IT620 Week 7 - Managing Knowledge

One of the enduring subjects in the IT field since the mid-1990s has been knowledge management. Top corporate executives realize that their greatest corporate assets walk out the door every evening, taking with them another crucial asset, knowledge. Attempts to capture knowledge in computer systems continue. But for some experts and researchers in the field, knowledge is not something that can be captured in a machine; it only exists inside a person’s head. Information can be captured in computers; knowledge cannot. Many feel that the term “knowledge management” creates the wrong impression. The term “management” often brings forth the “we can control it” mind-set. Knowledge cannot be controlled or engineered, so the mechanical metaphor is wrong. It can only be leveraged through processes and culture. The biological or ecological metaphor is much better. The more people are connected, and the more they exchange ideas, the more their knowledge spreads and can thus be leveraged. This view, of course, is still being debated, and raises the question, “If we cannot disembody knowledge, how do we better manage the knowledge within people to leverage this asset?”

The emphasis in building human capital, notes Giga, is to answer the question, “How do we get people to have more knowledge in their heads?” Giga sees four ways: create it, capture it, absorb it, and reuse it.

This phase deals with generating knowledge, either by nurturing employees to create it or by acquiring it from outside. Hence, it deals with both human capital and customer capital. As noted earlier, the Giga cases that emphasized this phase of managing knowledge have used high-touch approaches, such as creating a sharing culture, urging people to meet either in person or electronically, and encouraging innovation.

Simply discovering who has what knowledge is a step in the right direction to fostering knowledge sharing. Yet, when possessing knowledge is not rewarded by management, neither is sharing, as the following story illustrates.

At a knowledge management conference, Dr. Patricia Seemann,3 who headed up a knowledge management project at a pharmaceutical company, told the story of Serge and Rudy (fictitious names but real people). Serge, she said, was a “real” manager. He had a three-window office, a big desk, and a title. If you asked him what he did the past year, he would say, “I registered 600 products in 30 countries.” Rudy, on the other hand, is a headache, his manager says, because he does not work. He just stands around and talks all day. Whenever you see him, he is talking to someone. When you ask him what he did the past year, he says, “I sort of helped out.”

The company downsized, and guess who got laid off? Rudy. And then what happened? His department fell apart because there was no one to help, to provide guidance. When they fired Rudy, they fired their organizational memory, said Seemann. He was a crucial, yet unrecognized asset, because he was willing to share his knowledge.

While at this company, Seemann and her team created a yellow pages guide of company knowledge brokers. Guess who was in the book and who was not? Rudy, of course, was in the book. Serge was not, and neither was top management. How can companies fix what she calls “the Rudy problem”? One way is to create a technical career track and promote knowledge brokers. Giving Rudy a title would have made an enormous difference, Seemann said, because it would have sent a signal that knowledge sharing was recognized in the company. Companies cannot appoint knowledge brokers. They just emerge. And when they do emerge, they need support.

The Rudy story also fits with this second subject, building structural capital, because that is what Seemann and her team aimed to do in creating the online yellow pages of knowledge brokers. Her goal was to increase their value. Those yellow pages are a form of structural capital. As noted earlier, companies that emphasize building structural capital generally use high-tech approaches.

This phase is often handled by creating best practices knowledge bases or metadata indexes for documents. A few have even tried to measure intellectual capital. Following are two examples, one that focused on improving a knowledge-support process and one that looked into valuing intellectual capital.

A project at a major pharmaceutical company was aimed at improving the process of developing new drugs and getting them approved by the U.S. Food and Drug Administration (FDA), a process that takes 5 to 10 years, costs $250 million, and can yield revenues of $1 million a day per drug once it reaches the market.

In this highly autonomous energy company, the 15 business units each focused on their own performance. To instill sharing in this culture, these units would have to see the benefits themselves. In addition, many of the employees were concerned they would not get credit for their good ideas. To overcome both issues, management decided to focus on promulgating best practices across the business units. A best practice was defined as a practice, know-how, or experience that had proven effective or valuable in one organization and might be applicable to another, notes Giga.

As noted earlier, customer capital is the strength of a company’s franchise with its customers, the percentage of customer “mindshare” in its industry. Brand recognition is part of customer capital. Familiarity with one’s products is another. One of the most fascinating case studies in the Giga knowledge management report,2 all of which are anonymous, is the one about the vice president who derived the notion of customer capital. Here is that story, based on that report.

After the U.S. savings and loan debacle and the devaluation of real estate in the 1980s, the vice president of organizational learning and leadership development at a North American bank asked, “Why have banks become so exposed to risk in their lending practices?” The answer he arrived at was, “Because they do not understand the new information age and its underpinning collateral.” At the time, and still today, banks lent money against hard assets, such as a shopping mall. However, the value of such assets can dissipate almost overnight, making them risky collateral. “Perhaps there is less risk in lending against soft assets, such as a group’s knowledge of a programming language or a patented process,” he reasoned. Knowledge in a person’s head does not disappear overnight. However, the vice president had no way of valuing such intangibles. He continued to work on the problem of knowledge valuation. Over time, his thinking changed the way the bank evaluated new hires and reshaped some of its operations.

To begin his quest on how to value knowledge, or intellectual capital, he drew on the ideas of human capital and structural capital, and then added his own: customer capital.

Human capital was the know-how to meet customer needs; he asked bank managers to measure it by assessing how fast their teams learned. To increase human capital, he shifted emphasis at the bank from training (pushing instruction to people) to learning (getting people to pull the instruction they needed to them), because he believed the crux of increasing human capital was increasing the pace at which an organization learns. He believed people learned when they “owned” their learning and took responsibility for applying it to improve their performance. He developed a list of skills needed to serve customers and gave employees numerous ways to learn these skills, from reading specific books to choosing a mentor.

Structural capital was the organizational capabilities needed by the marketplace. The vice president measured structural capital by uncovering the percentage of bank revenue that came from new services and similar metrics. He believed that although it takes human capital to build structural capital, the better the bank’s structural capital, the higher its human capital; one feeds the other. Thus, he generated structural capital from human capital by creating a competitive intelligence “library” about the industry that the bank considers a valuable “intellectual capital repository.” Rather than being a library of documents, however, it was a map that showed the kinds of knowledge the bank held and where it existed, whether in an employee’s head or a database.

Customer capital was the intellectual assets in the minds of customers related to the bank. The vice president’s team measured three aspects: depth of knowledge about the bank in a customer organization, breadth of knowledge by a customer, and loyalty to the bank. To strengthen these aspects, the vice president believed the bank needed to assist its customers’ employees in learning. Some of that learning pertained to learning more about the bank, which required making the bank’s values and strategies congruent with those of its customers. The vice president therefore helped senior bank officials determine customer needs; establish a common language for communicating with customers; develop a sense of purpose for the relationship; and, most importantly, make learning within the customer organization an important part of the bank’s services. He believes that assisting customers will increase his bank’s customer capital: depth, breadth, and loyalty. Thus, his knowledge management efforts focused outwardly as well as inwardly.

Cultural barriers can shut down knowledge management efforts because knowledge management is really about cooperation and sharing. To reach these lofty goals, efforts need to turn the tacit knowledge in people’s heads into explicit knowledge in a process, product, or other organizational artifact. Thus, knowledge management work must tap people’s motivations to share and cooperate. Without the motivation, knowledge databases, for example, are not updated or errors are ignored. Or people avoid contributing to a knowledge-sharing network for fear they will give away their best ideas and lose their “competitive advantage” against their peers in the company. Such red flags are not obvious; they are often subtle, yet harmful, says Brooks.

Here are a few of his behavioral red flags that can derail a knowledge management effort:

· Being seen as a whistle-blower or messenger of bad news. Few people want to betray their boss, so they avoid presenting early warnings or disagreeing with internal documents. In organizations where “messengers get shot,” sharing good news is fine, but sharing bad news is not, which defeats the full value of sharing.

· Losing one’s place as a knowledge gatekeeper. Although knowledge brokers are important in organizations, their self-value comes from their controlling the knowledge they house and sharing it only with whom and when they choose. They may see a knowledge management system that encourages the free flow of ideas as decreasing their value, and therefore fight it.

· Knowledge sharing really does take time. Because sharing takes time, experts may hide so that they are not bothered by requests from others. Others may not participate in, say, presenting their ideas, which may benefit the organization as a whole but has no personal reward, so they think.

These reactions are human; therefore, knowledge management efforts often need to build “cultural workarounds” so that these kinds of reactions do not block the work. Brooks offers some suggestions. For example, to reduce concerns about being a messenger, the system might allow only limited dissemination of some ideas or give people the ability to rank feedback comments based on their significance. To counter concerns about losing personal advantage, contributions could require authorship or comments might always be linked to the original items. To reduce time consumption, the reward structure could reward contributions based on their value.

In addition to cultural red flags, management red flags are also a concern. Three management red flags are:

1. Saying the project is not cost-justifiable because the benefits are intangible

2. Concern that too much participation will reduce employee productivity

3. Concern that creating the taxonomy of knowledge categories will be just too expensive to undertake

Reducing these concerns is an important aspect of knowledge management. Some examples for mitigating these management roadblocks, says Brooks, include illustrating the value of serendipity that has occurred due to sharing, as illustrated in vendor case studies; ensuring that the new system promotes feedback to contributors, which can increase productivity; and drawing on vendor expertise to create knowledge taxonomies rather than start from scratch.

As Brooks points out, organizational culture is an important aspect of knowledge management efforts and a key determinant of success.

Thomas Stewart,6 a well-known writer in the knowledge management field, agrees and makes the important point that knowledge needs to be managed within the context where value is created. In short, the system needs to be designed to fit the people who will use it and gain value from it. He notes that many official knowledge management efforts have come to naught because they did not create the place where people first look for knowledge. On the other hand, a number of grassroots, unofficial efforts have succeeded.

Stewart gives the example of three consultants who created an informal, unofficial Notes-based e-mail list in their company to have a place to collaborate online. Anyone could join the list; to date, it has attracted over 500 company employees. It has actually become the premier knowledge-sharing mechanism in the company even though it is difficult to search and generates a lot of messages, which fill up e-mail boxes. It works for four reasons:

1. It is demand driven. Some 80 percent of the traffic is members asking each other, “Does anyone know anything about. . . . ?”

2. It roots out tacit knowledge. People contribute what they know, which might not be recorded anywhere in the company.

3. It is right in front of the members in their e-mail boxes every day.

4. It is full of intriguing and strongly held opinions, which the members find most interesting.

The system is like a conversation rather than a library; thus, it is about learning rather than teaching. That is a major difference. It was designed to manage knowledge in the context where value is created. Given the high number of failed knowledge management projects, Stewart suggests answering the following three questions before launching off:

1. Which group will use this knowledge space? Once determined, make them responsible for the content.

2. What kind of knowledge does the group need? Once known, that knowledge needs to be managed within that group’s context because that is where the value arises. A knowledge management system or resource should only deal with a single group that creates value in the same way.

3. What is the company culture; is it composed of reusers or originators? The difference matters. A repository of things promotes a reuse culture; an online chat room helps originators, but not vice versa.

Beware of creating a system that supports the wrong culture. There is really no such thing as a generic knowledge management system. Each one needs to fit a knowledge-sharing group. Answering these questions will help uncover the structure and content of a knowledge management resource that will add value and actually be used.

As an example of a knowledge management project that has worked and has followed many of the tenets espoused by Stewart, consider the work at Partners HealthCare System in Boston. Notice how it takes into account the health care culture.

Data, information, content, and intellectual capital all raise some thorny issues. These issues have prompted legislation in some countries, but not all, which causes even more problems in today’s intertwined, global society. Their resolution is important for global e-commerce, and such resolution could be a long way off. We begin by looking at information value, usage, and sharing issues. Then we move on to the large, but rarely discussed, subject of computer ethics.

Information’s value depends on the recipient and the context. In fact, most people cannot put a value on a piece of information until they have seen it. However, people do, indeed, place values on information. Look at all the information services that people buy. Information marketplaces exist, both inside and outside of companies. The only practical way to establish the value of information is to establish a price for it and see whether anyone buys it. Pricing possibilities include charging for the information itself rather than for the technology or the provider, charging by the document rather than a smaller unit, charging by length or time or number of users, or charging by value rather than cost.

A number of tools are being used within companies to increase the value of information.

· Information maps. These maps can be text-based charts or even diagrammatic maps that point to the location of information, whether in written material, experts’ minds, and so forth. IBM, for example, created a guide to market information so that managers can find out where to get quick answers to their ad hoc questions. The result has been less money spent on duplicate information and increased understanding of the kinds of questions people typically ask.

· Information guides. Guides are people who know where desired information can be found. Librarians have traditionally played this role. Hallmark Cards, for instance, created a job guide in its business units to help employees find computer-based information on available jobs. These guides have substantially reduced the time needed to find information.

· Business documents. Business documents are yet another tool for sharing information. They provide organization and context. One fruitful way to embark on information management is to uncover what documents an organization needs. This process can be easier, and more useful, than defining common terms. One brokerage firm discovered that its brokers all used the same documents, over and over. Some 90 percent of these documents could be put on one CD-ROM, kept on local servers, and updated monthly, greatly facilitating information use.

· Groupware. Groupware is a tool for getting greater value out of less structured information. It allows people to share information across distances in a more structured manner than e-mail. Lotus Notes is such a product. Groupware can ease discussions and aid distribution of information, but its success depends upon the culture. For one, better access to information increases (not decreases) people’s appetite for even more information. However, employees using sophisticated groupware products need to learn how the technology can be used to improve work habits and profits, neither of which flows naturally from the technology.

To create value, the databases need to be managed, even pruned and restructured. Knowledgeable people are needed to manage the information resource and its use. This need is true for intranets and Web sites as well.

Information management is a management issue because it deals with how people use information, not how they use machines, says Davenport. Three points illustrate the importance and difficulty of managing information use.

One, information’s complexity needs to be preserved. Information should not be simplified to be made to fit into a computer, because doing so truncates sharing and conversations. Information does not conform to common definitions. It is messy. It naturally has different perspectives, which are important and need to be preserved. A certain amount of tension between the desire for one common global meaning and numerous familiar local meanings is inevitable. Companies that want to settle on common corporate terms must do so with line people, not technical people, because line people will use the end results. The IS organization can facilitate these discussions, but the businesspeople should determine the meanings.

Two, people do not easily share information, even though its value grows as it is shared. Culture often blocks sharing, especially in highly competitive organizational cultures.

Three, technology does not change culture. Just building an information system does not mean that people will use it. It is a false assumption that too many IS people make. To change the information culture of a company requires changing basic behaviors, values, attitudes, and management expectations.

If information sharing is the goal, a number of contentious challenges must first be resolved. Davenport explains that a sharing culture must be in place or the existing disincentives will thwart use of a sharing system.

Technical solutions do not address the sharing issue. For example, much talk has touted information architectures, where the definitions of stable types of corporate data, such as customers, products, and business transactions, can be specified ahead of time and used consistently across the firm. This approach may work for data, but it is problematic for information, because information architectures generally fail to take into account how people use the information. Managers get two-thirds of their information from conversations, one-third from documents, and almost none directly from computer systems. Therefore, a common computer-based information architecture is not likely to solve the information-management problem.

An issue in sharing is: Who determines who has legitimate need for the information? The “owning” department? Top management? And who identifies the owner? The process of developing the principles for managing information—how it is defined and distributed—is actually more important than the resulting principles because the touchy subject of information sharing is brought out into the open during the process. In short, working out information issues requires addressing entrenched attitudes about organizational control. That is where consensus needs to be built: in discussions, not through edicts.

Is sharing good? asks Davenport. Not in all cases. Forcing employees to share information with those above them can lead to intrusive management. Some executive support systems limit “drill down” for just this reason. Managers must think about these types of issues in information management.

Unlimited information sharing does not work. Limits are necessary. On the one hand, the sharing of corporate performance figures is beneficial, especially when corporate performance is poor, because it usually increases morale; uninformed employees usually guess the worst. On the other hand, the sharing of rumors (noninformation) generally demoralizes people. Separating information from noninformation is an information-management issue. Allowing employees to send messages to large distribution lists exacerbates the information-management problem. Managements have awakened to the fact that they need to address this issue. Vendors have developed filters and agents for e-mail systems. Such responses can help resolve corporate information-management issues, but only when the correct underlying policies are put in place.

Even hiring practices play a role in information management. If promotions are based on circulation and publication of new ideas, a sharing environment exists. If these activities are not rewarded, sharing may be anathema to the culture.

In all, getting value out of information requires more than technology. Information is inherently hard to control. It is ever expanding and unpredictable. Only when executives view information in this light will they manage it for most effective use.

It is worth repeating here that the leading theme of this chapter is how to use knowledge management to sustain individual and business performance. This is achieved through technology-supported learning, unlearning, and adaptation. Despite the advances of more intelligent systems, and the willingness of large corporations to invest billions of dollars in these technologies, it is also important to recognize the limitations of technologies. Data mining and other data-driven analytics have shown useful results, but they could also lead to inconsequential or dumb results. Human users of knowledge management technologies should remain as the key part of knowledge quality assurance, or at least, as educated knowledge consumers. Today’s “intelligent” systems are certainly smarter than their predecessors. But it would be a stretch to argue that IT can store and distribute human intelligence and experience. The ability to deliver the right information to the right person at the right time in a dynamic, context-dependent concept still requires human intelligence.

An organization can be viewed as a knowledge ecology with evolving interactions between knowledge workers capable of learning and adapting to changing situations. Therefore, nurturing and protecting intellectual capital continue to be central concerns for knowledge-based organizations.

The social and ecological issue here is at least twofold. First, as knowledge, defined in its broadest sense, is widely fragmented across networks of servers, the power that can be derived from this knowledge is shifted to a large number of independent stakeholders. It is difficult to predict how these people work together or against each other in the creation and use of intellectual capital. Furthermore, with the ease of access to massively distributed knowledge, how do organizations bond human talents together to create and sustain a shared vision or common sense of purpose?

In 1994, Howard G. Cunningham started the development of a piece of software known as the WikiWikiWeb or simply WikiWiki, or simply Wiki for the Portland Pattern Repository. The idea was to build an electronic forum allowing computer programmers to exchange ideas about software development. The technology was based on Apple’s hypercard concept developed in the 1980s to cross-link texts and documents. One of Cunningham’s concerns was to design a platform that users can quickly log in and edit the text. Wiki in Hawaiian language means “fast.” This very first Wiki now hosts tens of thousands of pages. When knowledge is not intended to be shared, a desktop-based Personal Wiki can be used to organize content.

The Wiki engine is a simple collaborative software installed on a Web server or more that allows Web pages to be created and edited using a Web browser. As information is entered in the text by users (affectionately called wikizens), the system stores information in a database-management system, or a content management system. To date, there exists a rather extensive list of Wikis systems using net-centric and open source technologies with Java, JavaScript, PHP, Perl, VPScript, Python, and others.

The concept was quickly adopted by many communities, and turned the Wiki concept into a platform for online communities to build collective knowledge. Wikis are growing in number. They serve as knowledge repositories, with the Wikipedia as one of the success stories of collective and global knowledge creation. Today, many large organizations are creating their own context-specific Wikis for internal knowledge management.

The knowledge creation is based on trust and a strong code of ethics to give all participants the motivation to engage the building of the Wikis, with no malicious intent. Users can freely add or delete content, but here are roll-back procedures to revert to previous versions which are available Wikis as histories. In many Wikis, contributors are requested to register so that Wikis administrator can hold trace contact them or hold them accountable.

From a knowledge-management perspective, the creation of Wiki pages by the community of practice illustrates well the concept of conversational knowledge management. In distributed or virtual environments, individuals use a common Internet platform to create knowledge. Unlike other forms of information exchange or conversational knowledge such as e-mail, instant messaging, discussion forums, or decision support technologies, Wikis has the potential for organization to facilitate group work—such as writing an annual report or a business plan—without the need for meeting face-to-face. Wikis allow some off-line conversation. However, they excel in collaboration.

Wiki technology has evolved to meet business needs. Commercial Wiki software has features that require different levels of authorization for people to access, add, or modify existing contents. For example, the HR department posts some policies on a corporate Wiki and does not allow anyone to alter the document. New Wikis also have better versioning features, allowing the users to organize information.

Generally speaking, thanks to the low cost of acquisition and use, a Wiki would be a good technology for a business that needs to establish an intranet quickly with a reasonable level of functionality, security, and durability. Another reason for installing a Wiki is to allow corporate documents to be stored and accessible through the Internet, and let employees self-manage these documents with a minimum of effort, while avoiding redundancy. Many businesses have successfully used Wikis for project management and to manage and organize meeting agenda and minutes.

Like any business application, a business-oriented Wiki requires adequate computing resources and proper project management. The system that hosts a Wiki should have security and data-management tools. The organization should also appoint a staff member to be responsible for maintaining the Wiki.

In the first era of computing, when companies and governments used mainframes to collect personal information and store it in huge databases, the perceived threat was invasion of personal privacy. In the United States, that concern led to a major privacy study in 1976. At the time, no formal rules limited access to personal data in computers.

The second era of computing, mini- and micro-computers, turned attention to the democratizing aspects of computers and software and the ethical issues of property rights. Should software be owned? What sorts of intellectual property laws were needed to protect software owners? Such questions raised the ire of people who did not like the idea of property rights in software, those who believed software should be free. Issues of property rights also raised liability issues: Who is responsible for errors in code?

The third and latest era, the Internet, has brought “an endless set of ethical issues,” notes Johnson, because it can be used in so many aspects of life. Thus, all the concerns of the past have resurfaced: privacy, the democratizing nature of the Internet, property rights on Web sites, the concept of free speech (is information on the Internet a form of speech or expression?), and now even global property rights.

Privacy includes freedom from intrusion, the right to be left alone, the right to control information about oneself, and freedom from surveillance. It is a major issue in today’s world because of the widespread availability of personal data and the ease of tracking a person’s activities on the Internet.

The United States and many other countries have enacted laws to control certain types of personal information, such as medical, credit, and other financial information. These laws carry over to the online business environment. As companies have built large databases on their online customers, the value of these data makes selling them an attractive business option. That is one reason the United States now has a privacy law that requires companies to publish a description of how they treat the personally identifiable information they handle.

Internet technologies, cookies in particular, make tracking the browsing activities of individuals possible. Consumer concerns about this perceived invasion of privacy now require companies in some countries to post and adhere to privacy statements on their Web sites.

Some companies use third-party cookies (i.e., cookies set by a firm other than the owner of the site being visited) to do online profiling. It is also known as profile-based advertising, and it is a technique that marketers use to collect information about the online behavior of Internet users and to facilitate targeted advertising. Profile-based advertising could easily be considered a form of online surveillance. What is worse, some third-party cookies are often placed on Web browsers’ computers without their knowledge when banner advertisements appear. It is not necessary to click on the banner ad to generate a cookie.

Companies with cookies on their Web sites obviously want information about their customers to make better decisions about the types of products and services they should develop, says Johnson. On the other side of the coin is people’s desire for privacy; their fear of who has information about them; and their mistrust of large, faceless organizations and governments.

The protection of intellectual property is critical in an Internet-based world because many products and services contain intellectual property, copies of such items are easy to make, and the copy is as good as the original. Examples of online activities in which intellectual property rights are critical include electronic publishing, software distribution, virtual art galleries, music distribution over the Internet, and online education.

Following are four types of legal protection of intellectual property: copyrights, patents, trademarks, and trade secrets.

Copyright law aims to protect an author’s or artist’s expression once it is in a tangible form. The work must be expressive rather than functional; a copyright protects the expression, not the idea. For example, a cartoon duck is an idea and cannot be copyrighted, but Donald Duck and Daffy Duck are expressions of that idea and are copyrighted. Registering a copyright is not a requirement; putting the expression into tangible form is sufficient. A copyright is valid for the life of the author plus 75 years.

Just about all original content on a Web site can be copyrighted by the creator of the site, from buttons to video, from text to a site layout. If a company hires someone to develop a site, by default the copyright belongs to the developer, not the company. The developer can then demand royalties from the company if it uses the Web site; therefore, it behooves companies to clearly define the ownership of the copyright in the contract.

The Internet raises many nontrivial issues for copyright law, which was developed for physical media. Placing copyrighted material, such as a photograph, on a Web site without permission of the copyright holder is a clear violation of the law. Less obvious is whether having a link to someone else’s copyrighted material, say, a photograph, is a violation of copyright law. In this case, the answer is probably yes. However, if one includes a link to the homepage of the site rather than a direct link to the content, then probably no violation has occurred. Internet copyright issues are now being worked out in courts and legislatures.

Patent law aims to protect inventions—things or processes for producing things, where “things” are anything under the sun made by man but not abstract ideas or natural laws, according to U.S. copyright law. Valid for 20 years, patent protection is quite strong. In the United States, patents are granted by the U.S. Patent and Trademark Office after stringent thresholds on inventiveness have been met.

Trademarks protect names, symbols, and other icons used to identify a company or product. Trademarks can be registered with the U.S. Patent and Trademark Office. A trademark is valid indefinitely, as long as it is used and does not become a generic name for the goods or services. The aim of trademark law is to prevent confusion among consumers in a market with similar identifying names or symbols. The standard for trademark infringement is whether the marks are confusingly similar.

The biggest area of trademark conflicts in e-business has to do with domain name registration. For a while, cybersquatters were registering domain names that clearly referred to known companies, realizing those companies would eventually want the domain name and would be willing to pay for it. Although this tactic worked for a while, anti-cybersquatting laws were passed and the practice is now illegal. To avoid potential problems, firms should obtain and register a trademark for its domain name. Note that most online services that register domain names do not check for trademark infringements. Firms are advised to do a search for possible trademark infringements before using a domain name, to avoid future litigation.

Trade secrets, as the name implies, protect company secrets, which can cover a wide range of processes, formulas, and techniques. A trade secret is not registered and is valid indefinitely, as long as it remains a secret. Although laws protect against the theft of trade secrets, it is not illegal to discover a trade secret through reverse engineering. Trade secrets are the area of intellectual property rights least applicable to e-business.

Laws are written for particular jurisdictions with clear geographic boundaries, so how do those laws apply in cyberspace, which has no geographic boundaries? Take, for example, the case of trademark rights, which are limited to geographic areas. In the physical world, a sign over “Lee’s Computer Services” in Singapore would not have a significant impact on “Lee’s Computer Services” in Honolulu—neither in customers nor competition. However, in cyberspace the Web sites of the two companies would clearly overlap and, if the companies were to take advantage of the global reach of the Internet, competitive overlap could be an issue. The companies have little legal recourse for resolving their identical trademarks.

Gambling provides another example. Do Hawaiian laws against gambling apply to a Nevada company with a gambling site on its Web server located in Las Vegas? The Attorney General of Minnesota has asserted the right to regulate gambling that occurs on a foreign Web page that is accessed and “brought into” his state by a local resident.

Similar cases have involved sites dealing with pornography and securities trading. Alabama successfully prosecuted a California couple for bringing pornography into Alabama; their server was in California. Note that U.S. pornography laws are based on “community standards”; Los Angeles, California, standards are clearly different from those of Mobile, Alabama. The state of New Jersey is attempting to regulate securities trading over the Internet if anyone in the state has access to it, and many states are trying to revise their tax codes to gain revenues from e-commerce.

At best, this trend is disturbing. At worst, it could greatly disrupt e-business. Faced with the inability to control the flow of electrons across physical boundaries, some authorities strive to impose their boundaries on cyberspace. When technological mechanisms, such as filters, fail, the authorities assert the right to regulate online trade if their local citizens may be affected. In essence, under this approach, all Internet-based commerce would be subject simultaneously to the laws of all territorial governments. Imagine a Hawaiian company setting up a Web site for retailing over the Internet needing to consider the laws of Hawaii, California, New York, and the other 47 states, plus Singapore, Peru, Syria, and any other place you might name. This situation would clearly cripple e-business.

The concepts of “distinct physical location” and “place where an activity occurred” fall apart in cyberspace; no clear answer is available to the question: Where did this event take place? Of relevance are the locations of the business’s offices, warehouses, and servers containing the Web sites. Some of the uncertainty can be resolved by placing online contracts on the site specifying the legal jurisdiction that will be used for disputes. Users who agree to the contract designate so by clicking a button that says “I agree.” In most cases, the contract will hold.

In the United States, states have adopted the Uniform Commercial Code (UCC), a wide-ranging codification of significant areas of U.S. commercial laws. The National Conference of Commissioners of Uniform State Law and the American Law Institute, who sponsor the UCC, are working to adapt the UCC to cyberspace.

Internationally, the United Nations Commission on International Trade Law has developed a model law that supports the commercial use of international contracts in e-commerce. This model law establishes rules and norms that validate and recognize contracts formed through electronic means, sets standards governing electronic contract performance, defines what constitutes a valid electronic writing and original document, provides for the acceptability of electronic signatures for legal and commercial purposes, and supports the admission of computer evidence in courts and arbitration proceedings.

A contract is a voluntary exchange between two parties. Contract law looks for evidence that the parties have mutually assented to the terms of a particular set of obligations before it will impose those obligations on them. Before the law will recognize the existence of a binding contract, there must be

· A definite offer by one party, called the offeror

· A timely acceptance by the offeree

· Some consideration must pass between the offeree and the offeror

A widespread misconception holds that contracts must be in writing and signed before they are enforceable in court. The general rule is that offerees can show their acceptance of a contract offer by any means that are “reasonable under the circumstances.” Reasonable acceptance includes oral agreements. Some exceptions do apply, however. For example, sales of real property require signed writings and, in the United States under the UCC, any contract for the sale of goods for a price greater than $500 requires a signed agreement.

In e-business, evidence of acceptance of a contract can be a simple click on a button saying “I accept” or “I agree.” The case becomes more complex when the transaction involves payment greater than $500. The relevant questions are: Is our purely electronic communication “in writing” and have we “signed” the agreement? The answers are as yet unresolved. No cases have been presented regarding whether a file that exists in a computer’s memory is “written” for purposes of contract law. Most commentators think the answer is probably “yes,” but the final answer will have to wait until courts have reviewed the issue more closely.

In June 2000, President Clinton signed the Electronic Signatures in Global and National Commerce Act (E-Sign). Basically, E-Sign grants electronic signatures and documents equivalent legal status with traditional handwritten signatures. It is technology-neutral so that the parties entering into electronic contracts can choose the system they want to use to validate an online agreement. Many browsers contain minimal authentication features, and companies are developing pen-based and other types of technologies to facilitate online contracting. In addition, a number of companies already provide digital signature products using public key encryption methods.

The full impact of E-Sign may not be as revolutionary as some would hope. The act specifies that no one is obligated to use or accept electronic records or signatures—all parties must consent to using the method. The act does not apply to a wide range of situations, such as the creation and execution of wills, adoptions, divorces, any notice of cancellation or termination of utility services, or foreclosure or eviction under a credit agreement. In addition, the marketplace has to sort out some serious problems with varying electronic signature standards. For example, a number of companies issue digital certificates, but none of them can operate with the others. It would require parties interested in adopting electronic signatures for their business to provide several technologies or risk losing access to some customers.

In organizations, knowledge management is the process of identifying, acquiring, creating, representing, and disseminating knowledge for situation awareness and assessment, learning, and reuse. In Part IV of this text, we have surveyed a number of technologies such as expert systems, knowledge repositories, group systems with case bases, and the likes. To properly support knowledge work, companies need to understand the life cycle of knowledge because each phase of the cycle is best supported by specific approaches. Two of the four phases discussed in this chapter are better supported using high-touch approaches, and two are better supported using high-tech approaches. There have been many undisclosed knowledge management failures, so it behooves executives to understand where IT fits in the overall knowledge management and knowledge-sharing arena.

Likewise, it behooves management to understand the vast arena of computer ethics. IT adds new twists and, often, greater ramifications to long-standing ethical issues. New laws should not be the only recourse to address these ethical quandaries. Enterprises need to discuss these issues, make their own judgments, and make them clearly known to their stakeholders.

Companies in some countries are now required to state their privacy policies with respect to the personally identifiable information they handle. Many companies have also decided whether or not e-mail is company or private property and made their stance known to employees. It would be wise for CIOs to bring up other ethical issues and see that company policies are set, promulgated, and enforced, so that knowledge and other forms of intellectual property are properly used for good, not harm.

Many countries have also put into place stringent regulations with regard to intellectual property protection and consumer’s privacy. It is thus a legal obligation for businesses to comply with regulations. However, for a forward-looking organization, the search for competitive knowledge assets and the need to cultivate a culture of knowledge sharing should be on the top agenda, not just a mere legal compliance.

CHAPTER 15

Introduction

It has become strangely out of fashion, even behind the times, to talk about the new economy, e-business, the e-world, or anything to do with the letter “e”; yet, that is exactly the world we have moved into. The dot-com crash in 2000 still left a bad taste in the mouth of a lot of people, especially those who lost a lot of money in harebrained schemes. However, the end of that burst of frenzy does not mean that the e-world is going away. It has just gone underground, and by doing so, has become even more pervasive. It is at work everywhere. Enterprises around the world are quietly redefining their strategies, work environments, and skills. This chapter looks at the challenges facing IS organizations worldwide by assembling a collage of opinions about possible principles underlying the e-world.

The networked computer is an amazing machine because it leverages people’s brain power, not just their muscle power. This capability is being used to process data, and more importantly, to communicate in new ways. This communication, in turn, allows companies to compete in new ways using cyberspace as an innovative platform for social networking and business partnership. Following are some hot IS issues and a brief discussion of some inspiring organizing principles to thrive in an Internet-based economy. The chapter ends by looking at ways to move forward.

IT personnel will continue to be one of the most critical issues. In addition to the prediction of a few analysts about severe talent shortage in the next 10 years, the impact of technological obsolescence and age discrimination have shown to be more severe in the IT industry than in others. To maintain and retain a pool of skilled labor, organizations should strive to develop HR strategies for continuing education and training of their IT staffs. Perhaps one of the most complex and unsettled issues is the global movement of IT labor. Experts are still divided between importation of workers versus outsourcing. Each strategy has pros and cons. CEOs should look at HR resources as a part of the overall strategy of the organization.

Dealing with these four hot issues, among others, requires the organizations to clearly identify challenges and opportunities that are linked to each of those critical areas. The essence of this chapter it to recap a number of influential concepts that organizations could use to navigate in a time of grand exploration—with information and communication technologies as a strategic component.

As “rules” are constantly being formulated, reformulated, and reformulated again, some principles will prove true; others will fall by the wayside. The following concepts offer possible organizing principles. They point out the areas enterprises may need to focus on to succeed in an e-economy.

People’s mental models are the deeply ingrained assumptions, generalizations, and images that influence how they see the world and what actions they take. Senge notes that Royal Dutch/Shell was one of the first organizations to understand the importance of mental models; that is, how its managers viewed the world and the oil industry. Shell learned how to surface its managers’ assumptions and challenge their inaccurate mental models. In so doing, Shell was able to accelerate its organizational learning and spur the managers to investigate alternative futures by using scenarios. When the 1974 oil crisis hit, its managers were able to react more appropriately than competitors because they had already explored the possibility of such a crisis and the best steps to take if one did occur. To change mental models, people must look inward, something few organizations encourage. However, those that do realize they have a powerful tool for fostering institutional learning.

A shared vision is an organization’s view of its purpose, its calling. It provides the common identity by which employees and others view it. Senge notes that Apple’s shared vision has been to build computers for the rest of us. IBM’s shared vision was exemplary service. A shared vision is vital to a learning organization because it provides the overarching goal as well as the rudder for the learning process. It becomes the force in people’s hearts. It is the answer to: “What do we want to create?” Organizations with shared visions are powerful organizations.

When teams learn, they produce extraordinary results. One of the major tools for team learning is dialog, where people essentially think together. Senge distinguishes discussions from dialogs by saying that discussions occur when people try to convince others of their point of view. Dialogs, on the other hand, occur when people explore their own and others’ ideas, without being defensive, to arrive at the best solution. Few teams dialog; most discuss, so they do not learn. Team learning, rather than individual learning, is essential in the learning organization because teams are the fundamental unit of the modern organization. If teams do not learn, neither does the organization.

We live in a world of systems. To understand systems, people need to understand their underlying patterns. For example, people can only understand the “system” of an enterprise by contemplating its whole, not its parts. Today’s complex enterprises are best understood by looking for patterns and viewing them as a whole entity. Systems thinking is a conceptual framework for making complete patterns clearer. Using and understanding systems thinking can help people see how to change the patterns effectively.

Of these five disciplines, Senge believes that systems thinking is the cornerstone. It is the fifth discipline. Until organizations look inwardly at the basic kinds of thinking and interacting they foster, they will not be able to learn faster than their competitors.

Another organizing principle for the e-world is communities rather than groups. The distinction between the two is that communities form of their own volition. Groups are formed by design; their members are designated a priori, perhaps by a project manager, a select committee, or an executive.

Wheatley, in both Leadership and her more recent book with Myron Kellner-Rogers, A Simpler Way,7 describes the famous chaos experiment by Stuart Kauffman, a theoretical biologist. He attached each of 200 light bulbs to two others and programmed them so that each one turned on or off depending on the behavior of the two partners. He was interested to see whether a pattern would emerge from the 1,030 possible states. To his great surprise, a repeatable pattern emerged almost instantly, after 13 states. Even when he changed the connections, an organization (albeit a different one) emerged “instantly.” His conclusion is that we get order for free, even without intelligence in the system.

Kevin Kelly, former executive editor of Wired magazine, gives many, many examples of order-from-chaos in both of his books. Here are just three. The first concerns the movie Batman Returns, in which computer-generated bats were to flock through Gotham City. One computer-generated bat was created and allowed to automatically flap its wings. Then it was replicated, by the dozens, until there was a mob. Each was instructed to move on its own following just three rules: do not bump into another bat, keep up with your neighbors, and do not stray too far away. When the computer simulation of the mob of bats was run, they flocked just like real bats! So even though the bats were seemingly out of anyone’s control, they flocked. The same happened with the marching mob of penguins in the same movie, which also drew on a simple Reynolds algorithm. Kelly says this kind of behavior indicates that order can be achieved from chaos in any distributed “vivisystem,” combined biological mechanical systems, organic or man-made.

In an equally striking example, Kelly describes how Loren Carpenter, a computer graphics guru, demonstrated a similar kind of order-from-chaos in an auditorium with 5,000 computer graphics conferees. Each one had a cardboard wand, red on one side, green on the other. At the back of the auditorium, a computer scanned the wands when they were held up high, picking up the color on each wand. At the front of the auditorium was a huge screen that displayed the sea of wands, which looked like a candlelight parade. Attendees could find themselves in the sea and change their color on the screen by flipping their wand.

Carpenter then projected the game Pong (a videogame similar to table tennis) on the screen, telling the audience that those on the left controlled the left paddle, those on the right the right paddle. Within moments, the 5,000 were playing a pretty good game of Pong, with the movement of the paddle being the average of the several thousand players’ intentions. When Carpenter speeded up the game, the crowd adjusted, almost instantly.

When an airplane flight simulator was projected on the screen, Carpenter told the audience that the left side of the room controlled the roll and the right controlled pitch. In essence, the pilot became 5,000 novices. They became silent as they studied the controls in the cockpit, wrote Kelly. The plane was headed for a landing, yet it pitched left and right because the signal was latent and the crowd continually overcompensated. When it was obvious that they would arrive wing first on the landing strip, they somehow pulled the plane up and turned it around, even though no one gave a command. They acted as one mind, turned wide, and tried a second landing. But again, the plane was not straight, so in unison, and again without verbal communication, they pulled up. On the way up, the plane rolled a bit, then a bit more, and then, “at some magical moment” the same thought seemed to occur to everyone, “I wonder if we can do a 360?” In unison, without speaking, they rolled the jet, fairly gracefully, and then gave themselves a standing ovation. Kelly notes that the conferees did just what the birds did: they flocked.

Five years later, Carpenter tried the same experiment at the same conference, states Kelly inNew Rules for the New Economy. This time, the game was more sophisticated (the controls had more choices), and the task more challenging (to steer a 3D submarine in search of sea monster eggs). However, unlike previously, when the audience took control, nothing happened. The submarine did not move. Even after lots of fiddling with controls and shouting, still no movement took place. Finally, in exasperation, Carpenter said, “Why don’t you go right?” Immediately, the submarine went right. He had unlocked the paralysis. The group needed leadership. It might only be a few words, but it was enough to initiate cohesion. From then on, the 5,000 copilots maneuvered the submarine deftly.

Wheatley and Kellner-Rogers believe that organizations, like the lightbulbs and many natural phenomena, can be self-organizing. They believe self-organization requires taking the perspective of “organizing-as-a-process” rather than “organization-as-an-object.” Processes can do their own work if supplied with what the processes need to begin: resources, information, and access to new people.

Following are two views on how organizations could become more distributed.

The world has become a networked world, and a networked world has different characteristics from the non-networked world many people are used to living in. This section presents three viewpoints of what these differences might be and why they are important.

The World Wide Web makes a significant break with the past. Its communication is “up close and personal,” not top-down mass marketing. Personalized homepages differ substantially from those of major corporations. Many are personal vanity plates, resembling family photo albums where individuals tell their life stories. These pages are alive, interesting, entertaining, humorous, personalized, and constantly changing. Their message to traditional marketing departments is, “Your ad copy is boring, dead.”

The single most important point of view to take toward the Internet is to view it as interactive, not broadcast: incoming, not outgoing. It is a get-the-message, listen-to-the-customer, capture-the-feedback milieu. In essence, the Internet is a customer’s window to companies. It is substantially different from television because customers can initiate communications with a firm rather than merely react to their ads. They can express satisfaction or dissatisfaction with products. They can suggest improvements for products or co-design products with the company. Today’s consumers are self-sufficient and intelligent. They want to define what custom-made means to them.

An illustrative example of online consumer-initiated communications is in the area of medical self-help information. Every major ISP now has forums or conference areas where individuals can peruse medical information, outside the parameters of established medical associations. Even though the medical establishment bemoans “snake oil salesmen,” the Internet gives consumers a way to search for the information from alternate sources. Departments or groups that use the Internet for such interactions will succeed because they tap this huge, latent reservoir of customer needs, current thinking, and goodwill.

Customer-initiated dialog supported by the Internet significantly challenges marketing departments, customer support groups, and fulfillment folks. The eight-week turnaround from postcards in once-a-month magazines, for example, pales in comparison with just-in-time delivery of information via the Web.

Through the Internet, customers are closer to companies than most of them have ever experienced. In fact, they are closer than most companies can handle. For example, how can a company that serves its customers one at a time and answers its phones, “All our agents are busy...,” ever hope to handle tens of thousands of site hits or customer inquiries from online requests for the latest product and pricing data?

Being put on hold will increasingly irk customers. Companies that stay with this level of disservice use the wrong mind-set. Today’s consumers are busy and have little patience with waiting. In the Internet world, they can do two or more things at once using multiple windows and fast comparison shopping. As with TV remote controls, customers who do not get immediate satisfaction, or instant gratification, will switch to the competition with a point and a click.

This more intimate customer environment means that companies can hear directly, “I couldn’t find your product in three stores today. Where do I get it?” without the protective layers of intermediaries or other buffers. Firms that have the organization in place to listen and respond to these closer voices of customers will hold on to those customers. If not, they could lose them. Thus, before an IS department can assist other departments in exploiting the Internet world, it needs to assess its proposed Internet business solutions using a new metric: “Will our firm’s Internet strategy truly help all our customers communicate with us?”

The Internet is not the expert’s world, where the few impart their knowledge to the many. In this information-intense world, “netizens” know that “together, we know more than any one of us alone.”

This lesson even holds true for government officials who think they know what is best for their constituents. In Spokane, for example, local officials tried to levy a 6 percent tax on Internet providers. Citizens revolted and inundated city leaders with e-mail and phone calls. A Web site was established to gather their thoughts on the proposal.

The message is also clear for IS departments. IS cannot work in the top-down, broadcast mode, “I’m IS and I’m the expert, so here’s your solution, customer.” More than ever, IS must get input from its customers to determine the services they want, when they want them, and where they want them.

The traditional hierarchical expert model, where IS designed solutions followed by tests, migration, acceptance, and maintenance, no longer works as well. The customers of IS, too, can go elsewhere to find the expertise they need. They can browse the Internet to review lower-cost and lower-maintenance servers, view recommended best-business practices posted online, or download modeling software to compare alternative network costs in their market.

Furthermore, IS departments that are studying the feasibility of putting up an online parts catalog or are talking to marketing about designing online ads are using the outdated broadcast, top-down, mass-market mind-set. Departmental customers are one step ahead. They are sending e-mails asking when the latest releases of Java and XML will be available because they want to develop Web Services applications so that suppliers can perform their own searches on the parts inventory.

Rather than merely dump traditional corporate copy onto the Internet, the IS department needs to create channels for its departmental customers to continually communicate with other parts of the firm and its partners. Furthermore, it needs to help its company view customers through a finer, more timely mesh.

To hear from customers directly, without intermediaries, is both a gold mine and a massive challenge to those with a broadcast mind-set. To truly take advantage of this gold mine requires viewing the Internet as an interactive medium and redesigning the corporate listening mechanisms to hear and understand customer feedback.

To know how to leverage the Internet (or any network), it helps to understand where value is created. Mohanbir Sawhney and Deval Parikh,13 offer some thought-provoking insights into how networks change sources of value. They note that when computers (or items containing computers) are not networked, each one needs to provide both front-end and back-end intelligence. Thus, stand-alone PCs have to bundle processing power, storage, and memory (the back end) with the display and interactive capabilities (the front end). This “coupled intelligence,” to use Sawhney and Parikh’s terminology, leads to compromises in both areas.

Introduce a network and these two forms of intelligence can be decoupled and better optimized. The back-end intelligence (to store and process data), which is best when centralized and made robust, stable, and standardized, can be housed in a core shared infrastructure, where it provides the most value. An example is Yahoo! and all the facilities it provides to online users, such as storage for their photos, e-mail, address books, and so on.

Value moves to the ends, the shared infrastructure and the specialized devices. The middle, the network, becomes an unintelligent conduit, as the Internet is. That is not at all like the voice networks. They presumed dumb telephones, so they had to embed intelligence in the network. As we now see, those old-line telephone companies are having a hard time adapting to the new IP-based (Internet Protocol-based) world of dumb networks.

With intelligence and value diverging to the ends of networks, so, too, do companies, some to specialize on providing core infrastructure and others to focus on customer relationships (and controlling the user interface). The two require very different capabilities and strategies. Being decoupled, they can be optimized.

Another effect of value moving to the ends is the disappearance of middle management, because value is in the core (leadership and strategy handled by top management) and the periphery (customer-facing employees making decisions and taking actions). Middle managers were the information transporters between these two ends in the past. Digital highways now connect the two directly.

Elements of any infrastructure—an organization, a system, a business process—that were distributed now are being pulled together and operated as a utility. That is why we see companies centralizing their staff functions (such as HR, finance, accounting, and IT) in shared services groups. Companies are also outsourcing these functions and some business processes (such as order-to-pay, payroll and benefits, and others), believing that there is even more value in common infrastructures among companies. That is also why we see companies rationalizing their IT purchases, down to one or two desktop operating systems, a single network protocol, and a standard set of applications.

Avon is an example of a company that understands the value dynamics of networks (specifically the Internet) and is exploiting them. At first, Avon’s Internet strategy was aimed at customers, allowing them to buy the company’s cosmetics and other products online. However, this strategy undercut its independent sales representatives who sell friend-to-friend. Avon’s second strategy was to give each sales rep a personal portal to submit orders, learn about new products, and even analyze their customers’ buying patterns. This strategy gives the representatives a shared infrastructure that they can customize to better perform their customer-facing job. It also gives Avon headquarters valuable customer data that formerly was lost when a sales representative stopped selling Avon products. That data can now be consolidated to see buying patterns and can even be transferred to new sales representatives in open areas. Therefore, this strategy strengthened both the core (corporate) and the periphery (the sales representatives).

Software, devices, organizational capabilities, and business processes are being divided into self-standing modules, so they can be quickly and easily connected to form a value chain to respond to a circumstance. The more broadly a module can be used, the more value it has. This plug-and-play mentality is a chief tenet of Web Services.

When modules are abundant, there is value in being able to bring them together. Competition will revolve around being the orchestrator in one’s value chain, ecosystem, or industry because orchestration is the most valuable business skill in a networked world, they surmise. Value shifts from those who own intelligence to those who orchestrate it. That is why companies such as Cisco, HP, and others are turning themselves into hubs that coordinate the information and interactions among their suppliers, customers, and channel partners. They garner more value from this coordination role than from performing the actions (such as building computers) themselves. This notion seems to defy our past beliefs of value creation. However, it is a notion that people in a networked world need to understand to tap this new form of network value.

Networks embody an amazing phenomenon: Connecting more devices to a network exponentially increases the value of the network for everyone on it because so many new possible connections are created. Thus, a network of 4 people has 12 one-to-one directional connections. Increasing the network to 5 people leads to 20 connections. Whereas the industrial age was about increasing productivity, the network age is about amplifying relationships; that is, increasing the quantity and quality of economic relationships.

One of the most fascinating aspects of the network economy can be seen today: The best get better and cheaper at the same time. It was not too many years ago when to get something better you had to pay more. Today, if you just wait a few months, you will either get the same quality for a lower price or better quality at today’s price. The industrial age brought automation and cheap energy, initiating this phenomenon. Computers have accelerated it. In fact, Kelly notes that a transportation specialist told him that almost nothing in the information industry is moved by ships; everything is flown, so that the price will not drop during shipment.

The network economy is founded on this principle of decreasing price for increasing quality. The more that is manufactured, the cheaper each unit. Smart companies anticipate this cheapness and offer products for free. Paradoxically, those that do can make a fortune. In the 1960s, Robert Noyce and Jerry Sanders, the founders of Fairchild Semiconductor, were selling a transistor to the military that cost $100 to make. They wanted to sell the transistor to RCA for use in UHF tuners to replace the vacuum tubes RCA was using, which only cost them $1.05. Noyce and Sanders believed that learning and volume would decrease their production costs for transistors, so they boldly set their price at $1.05 from the start, even though they had not yet built the factory or the manufacturing processes they would use. They anticipated the cheap and got 90 percent of the UHF market and prospered. Within two years, they cut the price to 50 cents and still made a profit. Any item, soft or hard, that can be copied adheres to this inverted pricing principle, so follow the free. Technology creates an opportunity for demand and then fulfills it.

In the network economy, the most valuable goods and services are those that are most abundant because they increase the value of every other one. If they become cheaper as they become more plentiful, then the most valuable items are ubiquitous and free, he reasons. The fastest way to make something ubiquitous is to make it free. This strategy of the network economy is well tested, and it is the anathema of the strategy of the industrial age where scarcity was of the highest value. Netscape gave the browser away free and sold the servers. The strategy worked until Microsoft, with a larger network, did the same and took away market share.

So how can business make money in such a market? Kelly offers three answers. One, aim for free but only achieve cheap. It will have the same effect. Two, give away the core product and sell the service. This strategy has happened with cell phones and satellite dishes. They give the phones and dishes away free and sell the service. Three, structure the business so that you will be profitable when your product is free.

The reverse tenet of following the free is to see what is free today that could have value, and thus a price, tomorrow. One early example on the Web was the indexes, which were free and became ubiquitous. Their value came from helping people find sites that might interest them via their categories. They drew people’s attention, which is the scarce good in the network economy. Thus, they became valuable. Other free items that could have value in the future, surmises Kelly, are bots, remote cameras, catalogs, guides, distillations, and so forth. Thus, offering a good free and sharing with others can lead to ubiquity, which, in turn, can lead to having a valuable item.

The founding norm of the Internet was its gift economy mentality. Lots of information and knowledge were exchanged without money changing hands. In fact, software developers often asked for help by releasing their software as a beta version to be tested and improved by others. The most popular operating system for Internet servers—Apache—was developed this way; it is free. Linux, the freeware operating system, was, too. It makes you wonder whether CIOs could tap this gift economy. Of course, they would need to allow their developers to assist others in exchange. It is an interesting thought.

In the industrial age, loyalty to one’s enterprise was important. In the network age, it is more important to be on the right network or network platform. Kelly thus sees loyalty moving from enterprises to platforms. As an example, he asks: “Are you a Mac or a Windows person?” Both are examples of competing platforms. Being on one usually means being out of the other. Thus, Mac users originally could not use the software written for the PC, and vice versa. Similarly, in the network world, choosing the right platform makes an enterprise “in” or “out,” so choice becomes important. Once the choice is made, it is important for the company to “feed” that choice to ensure that it grows so that they are on the right network; that is, the one that prospers. People who joined the Mac (closed, proprietary platform) network did not prosper; those who chose the PC (open, nonproprietary) did. Apple releases its new computers equipped with Intel processors to deal with users’ needs of open source computing.

In the network economy, a company’s success depends more than in the past on the standards it chooses. For example, many companies have chosen an ERP package. If they chose one selected by many other enterprises, third-party providers saw a larger market for their work, so more of them wrote “bolt-ons” to add new functions. This tendency, in turn, expanded the options for everyone using this ERP platform. Companies choosing a less favored ERP package ended up having fewer bolt-ons to choose from, fewer peers to learn from, fewer consultants with expertise in the package, and so on.

The destiny of firms and their “web” (the platforms they choose) are so intertwined that a company’s first duty is to “feed the web,” because the firm’s prosperity is linked to the prosperity of the network. A company cannot prosper unless its network prospers.

Here is an example in the software industry. Software companies, such as Microsoft, pay as much attention to their web as they do to their software. Thus, they hold conferences for developers who use their products to write applications. They provide tools to these developers and co-promote their applications. They provide education to consultants to learn about their software. They give away software to schools to promote their name to future generations. In short, they feed the web (the ecosystem) that surrounds their products. The same is true in the video game industry, the music industry, and the movie industry. All three currently face challenges relating to providing their products over the Internet.

In the network economy, enterprises will shift their focus from maximizing their own value to maximizing the value of their network. Some networks will, of course, be more important than others. For example, choosing to support the laser disk rather than the DVD platform was obviously crucial to movie companies. It is too early to tell how important one wireless Internet access platform will be over another and to whom the choice will have the greatest value.

A corollary is that standards thus become ever more important in the network economy. The prize is so large that many contend to become “the standard.” That contest is now being waged in the wireless world. Which wireless protocol will win? It is still an open question. Companies that plan to offer services wirelessly must therefore decide before a clear winner is apparent. Then, they need to back it, promote it, and do all they can to ensure they have chosen the winner. The standard-making process becomes far more important in the network economy, so companies will devote much more time to it than in the past. Webs of relationships will be regulated by the technical standards they are built upon. The important lesson for CIOs in this operating principle is that they need to inform their peers in top management of the importance of the IT platforms they choose, not just to run operations, but also to serve customers and enhance their products and services. These choices are not IT decisions; they are business decisions.

The wireless revolution continues its quiet but forceful march. New wireless technologies are more reliable, with longer-lasting batteries and faster data transfer rates, and are cheaper to operate. All of this increases the business value of networks. But, the revolution is still in the making. Emerging techniques to transfer energy—such as inductive coupling or magnetic resonance—have the potential to further reduce power consumption on mobile appliances, making wireless devices the most ubiquitous accessory in today’s business. The uses of wireless are just the beginning. Wireless devices could help the organizations extend their sense making—that is the ability or attempt to make sense of ambiguous situations, expand and update organization memory, and add real-time value services to existing processes. IT managers should work closely with their colleagues to create innovative applications.

Given these potential operating principles for today’s e-world, we present a few ideas on how to move forward.

The discussions in this chapter have been about processes, structures, and technologies; moving forward, though, is about people. It is about the people who lead us into this new business world and the people who are led. We start first with the followers; that is, the people who need to make use of the technologies in this emerging network-based business world. Not all people have the same inclinations to use technology. We end the chapter by talking about what business leaders need to know to be comfortable leading the use of IT and what IT leaders need to know about their business.

Source: Elizabeth Ghaffari and Barbara McNurlin, “The Technology Camel,” unpublished paper, 1998.

These five groups represent the spectrum from chomping-at-the-bit innovators (the camel’s nose) to those who prefer to leave new technologies well enough alone (his rump). These concepts hold equally well for business users, departments, companies, and industries as well as for U.S. households.

For greatest success, IS departments would do well to benchmark their customers, partners, employees, and others in their business ecosystem against this camel, then introduce the new technology, such as wireless Internet access or Web Services, in a manner that reflects each cluster’s willingness and ability to assimilate the new technology. Here are the different possible strategies for assisting each group at its comfort level.

The smallest group is the noisiest: the zealots, proselytizers, salespeople, writers, and service providers. Today, for example, they are ecstatic about 3G wireless network services and Web Services. Everything about these two emerging technologies, by definition, is rather promising.

Most of these people are in software and hardware companies, where their enthusiasm and vision can be an asset. Some large IS departments have an advanced technology group charged with tracking new technologies and determining when and how to begin testing and implementation. In the average corporation, though, eager beavers can be a money drain if they are given the reins to lead the company into new technologies too early.

The recommended approach to eager beavers is to support them with some funding and to learn from them. Perhaps one to three percent of the IS budget is enough for R&D, provided some business objectives are being supported. Let the market shake out the hype before investing much more in their ideas. However, if being at the bleeding edge of technology is a company’s business, these folks need to be supported with more money. In other cases, companies take a big risk following these zealots.

In the early Internet days, companies could barely constrain early adopters of Internet technology. They were the disciples, not too far behind the innovators. They were pushing to get corporate data on the Web. They probably even had their own homepages. They also bought a lot of BetaMaxs, eight-track tapes, CB radios, and new high-definition DVD players. Today, those excited about wireless doubtlessly have several generations of handheld devices and cell phones and subscribe to at least two wireless services—a 3G one if they can get it. Those into Web Services have already found ways to create some for their business group. They have a lot of discretionary income and tend to think their corporation does too.

Enterprises can miss a market by ignoring these people, but they do need to be managed. They need IS’s help and encouragement, but they should not be allowed to overwhelm their department or the company. Use them to generate showpieces, a few early successes, but do not let them run the company’s mobile Internet presence or Web Services group because they will exceed any budget. In addition, they may not want to listen to the customer feedback their success might generate. Monitor their performance like a hawk. Make sure they invest their own money in their experiments.

The first of the two big consumption waves includes the folks, departments, and companies that say they are willing to use new technologies but that they need some help. They are not the self-sufficient pioneers or the risk takers. They have just bought a Web access handheld or will do so in the near future. They use instant messaging. They are willing to consider doing a Web Services pilot. They may be confused by the terminology and the proliferation of products and services. It may look like chaos to them, so they ask, “Is it worth my time, money, and support costs to go this route?”

These early majority folks tend to be in relatively important positions in the organization, so they can make or break the introduction of a new technology, even more so than top management. The real business impact of a new technology depends on what these early majority folks do with that technology. IS management needs to understand how these users view the company, customers, and competition, and then help them choose a strategy to expand their familiarity with, say, wireless Internet or Web Services offerings at a self-paced rate that can be incorporated into the way their group does business. If a Web Services offering does not help them compete better, it is not worth IS’s time or money.

Thus, IS management must become adept at creating options that can be tested for acceptance or rejection. At the same time, IS needs to provide some education and explanations to these folks on the options. What Web Services do their customers want from the company? What kinds of wireless access might customers want? Is instant messaging important? Investments with this group are well placed. Before approaching these folks, IS needs to understand the nontechnical products and services that consume these people’s time and attention. Learn about their business.

Late majority people, departments, and companies are not afraid of a technology, but they do have serious concerns about risks and costs. They are concerned about wasting time and money searching for information on the technologies and the kinds of investments needed to make solid, informed decisions about what it will do for them. Technology skeptics also ask questions about whether the company’s customers and suppliers really will benefit from the technology or whether early users are just a bunch of looky-loos out for a free ride.

Late majority companies do not have Web Services on their radar screen. The technology is too new for them to see any benefit from jumping in until it is tested. They are likely to still be deciding whether to implement an ERP system. Even though their employees may not be able to live without cell phones, the company is not thinking about how consumers might want to access their Web site via a phone or handheld. For this group, 3G wireless is not really here, and until it is and proving itself, the late majority will not show an interest.

For these late majority people, IS management needs to be as prepared to address risks and costs as they are to address technology opportunities. IS needs to show an appreciation of bottom-line concerns and answer security questions at the level that late majority people can appreciate. It is not necessary for corporations to allow their online presence to be accessed wirelessly via the Web. IS can point to examples, such as Lands’ End and Eddie Bauer, where online information is an adjunct to traditional information delivery methods. Or they can cite Home Depot, which only shows the items stocked in the consumer’s chosen nearby store. Web sites can be a sales sampling resource, isolated and independent of the private, internal corporate network. Or it can be a complementary source of advertising or education, providing a richer customer experience for customers, without sacrificing the reputation and the relationship nearby brick-and-mortar stores already have with customers.

The people, departments, and companies who resist technology are not currently considering doing anything about wireless access to their Web sites or implementing Web Services. In many cases, their concerns about loss of privacy, security, control, and possible exposure to competition override any perceivable benefits of these technologies.

Two industries that have traditionally been technology averse are real estate and publishing. Real estate has a sunk cost and protected monopoly position over multiple listing books. Publishing has a sunk cost and a protected monopoly position over media and advertising. It is rare, but the breakthrough cases in these two industries generally come from companies capturing niches by going outside the system. In real estate, for instance, a few have set up Web pages that permit wireless access by realtors as they are driving potential home buyers around looking at homes. Although traditional publishing media have begun to offer digitized content that can be downloaded from the Web, they are not thinking about wireless access from handhelds. In general, they do not know how to take advantage of it.

To guide the technically averse, IS first needs to understand their concerns. They have justifiable business fears that need to be identified and addressed before any thought of using a new technology for business purposes can be entertained. The challenge here is education, not applications. These people need the greatest amount of time to assimilate the changes taking place in their lives. Only then can IS help them explore potentials.

The message, then, is for the IS department and other leaders to recognize and acknowledge each cluster’s concerns about new technology and then develop a multi-tiered approach to respond to those diverse concerns.

Finally, we end this chapter, and this book, as we began it, on the subject of leadership. As we have noted, business value comes from the use of IT, not from the technology itself, and IT use can only be guided by the users in the business. It follows that leadership of IT is no longer a technical challenge; it is a challenge for all business managers. An important action CIOs can take to move their enterprise forward in the e-world is to ensure that the business managers in their enterprise are staying abreast of the changes and new uses of IT; in short, that they understand and are comfortable with IT and its impact and potential value to the business.

Chuck Gibson,14 a long-time top-level consultant, points out some current reasons why business managers, particularly senior executives, need to understand IT as it is today. For one, although the ranks of IT-literate and IT-savvy senior executives are growing, most still do not have the depth of background in IT that they have in functions such as marketing, finance, HR, or manufacturing. As a result, they may not understand the issues that drive effective use of IT, such as the need to invest in infrastructure ahead of the need.

In addition, most executives are well aware of IT because computers have become so woven into the fabric of business. Therefore, they understand IT’s operational importance. However, seeing IT used day in and day out may lull them into seeing IT only as an operational resource. They might not think of IT as a competitive resource, one that can be used innovatively on new business initiatives. Likewise, if the IS organization is only seen as keeping the back office running, business executives may not see the CIO as a potential peer and resource for new business initiatives.

Behind this delayed realization lies an important lesson, itself worthy of executive learning: Although venture capitalists and many entrepreneurs jumped on the Web and its appendage businesses as soon as they became available, most of the rest of us did not. People undergo a gradual learning curve whether they are consumers or employees. Organizational and behavioral change takes time because acquiring new habits takes time. Only at a certain point in the curve does the network effect kick in: The more people who use a technology, the more necessary it becomes for others to use it due to the pressure they receive from the users and their need to be connected for their own benefit. Today, executives endanger their career when they ignore the growing, persistent, but somewhat underground e-commerce movement. During poor economic times, successful companies position themselves to thrive when the good times return. The time for executive learning on this manifestation of IT is now, or even yesterday.

For these reasons, CIOs need to be concerned with the potential gap between what their fellow business executives believe is important about IT versus what they really need to know to effectively guide the use of IT. Executive learning on new ways of doing business using IT and new ways of solving old problems are thus more important than ever in both companies and nonprofit agencies. The technology continues to evolve, and the new information economy is emerging, albeit slower than we thought.

Senior executives need to learn to carry out the following executive roles with respect to guiding the use of IT, notes Gibson.

One of the most important jobs of executives is to set the tone of the organization toward IT and the IS organization, mainly through their actions. The importance of IT and information must be modeled by executives through their personal use of technology, their e-world knowledge, and their decisions. They may need education in performing this role well.

Management must foresee how key business strategies can be enabled by IT. Business executives need to learn how to sense technology trends and discuss alternative scenarios of technological opportunities for their business. The goal is to achieve IT-business strategic thinking among all executives. However, some executives still believe that the IS function is a machine room, the CIO is a technician, and the IS function can stay a step behind business planning. Where these attitudes persist, organizations encounter problems aligning IS projects with business objectives. Understanding the role of the CIO and how to effectively integrate business and IT planning is part of the remedy.

The emergence of e-business has exacerbated this leadership need. For one, change is occurring faster. Executives need to understand that implementation of a powerful package, such as ERP or creation of a transactional Web site, cannot bring about major business change on its own. But it can be a powerful catalyst and tool for top management to foster business change.

The IS department cannot be the single driver of organizational change. Both top and line management must be the drivers. Line executives, in particular, are the real implementers of business change. This issue goes back many years yet it is still with us. Time after time it has been shown that when line management does not lead a change, it does not stick. They need to learn how to implement IT-enabled change.

This subject continues to be relevant because continuing tension characterizes the relationship between strategic objectives and the need to invest in IT infrastructure before people realize they need it. IS organizations must be ahead of requests for applications and have data available for unanticipated user needs. Business executives need to learn to use appropriate cost-benefit criteria to assess IT projects and understand the need to invest in IT infrastructure, even though it may have no easily measurable, near-term quantitative returns.

Inspired by Gibson’s work, we present below a number of IT issues that managers should focus on in the immediate future.

This is a current issue with a potentially huge impact. For example, U.S. government agencies are being required to become paperless. The U.S. pharmaceutical industry faces deadlines for creating a paperless trail of test results and patient experiences with new drugs because the U.S. Food and Drug Administration is exercising its statutory mandate to be able to track experiments and batches of medicines the minute a serious adverse reaction is uncovered. Privacy legislation is also likely to affect companies and might even fly in the face of the database consolidations so many companies are undertaking. To properly invest in IT, top and line management need to understand the regulations and their ramifications for their business. Interestingly, market forces play a more dramatic role in driving businesses to adopt IT. Cross-border supply-chain management is an example of such a market trend forcing small and medium enterprises to move to EDI and Web-based computing.

Business executives in the class want to know how to identify, initiate, and get involved in IT projects. They want to understand what the IS organization is doing and particularly how they can manage their part of projects—the implementation that requires business changes. A trade-off needs to be made, though. Involving businesspeople in systems projects elongates the projects, and the two parties need to work out a common language for talking about systems, architecture, change management, and infrastructure. The benefit, of course, is that successful implementation is much more likely when business people are involved from the outset.

Executives want to use familiar metrics such as ROI to justify projects. However, some business executives need education in this area. They become so focused on garnering value for cost that they do not realize they should be using a portfolio approach, recognizing that some kinds of IT investments require different kinds of metrics.

Basically, not all IT investments have comparable returns. Whereas some can be justified on savings (displacing labor), others can only be justified based on judgment (such as an executive dashboard). Still others can only be justified on indirect and future, hard-to-foresee returns (such as infrastructure).

This is a second long-standing issue because a number of companies really did not manage the business change required of ERP correctly. They do not want to undergo a similar disaster in implementing CRM. So at the MIT class, they want to know how to manage IT-induced change properly.

These processes, such as those that underlie e-business and supply-chain management, are an area where we are on the verge of breaking through, speculates Gibson. The curve is now taking off. Some leading-edge companies are now truly taking advantage of their consolidation of customer information (given privacy restrictions) to provide the same look and feel to their customers through their numerous channels.

There are numerous ways business executives can learn how to guide the use of IT:

One of the cases presented in MIT’s IT for the Non-IT Executive program is the case of Dow Corning. It illustrates learning by doing. When Dow Corning implemented ERP in 1995, the CIO was replaced with an experienced vice president who had spent his entire career in the company and was a well-respected business executive. He was given responsibility for IT and for the ERP project. He learned a lot about IT quickly; so did Dow Corning’s executive team. They implemented SAP across the company in a few years’ time and did so very successfully, even though it was hard on the people.

An important learning forum for top business executives is steering committees and teams that include the CIO. Gibson notes that a CIO at Vanguard made his way to the executive suite in this way. Vanguard has huge investments in technology, and the Vanguard executive committee discussed major investment and technology issues as a regular part of its business. Being part of governance teams leads to executive learning.

Despite the pressures of business today, executives are currently making time for formal training programs in IT. For example, CEOs, CIOs, heads of divisions, and other levels of managers are attending MIT’s and other universities’ executive education programs. “They come, in part, to get away from the pressures of their job and to engage in serious discussion. It’s like a 2-day sabbatical to them. And because enrollment is open, they get to hear what’s happening in other organizations—both profit and nonprofit,” says Gibson.

What stands out in the discussions of organizing principles and the networked world at the beginning of this chapter is the repeated emphasis on naturally forming and evolving relationships. The focus is on people-to-people contact rather than technology; technology is the underpinning. The principles refer to natural phenomena rather than human-made structures. They dwell on how to develop relationships that help people work effectively.

We are, indeed, in a business revolution. With it, the use of IT is changing in kind. It has shifted from amplifying thinking and processing to amplifying communicating and connecting. It is now much more about relationships than transactions (which happen in the background and are, indeed, becoming increasingly sophisticated). Now that this shift has been made, IT becomes about business and needs to be the responsibility of the business folks, not the technology folks.

IT professionals have always been enamored with the technical aspects of computer technologies; the human side has been of less interest and far too complex for many. However, it is people who make or break a system through their use or disuse of it. So even though the Internet-based economy relies heavily on IT, relationships and such mechanisms as Communities of Practices (CoPs) play a major role. IT now allows such relationships to transcend time and space, and with the appearance of instant messaging, people can stay in on-demand contact. With cost-justifiable anywhere, any time video, people are able to communicate in richer ways across greater distances. In so doing, the foundations of past ways of working change. That is the exciting exploration that is going on right now as people grapple with creating the new work environment and the challenges it presents.

The aim of this book is to advocate for a proactive, forward-looking approach to managing information technology for business. Opportunities and challenges, such as the “hot issues” alluded to at the beginning of this chapter, may come and go, but the information economy is here to stay. And it is the responsibilities of managers to guide their organizations through the next wave of information revolution.