede Capital Availability as the source of sustainable competitive advantage. The Industrial Capitalist Revolution ensued. Technology was not solely responsible. Protected ownership was the critical factor. Technology was under continued development from the advent of the first stone tools, but it is the accompanying Intellectual Property rights to inventions that are the active ingredient. Without such protection, advantage from Technology without Intellectual Property protection is fleeting as it will be copied readily by all. The US Constitution established the Patent Office in 1785. So the State is the protector along with commoditized (read low-cost, readily available, anywhere) Capital. The capital is used to build factories and create logistics systems in the form of high grade pathways for railroads, steamboats and eventually trucks. Of course, this was all made possible by the concentration of surplus populations in urban areas. Agriculture needed fewer workers as it continued to grow more and more productive and efficient through technologic innovation, the Good Reverend Malthus theory notwithstanding. We see this agricultural productivity growth continuing today with a great debate as to whether it too has reached its limit.

1865-1918: Two wars made United States into strongest economy in a globalizing World
Technology Ownership conveyed sustainable advantage from the mid 1700s till around 1970 which was focused mainly in Europe. Again each driver of sustainable advantage contained the seeds of its own demise as the advantage provider. Industrial growth fed science and technology development. This in turn produced more innovations that converted into monetized Intellectual Property on the means of production. Education in the fields of science, technology and engineering fed the brain power necessary to keep the Industrial Revolution engines humming. As more countries industrialized, the ability to compete became more widespread. The British Empire enjoyed a formidable vertical integration: colonies providing Natural Resources, a merchant and military fleet to transport both raw and finished goods to and from anywhere, and a strong Industrial capability. By the late 19th Century, Britain, Germany, France, Holland, Portugal in Europe, the US in the New World, and Japan in the East were building similar capabilities. But London remained the center of the financial universe managing, trading and dispersing the lions share of Capital.

The Civil War sets the stage: an Industrial North defeats the Agrarian South
The Civil War in the US was a struggle between a Southern mercantile capitalism based on a plantation agrarian economy and the Northern based on bourgeois manufacturing. By 1860, the US was a country at the crossroads between becoming the single entity it is today in the contiguous 48 states or roughly four countries that, interestingly, are today the service areas of the remaining reconsolidated Baby Bells as of 2004: Verizon,
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Southern Bell, Ameritech and SBC. The four areas were being integrated with a network of railroads. There was no Northwest Passage to connect the Atlantic and Pacific. Moreover, the Mississippi which did the trick North to South and the Great Lakes provided Mid-West to East connectivity. However, west of the Mississippi, the Rocky Mountains proved to be a great dividing wall. So Rail became king of transportation. But socio-economic differences still reigned. California and Texas were wrested in 1848 from the Spanish added a strong Latin European flavor to the United States and its Territories. Out of the Civil War was born a nation of Destiny. The price paid was the most American blood spilt in any warculturally a war that still is fought on many levels today. But, once the Union held and economic expansion began, human labor was needed to use the natural resources and infrastructure of the railroad-unified and developing country. From 1847 to 1924, more than 40 million immigrants disembarked through the ports of New York, Philadelphia, Boston, New Orleans and San Francisco. Over half of US citizens today can trace their roots to these ships. Political control consolidated with a well-developed infrastructure. All land more or less populated, growth in Capital creation and management was set in motion. It is interesting to note that the top four centers of asset management in the US today, in decreasing rank, are New York, Charlotte, San Francisco and Chicago. What makes this interesting in this discussion here is that they are located each in one of the Baby Bell service areas. Verizon contains even more with Boston, Philadelphia and the DC Metro Area. Of course, Bell South has Atlanta and Charlotte, SBC has Houston, Dallas, Austin and Seattle-Bill Gates, and Ameritech has Minneapolis-St. Paul, Kansas City, St Louis and Omaha-Warren Buffett. Each of these cities has been an economic center that was also a financial-political power in the late 1800s. Further telecom reconsolidation is leading to only two left standing: Verizon and AT&T (SBC having absorbed the residual AT&T formed in the 1984 divesting of the seven Baby Bells).

World War I completes the transformation: financial center of the universe shifts from London to New York
In a commoditized world, the very large are the winners. And, through the 19th Century, Londons control of Capital was huge, Frankfort, Paris, Amsterdam, Lisbon, New York and Tokyo financial centers, notwithstanding. But then on the brink of the 20th Century, Europe was pushed into the great destructive WW I in 1914. The prosecution of WW I sent Europes capital to the US to buy the materiel of war. Thus, the center of Capital shifted to New York. US Capital domination followed from the development of the invention of the telephone, steel reinforced concrete and the elevator. This facilitated (1) vastly improved business communications and (2) the building of vertical cities with large concentrated populations engorged with the massive immigration. On the heels of the US surpassing Great Britain as the largest manufacturer, the 20th century then saw formation of large corporations like US Steel, Standard Oil and General Motors and Bell Telephone.

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Technology Ownership conveyed huge competitive advantage to the US until about 1970 when large scale integrated circuits and local come global networking technology began to support the rapid production, conveyance and analysis of large amounts of information along with the easy distribution of said same. This allowed increased globalization and encouraged the great influx of foreign students to the US higher education system. The initial brain drain from foreign countries to the US eventually reversed itself. Together with the improved education systems in India, China and Japan, the phenomenon of reverse engineering of protected technologies began to reduce the US advantage in protected Intellectual Property. In short, Knowledge commoditized Technology Ownership. The memory chip industry, disk drive industry, and consumer electronics are three of the most striking examples of globalization of commodity markets. Heavy equipment followed as well with knowledge driven, short-cycle innovations.

Going forward: That 20th Century US advantage is gone

At the leading edge of the 21st Century, the world economy stands at the beginning of shorter product cycles, faster moving markets and short-lived competitive advantages. All this derived from freely and rapidly moving information and virtually instantaneous knowledge diffusion. As my then 15-year old son said to me in 1984 when I noted that kids are more comfortable with electronic devices and computers than their elders, Its a New World, Dad!

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Frequent, near-continuous enterprise change inevitable

Global competition in all sectors of the economy has become a hard reality. This includes services as well as manufacturing in high tech and low tech industries and in consumer as well as industrial sectors. Education and low-cost global communication capabilities facilitate this state of affairs. According to Thomas Friedman in The World is Flat (2005), rugged adaptable entrepreneurs will be empowered. These entrepreneurs can operate both within and without large and small enterprises alike. The World economic system is exhibiting all the characteristics of Schumpeters Creative Destruction. It is happening nowthe shift in focus from managing production and definition of work to focus on serving global markets and clients via very fluid value networks. This is the subject matter of Joseph Pine and James Gilmore, The Experience Economy (1999). In short, the Value is in Experiences. People get bored with the same experience over time. Thus, the Experience must change to continue to deliver Value. And so the Enterprise must change and stage experiences for clustomers and workers to continue to be market centric.

Impact on the New Global Enterprise

For most of the 19th and 20th Centuries, corporate focus evolved to create and maintain (1) production controlled markets, and, (2) share of those markets. This allowed business strategists (a) to concentrate on fairly long product cycles, and (b) to optimize product design and production against predictable patterns of promotion, delivery and consumption. In the 21st Century, to stay competitive, the focus must be on Return on Assets at Risk knowledge being, perhaps, the most important assetwhere Value is created and delivered, in collaboration and in real-time, with Clients and Network Partners. With the enterprise changing near continuously, the horizon for measuring Return on Assets at Risk will be relatively short, and the minimum acceptable return on all assets is the cost of money plus epsilon (a small positive amount which accretes vastly due to the miracle of compounding). The challenge is in getting paid for value delivered and being able to transform the enterprise quickly to accomplish that end. It is about deploying virtually all Capital to these places that find, deliver and facilitate payment for Value, in short, the areas of greatest competitive advantage. Fixed costs MUST be minimized to allow competitive levels of agility since Value is a shifting target. Thus, the key characteristics of the New Global Enterprise are agility and flexibility in (1) organizational boundaries, (2) processes and communications across those boundaries while (3) increasing ever the ability to produce and consume large quantities of information. The organization is the Handy Cloverleaf composed of (a) Core Managers of Assets who create business models and strategy while engaging with (b) a Changeable Group of Tactical Partners, and, all of whom utilize (c) a Highly Adaptable Workforce the infrastructure of the value delivery is Business Service Networks.
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The Internet is the Global Enterprise Communications Backbone and supports a 24-Hour Global Market and Ecosystem by (1) reducing advantage from information asymmetries, and, (2) rendering capital, location and time virtually inconsequential. E-mail and the World Wide Web are the killer applications on the Internet, providing almost instant communications and the sharing of knowledge: The effect is any product-service, at any time, to/with anybody, in any placethere a few barriers to entry for the innovators any where in the World with lower labor costs than the Developed countries. A few are in the news today: China, India and Eastern Europe. Time to update Horace Greeleys advice: Go farther West young man. The World may have become flatter, but it is still spheroid, and devolving to a point.

Impact on products and processes: The Production of Means

From the 18th to 20th Centuries, workers became more and more a part of the Means of Production rather than being independent economic operatives as their agrarian, artisan or merchant forebears were. Whether producing a Model T Ford or a Maytag washing machine, handling an insurance claim, or opening a bank account, work was increasingly organized into assembly lines producing goods or into business workflows rendering servicesMBAs studied Operations Management to learn how to analyze and optimize this type of work. The commoditization of key knowledge assets facilitates the migration of Core Competencies into Context, and so, work will focus forward on the constant Production of Means to renew the Core. The New Global Enterprise will require the constant disassembly of old productions lines and assembly of new onesMBAs need to study how to manage effectively under uncertainty, as the Means will be changing constantly to address changing market needs and modes of competitionall with shifting alliances within possibly many value networks.

Impact on people: Continual Learning

The effect on People at work will be for them to be Highly Adaptable and Employable instead of just fixed employees. People will need to constantly learn and update their skills and capabilitiesthey will become integrated instead of the jobs being differentiatedthe most important skill/capability being able to cope with and to operate in uncertain and changing environments. Thus, the key characteristics of the New Global Operative are agility and flexibility in adopting and adapting to new processes while honing the ability to produce and consume large quantities of informationlearning being the Core capability. People will manage portfolios of time diversified amongst family, professional tasks, leisure and other activitiesbecause their skills and knowledge will be needed, Boomers in the US will not fully retire and they will complement where younger and/or non-US resources cant or wont.

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Invariant processes within continual transformation

The New Global Enterprise innovates and morphs frequently to remain competitive. And so, products, processes and people must change, near continuouslybut NOT the Ecosystem. The Ecosystem changes too, but much slower. So, if markets are constantly changing as are the processes to accommodate and support them, what are the invariant processes of the New Global Enterprise? Do invariant processes exist at all, or, is everything continually in flux? While there may be Core Processes that do not dissolve into Context, the one area that will remain invariant under change is Knowledge Management. The terms Core and Context to differentiate among Business Processes that are Competitive Advantage and Required for Business, respectively, was introduced by Geoffrey Moore in Living on the Fault Line (2000). Little did he know when the book was published that the fault line would undo of the Internet Boom, not the extant enterprises on the seam where he sees the Internet meets traditional business. Now that the dust has settled after the collapse and we are back to business growth as usual, the idea is still valid. In fact, it is more valid than when he developed it since Value is the only value again uncontaminated by hype. Knowledge Management always contains the invariant processes of transformation. KM is Business Process Infrastructure. Regardless of whatever Core is needed or changed, a sustainable enterprise needs to develop well a Core Competence in this KM arena. These Core Competencies are essential to managing Core and Context Business Processes, alike. In fact, a Core Competence is being able to distinguish between Core and Context and to recognize when Core slips into Context..

Core competencies of the New Global Enterprise

Enterprise resizing path ends at a New Global Enterprise
Out-sourcing and down-sizing are not new phenomena. In combination with the drive for lower cost structures in businesses and shrinking margins, the result is continual pressure to transform organizations and their business processes. Global Communications Infrastructure includes private networks as well as the Internet. This has allowed companies to exploit lower wage structures in China, India and Eastern Europe for the Knowledge Work (Services) that has become a larger proportion of the Global Economy. The danger is that enterprises may go through the sizing processes too far. It theoretically should be: Resize, Downsize, Rightsize. But, if managers do not get it right, then their enterprise will Capsize. As noted above, the logical conclusion of resizing results in the Handy Cloverleaf organization. It is composed of (a) Core Managers of Assets who create business models and strategy while engaging with (b) a Changeable Group of Tactical Partners, and, all of whom utilize (c) a Highly Adaptable Workforce.

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The Invariant Processes of Knowledge Management

Intellectual Capital Management
Intellectual Capital encompasses (1) Business Strategies, (2) Business Models, and, (3) Intellectual Property. Business Strategies set the vision and direction, Business Models define how the money is to be made and sustained, and, Intellectual Property Documentation and Protection defines and conservers the key competitive knowledge.

Commitment Management
Commitment Management encompasses sets of (1) Acceptable Counterparties, (2) Standard Terms and Conditions, and, (3) Templates for Business Processes and Active Contracts. Acceptable Counterparties are those with whom deals are done, Standard Terms and Conditions how deals are struck and implemented, and, Template and Active Contracts structure the deals and record the deals, respectively.

Business Process Management

Business Process Management encompasses the analysis, design, deployment and monitoring of both Core and Context Business Processes. A subsidiary function under Business Process Management is Workflow Management which derives and implements Business Processes. Business Rules Management is the key connector between Business Process and Workflow. Business Process is concerned with significant Business Results (the What) while Workflow is concerned with the methods and mechanisms (the How) of those Results are realized.

Knowledge Transfer
Knowledge Transfer encompasses (1) Representations of Business Knowledge, (2) Processes and Methods to manage Business Knowledge, and, (3) Processes and Methods to deliver that Business Knowledge on a need-to-know basis. Representations of Business Knowledge include reference states and behaviors as well as a grammar and syntaxthe Business Knowledge being created, stored, updated and displayedand are conveyed to and used by those Partners and Workers to perform just those tasks and processes delegated to them.

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What to do about all this? Transform!

Agility, flexibility and transformation are the currency of durable competitive advantage for the 21st Century Enterprise, the New Global Enterprise.

1. Customer focus is necessary, but not sufficient

Customer centricity is essential as a starting point in identifying value. There was a time, according to Michael Porter, when strategic advantage could be conferred by being great in Customer Intimacy and adequate in Product Superiority and Operational Excellence. Now it is great in two, if not all three of these dimensions.

2. Innovate in management and through organizational redesign

Management and organizations need to be redesigned according to strategist Gary Hamel (of Strategos and Competing for the Future fame) at a November 2006 Banking Administration Institute annual conference. New models of work environments are moving beyond the latest Industry Architecture innovations. Management Innovation includes examples such as (1) the democratization of work like at Whole Foods where each store and department is an independent, self managing unit or (2) the absence of titles or any fixed departmental structure in places like WL Gore where everyone decides what they work on.

3. Operate from first principles not with best practices

If one benchmarks an enterprises based on best practices, then that enterprise will not operate much differently than the benchmark base. There will be little differentiation. Transformation results come from going back to first principles. One needs to challenge common beliefs to separate Timeless Truths (Laws of Physics) from True but Regrettable (People are willing to overpay for risk and/or variance reduction.) from Untrue but Unchallenged (Behavior follows beliefs). Best Practices assume that one wants ones enterprise to be among the crowd, albeit, operating at a better level. In the deconstruction of the old, new first principles are articulated from which operatives in New Global Enterprises can innovate.

4. Alter legacy thinking and deliver legacy systems as flexible services

The main issue in transforming enterprises to be adaptable to provide durable competitive advantage lies not in IT per se. It is not the hardware nor the software, but people and their corporate culture (collectively, the wetware) that is the impedance to change. Transforming IT is a matter of architecture and engineering, a difficult but doable task given the business case connection of the re-architecture and re-engineering. This is the promise of Service Oriented Architecture and a shift towards asynchronous, decoupled message oriented computing. This shift is a ten-year journey and will drive IT spending for the next decade. Legacy thinking is strongest amongst the management layers of modern enterprises. Individual contributors are willing to adopt and adapt to new methods and organization structures.
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If the focus on customer delivered value takes root, then management will have no choice but to surrender their legacy beliefs and attitudes.

5. Build environments conducive to learning and knowledge creation and transfer

Walter Wriston was the builder of Citicorp into the world powerhouse bank in the 60s and 70s. He was fond of saying that Information is the New Money. Carrying this idea to its logical conclusion, then, Knowledge is the New Asset of Wealth. Virtual manufacturers have used Information integrated into Knowledge Assets to generate orders of magnitude greater returns on investments than with traditional bricks, mortar and steel manufacturing. In this new regime of Knowledge being the main source of durable competitive advantage, core competencies will be found in environments that support and encourage learning, that provide methods and mechanisms for Knowledge creation and its transfer both within and from without an enterprise.

Only Knowledge Matters.

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