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This chapter is from the book

The Urgency of Change

As is clear, both from Schumpeter's and Drucker's views and from the current rate of industrial churn, change is a fact of competitive life. Furthermore, the rate of change is accelerating. While this is not particularly surprising, what is surprising is how often changes have come as surprises, even to very successful firms. Many of these surprises, however, happened not because the new ideas were unknown in advance to the leading firms. In fact, many of these companies actually invented the new methods that ultimately destroyed them.

Eastman Kodak still survives, and it invented many of the technologies in modern digital photography. Eastman Kodak, however, is not a market leader in digital photography. Similarly, Texas Instruments invented many of the methods used in developing and manufacturing integrated circuits, but TI no longer leads the semiconductor industry. The reason organizations are often surprised by technologies they already know is that they refuse to accept the implications of what they know.

For example, IBM management knew very well that the personal computer was coming and that it would be big business. They also knew that programming was an increasingly important part of the computer business. However, because IBM never put these two facts together, the company literally gave the PC programming business to Microsoft. Within a few years, Microsoft jumped from being a small start-up to being a major corporation with a market value even greater than that of the once-mighty IBM.

IBM management's lack of vision probably can be attributed to the fact that its executives and senior managers had long thought of programming as an expense. Until 1968, IBM had always given its software and systems engineering services to its customers as a part of its hardware support. Even 13 years later, when IBM introduced the PC in August 1981, its executives could not visualize software as a potentially profitable business opportunity. Today, IBM's software and systems engineering services generate more revenue and are more profitable than its hardware businesses. In fact, only a few years ago, IBM actually spun off its printer and disk drive hardware businesses. Old attitudes are hard to change, and IBM management's outdated attitudes were nearly fatal for the company.

The problem in large corporations is not a lack of vision; it is a lack of courage—the courage to recognize that the world is changing. Leaders must recognize that the things that made them successful in the past are not likely to be the things that will keep them successful in the future. The question, of course, is: "What will make organizations successful in the future?" The answer is that nobody really knows, and those who say that they do will almost certainly be proven wrong. What we do know, however, is that the problems that both large and small businesses will soon face will be different from those of today, and they will principally concern management. We also know that these problems will likely be of two types.

The first type of future problem concerns questions of scale. Small businesses typically grow faster and are more dynamic than larger ones, at least in part because they are not burdened by the problems of size. The question, then, is how a business can grow and be successful without being choked by its own size. Businesses have long faced this problem, but with the Internet and the new flexibility of the "flat world," these size problems are now quite different from what they were just a few years ago [Friedman 2005]. For example, in the past, the big issue was numbers of people and spans of control. Today, while we still have the span-of-control issue, the scale problems also include managing geographically distributed groups, mixed cultures, and heterogeneous technical teams. Clearly, mastering the problems of size in this increasingly complex environment will be more challenging and more important than ever before.

The second set of future problems has been with us for some time but has largely been confined to the specialized field of software. These problems concern knowledge work and knowledge workers. As Drucker pointed out, knowledge work is work that is done in the workers' heads rather than with their hands. While we have long had knowledge workers, traditionally there have been only a few of them on most projects. The vast bulk of the work has been done by technicians and less skilled laborers or factory hands. Today, most technical work looks more like software engineering, where the workers make creative decisions and produce work products on computers. Knowledge work is the key to the future, and those who master this discipline will be the industry leaders of the twenty-first century.

The fact that knowledge work requires a new management strategy and style is obvious from the history of the software business. Software projects have always been hard to manage, and few software groups, even today, can consistently deliver quality products on committed schedules or for anywhere near their planned costs. Software development was the first technology to involve large-scale knowledge work, and while software work has always been a management problem, traditionally it has involved only a small part of most businesses.

As knowledge work becomes pervasive, new corporate management strategies will be needed. Software and other forms of knowledge work are becoming increasingly important as they involve a greater proportion of business operations and more executives and senior managers recognize that software is now the controlling element of their operations. Software controls production schedules, optimizes prices, manages costs, and calculates profits. When new business strategies are implemented, software is the gating element, and when products are late, the software work is usually furthest behind schedule. In almost all areas of modern science and industry, products are developed with methods that look very much like software development. Just about all future systems and product development work will have to be managed as knowledge work. As noted in the next chapter, many aspects of the corporate world could benefit by being managed with these methods today.

The methods described in this book are designed for knowledge work and knowledge workers. These same methods will also help you to address other key issues, including those of size. The next example shows how the new knowledge-management methods can help executives and senior managers manage their businesses.

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