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Strategies to tackle some of the overlooked costs of outsourcing.

Integrating design and manufacturing helps, but only if the & #x0201C;fit” is right.

In many ways, the industrial age has been an era of harvesting natural and social capital in order to create financial and productive capital. So far, the New Economy looks more like the next wave of the industrial era than a truly postindustrial one. Why should we care? Because, say the authors, the basic development patterns of the industrial era are not sustainable. In the face of this challenge, organizational-learning expert Peter Senge and former Volvo and IKEA senior executive Goran Carstedt hail the emergence of a new environmentalism driven by innovation, not regulation & #8212; radical new technologies, products, processes and business models. They describe how more and more companies are recognizing the business opportunities that a focus on sustainability creates. Such a shift in thinking is already evident in many companies and industries. Xerox employed “zero-waste-to-landfill” engineering to develop its 90% remanufacturable Document Centre 265 copier. Interface Inc. is no longer just a maker of commercial carpet tiles, but now & #8212; as a provider of “floor-covering services” & #8212; leases products and later recycles them completely. Such companies are applying learning-organization principles to create sustainable business models. Simultaneously, they become inspirational, energetic places to work, where even relationships with customers and suppliers improve. Nonetheless, ecoefficiency alone will not create a truly postindustrial age. Ecoefficiency gains are laudable but dangerously incomplete, say the authors, as is any strategy that fails to consider how the economic system affects the larger ecological and social systems within which it resides. Only a more integrated view will enable companies to innovate for long-term profitability and sustainability. Industrial-age systems follow a linear flow of extract, produce, sell, use, discard: the “take-make-waste” approach to economic growth. A systemic approach would reduce all sources of waste: from production, use and disposal. How can managers adapt? In stark contrast to industrial-age, command-and-control management methods are the three core competencies that learning organizations must master to profit from sustainability. First, they must encourage systemic thinking so that they can sense the emerging future. Second, they must convene strategic conversations with investors, customers, suppliers and even competitors to build the trust needed to change outmoded mental models about what business success is. Finally, they must take the lead in reshaping economic, political and societal forces that stymie change. True learning organizations stand out by championing business models that foster sustainable growth. According to Senge and Carstedt, no time in history has afforded greater possibilities for a collective change in direction.

Warren Bennis and a panel of experts in leadership development discuss the “legitimization of doubt.”

Most corporate executives are by now convinced that the scale and pervasiveness of technological change requires a fundamental review of business strategy. Web-based technology is creating opportunities to rethink business models, processes and relationships along the whole length of the supply chain. Successful e-strategies translate established strategic concepts into contexts in which they previously were not economically viable. For example, in the 1960s and 1970s IBM won the loyalty of major corporate customers through highly paid account executives who provided so-called relationship management. Today that same concept -- now technologically based -- is being deployed to tailor support to individual consumers. But there is still enormous uncertainty within the business community about the future shape of e-business -- as evidenced by the mood swings of the financial markets and the faltering fortunes of even the icons of the New Economy. The sheer scope of potential change presents some challenges: How can executives make sense of the burgeoning e-business ideas, and where does strategic analysis begin? Behind the new e-business language, how new are the strategic concepts? And what form will a company's strategic e-opportunity take? As a platform for answering those questions and exploring the new strategic landscape, author David Feeny constructs a coherent map of the e-opportunity. He identifies three layers of e-opportunity, or domains, that exist within operations, marketing and customer service. In each domain, technology may enable a radical new vision of what a business can accomplish. Although every business should be considering opportunities across all three domains, the potential significance of each domain and of individual ideas within it will vary widely across industry sectors and businesses.

Because software is an increasingly pervasive part of the New Economy, delegating decisions about its development to technical staff can be risky for executives. Today's general manager needs to have a good grasp of the most effective methods for developing and deploying software products and services throughout the organization. So what is the best approach to software development? Recent research from Harvard Business School professor Alan MacCormack and colleagues proves a theory about software development that has been gaining adherents for some time: The best process is an evolutionary one. Focusing on the area of Internet-software development, the researchers uncovered four practices that lead to success: an early release of the evolving product design to customers, daily incorporation of new software code and rapid feedback on design changes, a team with broad-based experience of shipping multiple projects, and major investments in the design of the product architecture. Among the development projects cited are Linux, the poster child of the open-source movement, and Internet Explorer 3.0. Commenting on the latter, a project in which Microsoft came from behind with a product equal to Netscape's, a team member declared, "If someone asked what the most successful aspect of [Internet Explorer 3.0] was, I would say it was the job we did in componentizing the product." The new research supports componentizing. Getting a low-functionality version of the product into customers' hands at the earliest opportunity was shown to improve quality dramatically. The research also demonstrates that although age doesn't count, experience still does. The more projects shipped, the more capable a programmer becomes. But in environments with rapidly changing markets and technologies, the usefulness of the evolutionary model extends beyond developing software. By dividing tasks into microprojects, a company can tailor the model to reflect any context. Traditional market research has limited value in the uncertain context of the Internet-software industry, and short microprojects are called for, with an early working version for feedback on the product concept. In more-mature environments, however, companies can specify more of the product design upfront, use longer microprojects and develop greater functionality before feedback is needed. Flexibility is key. Thus, an evolutionary-delivery model represents a transcendent process for managing the development of all types of software, with the details tailored to reflect each project's unique challenges.

To grow steadily and avoid stagnation, a company must learn how to scale up and extend its business, lengthen its expansion phase, and accumulate and apply new knowledge to products and markets faster than competitors. Managers can't leave growth to chance. They need a plan that renders consistent sales growth over the long term -- one that captures management's vision for expansion and that addresses the product and market combinations the company intends to pursue, the size it hopes to achieve in a particular time frame and the know-how and organizational structures needed. Such planning has an internal focus. It aims to help a company exert more control over its own fate as it rises to external challenges. Three thriving companies demonstrate three different strategies in action. The Netscape experience shows how a company can scale up -- do more of what it already does well. Netscape went from $80 million in sales in 1995, its first full year of operation, to $500 million just three years later. IKEA used duplication -- repeated the business model in new regions. Established in 1954 as a small domestic furniture manufacturer and retailer in Sweden, by 1999 IKEA had 50,000 employees and a presence in 25 countries. As the authors explain in depth, IKEA's success is tied to the way it manages and transfers knowledge. SAP's growth strategy is an example of granulation -- growing select business units. SAP started with a basic enterprise-resource-planning system, then moved to multiple products for e-commerce and Internet activities. Using one product as a platform, it began allowing customers to fine-tune virtually any resource-planning system. The authors emphasize the importance of combining strategies for growth with explicit strategies for learning. Companies must decide what kind of growth strategy they want to pursue, given their capabilities and market opportunities. They must then make the strategy work by changing their structure and processes in a way that lets them acquire or create specific knowledge about new technologies, customers and industries. The integration of growth strategies and learning strategies is at the heart of success.

Unless an enterprise generates new knowledge and pumps it efficiently throughout its network, it will soon be playing tomorrow's game with yesterday's tools. How are companies facing that challenge? Many rely on an information-technology infrastructure; but no matter how sophisticated, it is not the key to effective knowledge management. Success, say the authors, depends more on the social system in which people operate -- the social ecology of a company. Social ecology drives people's expectations, defines who will fit in, shapes individuals' freedom to pursue actions without prior approval, and affects how they interact with both insiders and outsiders. Focusing on Nucor Corp.'s success in the 1980s and 1990s, the authors suggest that it was the company's social ecology that contributed to it becoming one of the most efficient steel producers in the world. Through effective management of knowledge, Nucor developed and constantly upgraded its main strategic and proprietary competencies: plant construction and start-up know-how, manufacturing-process expertise and the ability to adopt breakthrough technologies earlier than competitors. With financial incentives to improve efficiency, operating personnel developed exceptional mastery of manufacturing processes. And Nucor's employee-oriented practices led to high retention. For example, in recessions, a "share the pain" program prevented layoffs through a shortened work week that affected everyone equally -- and built loyalty. Nucor's social ecology also allowed excellence in the tasks associated with sharing and mobilizing knowledge: identifying opportunities to share knowledge, encouraging individuals to share knowledge, building effective and efficient transmission channels, and convincing individuals to accept and use the knowledge received. Routine measurement and distribution of performance data helped uncover opportunities to share best practices. Pay incentives for work groups instead of individuals were instituted to reward sharing. Nucor also passed along unstructured knowledge through face-to-face communication in plants that were deliberately kept small and through the transfer of people among plants. The authors explain how others can maximize knowledge sharing by setting stretch goals, providing high-powered incentives, cultivating empowerment, equipping every unit with a well-defined "sandbox" for experimentation -- and cultivating an internal market for ideas. It's a difficult challenge. But its very difficulty means that companies tackling it successfully will have a competitive advantage that rivals cannot beat merely by buying the same software.

Of the many ideas that have entered the business world by way of the Internet, few have proved more potent than "online community" in which networked groups of people engage in many-to-many interactions. While community is central to the success of many consumer-oriented Web sites, companies in other industry segments are still learning how to best put community to work. The authors studied 15 online communities to determine how to best establish and maintain such communities. They developed a framework that identifies three activities central to the success of every online community: member development, asset management and community. Continuous member development is required to grow the community and replace members who leave. Communities need clearly defined goals and member demographics to be marketed effectively. Member acquisition and retention is best achieved by using a wide variety of communication tools. Community assets include content, alliances and infrastructure. Asset managers must create member profiles and topic-specific subcommittees, capture and disseminate useful knowledge, and create processes that facilitate member involvement. Communities must evolve over time to meet the changing needs of their members. Community relations establishes guidelines for community members and moderators. While conflict is often welcomed to spur participation, explicit rules help community members police themselves and guide moderators when intervention is required. Moderators must be experienced and rigorously trained. The authors illustrate these lessons in case studies of four kinds of online communities: Kaiser Permanente Online extends the HMO's services to members via the Web. The community improves outcomes and lowers costs by fostering preventive care. Community members interact with each other and with doctors in moderated sessions. Their feedback enables Kaiser to continuously improve its services. About.com operates a news and entertainment network comprised of more than 600 topic-specific Web sites known as GuideSites. About.com's virtual community delivers training services to GuideSite Webmasters, shares best practices, disseminates marketing materials, discusses corporate strategy and encourages collaboration between GuideSites. Sun Microsystems created the Java Center community to foster thought leadership and knowledge sharing among its most senior Java application developers. The community also serves more than 1,000 systems integrators and Sun customers. Community members post project and design documents, links to source code and to other useful Web sites. Ford Motor Company's virtual community encourages engineers to share knowledge, collaborate in work groups, and find knowledge using the company's intranet. Ford's community improves the speed, quality and cost efficiency of new product development. The community provides Ford's engineers access to more than 500,000 engineering documents.

Executives can become so wedded to a project, technology or process that they continue with it even when it’s seriously course.