Unbundling and Rebundling

What’s going on here?  It seems that each day brings another announcement of a major new merger or acquisition.  A few days ago, the newspapers reported a potential global alliance taking shape in the automobile industry, bringing together GM, Nissan and Renault.  In the past few weeks, we have seen Mittal Steel’s acquisition bid for Arcelor, Phelps Dodge’s acquisition of both Inco Ltd. And Falconbridge Ltd in the mining industry, and Johnson & Johnson’s acquisition of the consumer brands division of Pfizer, Inc.

I wrote a widely quoted article in Harvard Business Review back in 1999 entitled “Unbundling the Corporation” (purchase required) – how do I reconcile that perspective with the recent wave of merger and acquisition activity on a global scale? In fact, if we probe beneath the headlines, we see an interesting paradox: mergers and acquisitions are accelerating at the same time that a systematic unbundling of the corporation plays out.

The current wave of M&A is a direct response to intensifying global competition at two levels – in both product and financial markets.  In product markets, product life cycles are compressing, margins are eroding and market fragmentation makes it more and more difficult to make this all up on volume.  In financial markets, investors are becoming increasingly demanding, seeking not only near-term profitability but attractive growth prospects as well.

What’s a CEO to do?  Well, judging by the recent pattern of M&A activity, CEOs are increasingly looking for mergers and acquisitions within the same industry, often across national boundaries.  This is a marked improvement over previous waves of M&A activity that were more purely growth focused and often led companies into diversification strategies that destroyed value rather than creating it.

These consolidation strategies seem to have two primary drivers.  First, executives pursue opportunities to squeeze additional cost savings by leveraging economies of scale.  Second, they seek to expand their product brand portfolio as a way to pump up revenue growth.  There’s a third factor in play as M&A activity increases – CEOs face a choice of either embarking on an aggressive acquisition strategy of their own or risk becoming an acquisition target of someone else.

In the face of growing competitive and financial pressure, these are reasonable motivations.  The question is whether they go far enough.  Like the stock buybacks that I discussed in an earlier posting, these initiatives may reflect a more serious shortcoming: an institutional inability to internally generate profitable sources of growth.  In fact, these initiatives may significantly distract executive (and investor) attention from the pressing need to restructure enterprises to create sustainable growth platforms. The turmoil at Kraft Foods, where the CEO was recently replaced, illustrates this risk.  After embarking on an aggressive acquisition program to add new brands to its portfolio, Kraft has underperformed in terms of creating new brands of its own or generating more value from its existing brand portfolio.

The core message of my article on “Unbundling the Corporation” was ultimately a growth message – unbundling is a pre-requisite to sustainable and profitable growth. Unbundling does not lead to smaller enterprises, but instead creates powerful growth platforms.  In a nutshell, the article argued that most enterprises today are an unnatural bundle of three very different kinds of businesses – infrastructure management businesses, product innovation and commercialization businesses and customer relationship businesses.  By trying to manage the inherently conflicting demands of these three businesses within a single enterprise, executives undermine the potential for profitable growth.

In fact, this unbundling is already taking place across many industries around the world.  Over the past several decades, we have seen the rapid growth of many forms of outsourcing – including logistics, contract manufacturing and call center operations.  In effect, these outsourcing operations have grown as enterprises systematically make choices to strip out their infrastructure management businesses – high volume, routine processing operations – and turn them over to more focused companies.  And the leaders within the outsourcing business, whether we are talking about Federal Express and UPS in logistics or leading companies in contract manufacturing and call center operation, are enjoying significant growth as they leverage the scale economies that shape most infrastructure management businesses.

This first wave of unbundling is already well under way.  We are only in the earliest stages of the next wave of unbundling – separating product innovation and commercialization businesses from customer relationship businesses. This next wave is beginning to play out in some industries like pharmaceuticals where biotech companies focused on product innovation and commercialization are developing complementary relationships with established pharma companies that have deep relationships with “customers” (in this case, doctors and health care institutions).  As I have suggested in another posting, this next wave of unbundling will also shape the future evolution of the media industry as it grapples with the challenges and opportunity of digital networks.

So what are the implications of all of this for CEOs?  First, be wary of aggressive M&A campaigns until your management team has engaged with, and aligned around, the most basic question of all: what business are we really in?  Every management team faces difficult choices in terms of which of the three businesses to focus on, yet few companies have explicitly engaged on this question.  Until these choices have been made, M&A programs run the risk of complicating business operations – this is one reason why anticipated synergies rarely surface and why M&A transactions more often than not destroy economic value, rather than creating it. 

Second, once these choices have been made, pursue aggressive growth strategies consistent with the economics of the business chosen.  Each of the three business types has very different growth opportunities and sustainable growth will depend on pursuing consistent growth strategies.  M&A will certainly play a role in these growth strategies, but the real opportunity will lie in harnessing the internal growth potential that is made possible by operating a focused business. The paradox is that unbundling is a pre-requisite for profitable and sustainable rebundling.

The Challenge of Growth

Economics as a discipline would seem to be closely related to management studies. Yet the edge between these two areas of inquiry has often seemed more like a chasm than a fertile field for insight. Economists wedded to mathematical models of equilibrium look down on the “unscientific” musings of management theorists.  Management writers, on the other hand, look upon economics as a theoretical inquiry that offers little insight into the real world challenges of business executives.  As just one example of the latter, look at what Peter Drucker had to say about economics:  "There are no slower learners than economists. There is no greater obstacle to learning than to be the prisoner of totally invalid but dogmatic theories."

Two recently published books shed light on the potential to redefine economic inquiry in ways that could help to cross this chasm. The first book, Knowledge and the Wealth of Nations, by Peter Warsh focuses on the impact of one journal article – “Endogenous Technological Change” by Paul Romer – in re-shaping the focus of economic inquiry. The second book, The Origin of Wealth by Eric Beinhocker, does a remarkable job of describing the ways in which complexity theory provides new insight into economic issues.

A warning to executives – if you are looking for easy to digest management prescriptions or parables like “Who Moved My Cheese?”, stay away from these books.  They are both extremely well written, but they are much more concerned with describing new lenses for understanding the economic landscape than with offering quick tips for profitability and growth.  There is enormous insight to be gained from both books, but the reader needs to be patient and willing to think carefully about the material covered.

It is certainly not the place for a blog to try to summarize the complex and nuanced perspectives offered by these books.  Instead, I’ll just briefly point out a few of the interesting elements in each book to try to prompt those interested to dive into the books themselves.

Both books begin by outlining some of the key limitations of 20th century mainstream economics: a deep focus on static equilibrium models and a tendency until fairly recently to view such critical factors as the extent of knowledge or tastes and preferences as “exogenous factors” that are not within the scope of economic analysis. As Warsh indicates, these exogenous factors “lay outside the model, treated as a ‘black box’ whose detailed internal workings were to be willfully ignored.”

While both books describe efforts to overcome these limitations, it is striking that these books have such little overlap.  In fact, Paul Romer, who plays a central role in Warsh’s book, merits only two brief mentions in Beinhocker’s book.  In contrast, the Santa Fe Institute and complexity theory, both key players in Beinhocker’s book don’t even surface in Warsh’s book.

Warsh’s book focuses on the “conceptual rearrangement in economics” precipitated by Paul Romer in his article on "Endogenous Technological Change" in the Journal of Political Economy in 1990.  Paul Romer’s key insight was to describe knowledge as a “non-rival, partially excludable good” that played a central role in driving both technological change and economic growth.  For the layman, this means that knowledge can be “shared equally by many persons at the same time practically without limit” but also that “access . . . can in some degree be controlled.”  Among other things, this provides a foundation for increasing returns, a concept that mainstream equilibrium economics found deeply problematic.

Warsh sums up the impact of Romer’s article in the following way:

The fundamental categories of economic analysis ceased to be, as they had been for two hundred years, land, labor and material.  This most elementary classification was supplanted by people, ideas and things. . . . Technical change and the growth of knowledge had become endogenous – within the vocabulary and province of economics to explain.

In the end, I fear that Warsh overstates the impact of Romer’s article, implying that it led to a fundamental shift in the economics profession, away from static, equilibrium models and towards more dynamic, growth models.  While the article was certainly influential and opened up a new set of issues for economic inquiry, too much of the mainstream economics profession remains mired in the mathematical marshes that simplify away all the interesting variables of economic life.

In particular, Warsh is much too optimistic about Romer’s role in resurrecting “that long-neglected figure (at least in economics classrooms), the entrepreneur.”  To really gain insight into the economic role of the entrepreneur, one still has to venture far beyond mainstream economics into the realm of Austrian economic perspectives, starting with Joseph Schumpeter and most recently developed by Israel Kirzner.

Beinhocker’s book takes on a more ambitious task.  As he indicates in his preface,

. . . the field of economics is going through its most profound change in over a hundred years.  I believe that this change represents a major shift in the intellectual currents of the world that will have a substantial impact on our lives and the lives of generations to come.  I also believe that just as biology became a true science in the twentieth century, so too will economics come into its own as a science in the twenty-first century. . . . .

Despite the importance of economic thinking, few people outside the hushed halls of academia are aware of the fundamental changes under way in the field today.  This book is the story of what I will call the Complexity Economics revolution: what it is, what it tells us about the deepest mysteries in economics, and what it means for business and for society as a whole.

This is a remarkable book (full disclosure: Eric acknowledges me as one of the people who played a substantial role in shaping the thinking in this book, so I am a bit biased).  It is a wide-ranging critique of the limitations of mainstream economics, succinctly summarized by Eric in the following way:

. . . economics has historically been concerned with two great questions: how wealth is created and how wealth is allocated.  Between the Classical Era of Adam Smith and the mid-twentieth century era of Samuelson and Arrow, the first question was largely overshadowed by the second.  The models of Walras, Jevons and Pareto began with the assumptions that an economy already exists, producers have resources, and consumers own various commodities.  . . . An important reason for this focus on allocation of finite resources was that the mathematical equations of equilibrium imported from physics were ideal for answering the allocation question, but it was more difficult to apply them to growth.  Equilibrium systems by definition are in a state of rest, while growth implies change and dynamism.

But this is only a launching pad, Eric’s primary focus is on providing a rich and powerful view of the drivers of wealth creation:

This book will argue that wealth creation is the product of a simple, but profoundly powerful, three-step formula – differentiate, select, and amplify – the formula of evolution.

Eric develops this perspective and traces out its implications in a broad range of domains in language that is simple and compelling while illustrating complex concepts with examples that are accessible and entertaining. Rather than trying to summarize his arguments and inevitably doing an injustice to the richness of his book, let me instead just briefly highlight two areas that I wish he had developed more, even though his book, with a wealth of footnotes, already breaks the 500 page barrier.

First, like most of the complexity theorists that influenced him, Eric puts great emphasis on the need for adaptability.  This is certainly appropriate, but it under-estimates the potential for shaping strategies.  In environments undergoing rapid change and a high degree of uncertainty, players have more degrees of freedom to alter outcomes than they would have in more static environments.  Shaping is of course different from dictating – we are talking about the ability to alter probabilities on the margin rather than designing and imposing outcomes.  This is an enormous opportunity for companies of all sizes, yet very little is understood about what is required to be a successful shaper.  This is a topic for another blog posting, but shapers have very different mindsets and practices relative to adapters, even though both types of players in the end have to be highly adaptable in the strategies they pursue.

Second, and related to the first, Eric’s rich discussion of business strategy towards the end of his book suffers from a tendency to focus solely on individual enterprises without exploring significant opportunities to pursue strategies that mobilize large networks or webs of participants. His discussion of strategy tends to assume a dichotomy of firm and market, without acknowledging the rich spectrum of relationships that exist between these two extremes. This is particularly surprising since, earlier in his book, Eric explores with great insight the role of networks in complex adaptive systems.

In the end, both books are deeply concerned with bringing the growth of knowledge and its role in wealth creation back into center of economic inquiry. This is a profound, and long overdue, development.  It may finally help to close the chasm that has separated economics and management studies.

But to do more than close the chasm and generate even greater insight, it will be necessary to add another key ingredient to the mix – exploring more systematically the role of relationships in shaping opportunities for learning and the growth of knowledge. In fact, these two topics are inextricably linked in terms of understanding the potential for wealth creation and it will be difficult to generate much insight for business strategy without understanding these connections more fully.

Paying Attention

An interesting discussion surfaced over the past week among some bloggers, precipitated by comments from Esther Dyson in a debate with Vint Cerf in Wall Street Journal Online.

Esther reminded us that recent references to the attention economy are heavily influenced (directly or indirectly) by a seminal article on "The Attention Economy and the Net" by Michael Goldhaber on the subject many years ago. In the process, she made the great point that many of the recent references focus on only half of Michael’s attention economy.

Many of us have written about the growing importance of attention scarcity – the fact that we each only have 24 hours in each day and must decide how to allocate this attention across an expanding array of options competing for that attention. But Michael placed as much, or perhaps even more, emphasis on the desire we all have to receive attention.  In fact, the foundation of the attention economy as described by Michael is the exchange that results from giving and receiving attention.

Andrew Keen amplified on Esther’s comments:

Dyson says that the Internet in 2016 will come to reflect our hunger for attention. It will be electronic proof of our existence. To misquote Descartes, "I can be googled, therefore I am." The future of media, therefore, for Dyson, is partly a Darwinian struggle to rank higher than others, and partly an existential struggle to prove one’s own identity. This vision is not dissimilar to my own theory of digital narcissism.

Scott Karp suggests that this holds the key to a transformation of media economics, radically undermining traditional revenue sources for the creation of content, especially advertising.

Nick Carr picked up on this and, as is his style, used it as a hook to offer a contrarian view regarding the dynamics of social networking sites like MySpace:

When we communicate to promote ourselves, to gain attention, all we are doing is turning ourselves into goods and our communications into advertising.  We become salesmen of ourselves, hucksters of the “I.” . . . Karp’s wrong to say that MySpace is resistant to advertising.  MySpace is nothing but advertising. . . . Far from existing outside the financial economy, the online attention economy is its fulfillment, its perfection.  It’s the place where marketing ceases to be marketing and becomes life.

Phil Edwards tries to strike a middle ground:

Ultimately Dyson and Carr are both right. The ‘attention economy’ of Online Stuff is new, absorbing and unlike anything that went before – not least because the way in which it gratifies fantasies of being truly appreciated, understood, attended to. But, to the extent that the operative model is eBay rather than Usenet, it is nothing other than a subset of the financial economy.

There is no question that the dynamics of the attention economy will redefine media economics and particularly advertising, but a more fundamental question needs to be addressed before we can gain a clear view of the implications for media and advertising: what is behind the desire to receive attention?

Much of the discussion so far tends to take a fairly dim view of the desire to receive attention.  Nick in particular is scathing on this, despite the irony that, in a subsequent posting, he admits to tracking mentions of himself on the Internet, describing it humorously as a “shameful sickness.” If this is a shameful sickness, I think it replaces bird flu as a global pandemic.

Even Esther in her initial comments tends to marginalize the desire to receive attention:

People go on the Web in search of attention; they don’t want to give it as much as get it. People judge their own worth by their number of friends (Friendster) or fans (MySpace) or business contacts (LinkedIn). They may tell you that they’re seeking business success, but oftentimes they seem to value contact lists in the thousands for their own sake.

While adults worry about privacy, kids seek attention. They post poetry, photos, exaggerated tales of personal exploits, music in order to create an online presence that garners attention. . . .

[In response to another comment by Vint] Yes indeed, it is youthful behavior etc. – just as it once was youthful behavior to be obsessed with money and to want more money than you could use, which horrified the sages who cared more about old-fashioned values.

So, is this really all just about kids?  I don’t think Esther intended it to come across this way, but that’s sure the way it reads.

Michael Goldhaber, in his original essay on “The Attention Economy and the Net” is more respectful of the desire to receive attention, but even he tends to describe the drivers of this desire too narrowly.

Look, I think we would all agree that, as human beings, we have a fundamental urge to be acknowledged, recognized and respected for who we are and what we have accomplished. This is not trivial or “turning ourselves into goods” or just youthful exuberance. And there is nothing new here, except for some technologies that can help us amplify our reach and achieve broader recognition.

I suspect we would also agree this desire, like any other, can be carried to an extreme – in this case, it can and does degenerate into narcissism, where all that matters is whether we are receiving attention and we will do anything to accomplish that. Youth, with all its insecurity and turmoil, can be particularly vulnerable to narcissism. And certainly new technologies can be used to support and enable an unhealthy obsession with the desire to receive attention.

But the discussion to date about receiving attention misses a couple of key points. First, there is a powerful dynamic between giving and receiving attention.  In a world where more and more options are competing for our attention, we are unlikely to offer that attention unless something of compelling value is offered in return. We become much more selective and demanding in terms of who or what will get our attention.

We are still in the very early stages of the evolution of our digital world, so this dynamic has not played out in full force as we all explore and play with the new options available to us, both in terms of giving and receiving attention. And narcissists can certainly engage in reputation building Ponzi schemes that offer, at least for a while, the illusion of recognition.

There’s a second dynamic that will reinforce the first.  We all find ourselves in a globalizing world where we must find ways to develop distinctive and rapidly evolving capabilities. That is the only way to carve out sustainable livelihoods in the face of intensifying competitive pressure.

In this context, what we know at any point in time has diminishing value. We all need to find ways to tap into a broader set of experiences and perspectives to refresh our understanding of the changing world around us. To do this effectively, we need to receive the deep and sustained attention of those who have the most to offer and we cannot do this unless we can offer compelling value in return. If we cannot build deep and sustaining networks of attention (in other words, networks of relationships), we will find it more and more difficult to remain relevant and productive.

Together, these two dynamics create a self-regulating mechanism.  In a world of attention scarcity, we will not continue to receive attention unless we earn that right. If we do not receive attention, we risk becoming progressively marginalized.  Receiving attention becomes far more important than it ever was and will require far more effort than in the past. This is the strong message for the media business, but it applies much more broadly to all businesses, other institutions and individuals. In the process, advertising, at least as we know it today, will become less and less effective, no matter how creative we become at grabbing the attention of unsuspecting customers.

In the early stages, many will certainly find ways to game the system as a fascinating article on “Six degrees of reputation: The use and abuse of online review and recommendation systems” by Shay David and Trevor Pinch indicates. But in a world of growing attention scarcity, these games become less sustainable as everyone begins to recognize the imperative of increasing return on attention.

As we try to make sense of the evolution of the digital world (and its inevitable impact on the increasingly intertwined real world), we need to pay attention to both sides of the attention exchange.  Trivializing or diminishing either side will make it difficult to appreciate the challenges – and opportunities – ahead.

Creation Nets

The McKinsey Quarterly has just published "Creation Nets: Getting the Most from Open Innovation", an article that JSB and I wrote.  We’re excited about it because it represents an opening salvo in a new wave of research we’re pursuing into methods for organizing innovation activity beyond existing institutional boundaries.

Innovation is back in force as a topic on senior management agendas.  Unfortunately, that means there is also a lot of loose writing about the topic as the media and pundits of all stripes seek to whet the appetite of executives trying to figure out how to become more innovative.

In this article we try to do three things.  First, we tackle the popular topic of open innovation. Unfortunately, this term has been so broadly used that it encompasses everything from a one-off licensing deal to massive networks of participants collaborating on innovation initiatives.  We narrow the focus in our article to creation nets – forms of open innovation that involve sustained relationships across large numbers of participants collaborating together to create new knowledge across traditional institutional boundaries.  These are much more demanding forms of open innovation, but they offer much greater potential for both rapid incremental innovation and breakthrough innovation than the more limited forms of open innovation that seem to be the focus of much media and pundit attention.

Second, while narrowing the focus on one dimension, we broaden it on another.  Serious analysts of open innovation generally tend to focus on one specific slice of open innovation.  Rich discussions of open source software initiatives, for example, tend to restrict their scope to that one domain of collaboration. We found deep insights on creation nets in such diverse domains as software, consumer electronics hardware, motorcycles, apparel, astronomy and big wave surfing.  Few, if any of these analyses betrayed any awareness of, much less interest in, similar initiatives in other domains. We identify the patterns that are emerging across diverse domains in terms of how to organize creation nets.

Third, we focus specifically on the institutional mechanisms required to catalyze and focus innovation initiatives within these creation nets.  Unfortunately, much of the coverage of open innovation tends to emphasize self-organizing and emergent behavior, leaving executives with the impression that there is nothing that can be done to shape or focus efforts in this arena.  While creation nets critically depend on emergent practices for their success, we found that these creation nets display an interesting blend of managed and emergent activity.  By understanding the management techniques that contribute to the success of creation nets, executives in fact can shape the direction of creation nets and generate and capture more value from these networks.

There’s a lot of talk about product innovation and there is some attention to process innovation and business model innovation.  But most executives do not fully understand the institutional innovation that explains the emergence and growth of creation nets.  We hope that our article will make a contribution to building that understanding.  As usual, we have developed a more detailed working paper that amplifies the themes introduced in the article.

We’ll no doubt encounter some criticism for introducing a new label – creation nets – when there are already a lot of buzz words competing for attention – innovation networks, innovation ecosystems, open innovation, value networks, social networks, etc.  We hesitated to introduce yet another term to the innovation brew, but we became convinced that the other terms have been used too broadly and too loosely to be helpful in focusing on the elements that have greatest potential to drive innovation – sustained and rich relationships, large numbers of participants across traditional institutional boundaries and distinctive governance mechanisms to focus and integrate diverse innovation initiatives.

As I indicated, JSB and I are in early stages of research in this area. This is one element of a broader research agenda that includes our earlier work on push versus pull approaches to mobilizing resources (the McKinsey Quarterly article “Push to Pull: The Next Frontier of Innovation” is available here and the more detailed working paper is available here.  As our work progresses, we will connect the dots between these two arenas as well as a number of other arenas where profound changes are also unfolding.

Jane Jacobs and Cities

Jane Jacobs, one of the last great public intellectuals, passed away earlier this week at the age of 89.  Jacobs was an extraordinarily insightful writer who anticipated many of the themes that have become foundations for contemporary social analysis – complex adaptive systems, emergence, social capital and social networks, just to name a few. 

Martin Wolf and Jeff Pruzan in their obituary on Jacobs in the Financial Times capture her power:

A genius – no other word will do – she had the defining quality of any brilliant intellect: the ability to look at the world in a fresh way.  She had the knack of asking illuminating questions and coming up with perceptive, original, compelling and above all correct, answers. Despite her lack of formal training she educated even Nobel prize-winning economists.

But she had more than insight – she had passion. She fought for what she believed in, including getting arrested in demonstrations against urban renewal and the draft and emigrating from the country she loved to help her sons avoid the draft during the Vietnam War.

Jane Jacobs loved cities, a passion that I have expressed here, here and here. Much of her writing – especially the triad of her books, The Death and Life of Great American Cities (1961), The Economy of Cities (1969) and Cities and the Wealth of Nations (1984) – compellingly describes why cities are so important. Her first book explores the dynamics that shape city life and make it so rich, as well as providing a devastating critique of urban planners that seek to impose conceptions of order and, in the process, smother the very elements that make cities so vibrant. In the words of Sandy Ikeda, she seeks to explain “how cities full of strangers manage to achieve the high level of social cooperation needed to consistently generate their own economic growth.”

Her second book challenged the conventional view that the development of cities depended on agriculture and instead argued that the development of agriculture depended upon cities.  In Cities and the Wealth of Nations, Jacobs argued that macroeconomics had focused on the wrong unit of analysis – the source of wealth was not nations, but cities. In fact, as the New York Times in their obituary of Jacobs summarized the theme of her book:  “She contended that national governments undermine the economy of cities, which she sees as the natural engines of economic growth.”

Nathan Torkington in his posting about Jacobs’ passing points to a interesting overview of Jacobs’ writing about cities. A broader view of her life and writing is available here.

As you read Jane Jacobs, you begin to appreciate that her love of cities stems from an even deeper love, a love of people.  Cities are so important for Jacobs because she views cities as powerful environments enabling people to realize their fullest potential.

I have often been asked how I can reconcile my love of cities with my view that most interesting things happen at the edge.  After all, aren’t cities at the core and edges out in the rural areas?  Well, that view ignores the real power of cities as outlined by Jacobs – edges of all kinds proliferate and converge in cities.  The diversity of populations and activities and the concentration of people combine to generate enormous productive friction.

That productive friction can be either amplified or dampened by how we develop our cities.  Jacobs is a powerful proponent of spontaneous order in cities and deeply insightful about the interplay between urban design and social interaction. Her work was in part the inspiration for the notion of performance fabrics that JSB and I develop in The Only Sustainable Edge.  Performance fabrics support and amplify extended relationships by weaving together both technology architectures (or, in the case of Jacobs, urban architecture) and techniques for building shared meaning and trust.

In our terms, Jacobs was describing the performance fabrics that give cities their power as centers of innovation and economic growth. To quote Sandy Ikeda again:

One of Jacobs’s principal contributions to our understanding of cities as spontaneous orders is her insight that safety and ultimately trust depends to a surprisingly high degree on the structure and location of public spaces and that the relations that emerge spontaneously from a secure foundation of trust support essentially self-ordering processes of discovery and economic growth. . .  A great city is a spontaneous order par excellence: a self-ordering, self-regulating, and self-sustaining phenomenon, the overall characteristics of which evolve over time without the need for deliberate human design.

Her work on cities was – and remains – path-breaking, but Jacobs also wrote a wonderful book, Systems of Survival (1994), which powerfully contrasts the tension between “commercial syndrome” and the “guardian syndrome” – two moral systems that shape the evolution of societies (and cities).

And, of course, we shouldn’t forget her other great work, The Nature of Economies (2000), which made the case for looking at economies as complex ecosystems.

Jane Jacobs never graduated from college, but she has had a profound impact on intellectual inquiry in many domains.  As one example, her work influenced the thinking of University of Chicago economist Robert Lucas in the area of human capital – an area of inquiry that won him the Nobel Prize in 1995. Steven Berlin Johnson credits Jane Jacobs with crystallizing his thinking about the potential connection between complexity theory and the organization of cities, leading ultimately to the publication of his book on Emergence.

Jane Jacobs traveled with ease across many intellectual borders – her work remains impossible to pigeon-hole into the disciplinary boundaries that narrow, and often impoverish, intellectual inquiry today.  Her work also transcends conventional political boundaries.  In a world that is increasingly polarized and paralyzed politically, it is remarkable that tributes upon her passing are emerging from all points of the political spectrum. It is also impressive that the blogosphere has erupted with so much commentary – Technorati shows more than 800 posts in the past 48 hours alone.  It appears that Jane Jacobs also has had a significant impact across several generations.

Active almost to the end, Jacobs indicated she still wanted to write two more books – A Short Biography of the Human Race and Uncovering the Economy.  One can only imagine what ground she might have covered in these works – we will all be much poorer with the loss of this independent and original mind.

SOA Versus Web 2.0?

At the end of last year, I posted on the relevance of Web 2.0 technologies for the enterprise. Over the past couple of months, this theme has received a lot more attention, prompted in large part by the writings of Dion Hinchcliffe and by the discussions at two industry gatherings – SPARK/MIX 06 and Software 2006. (For those who have not been following my blog, I attempted my own definition of Web 2.0 here.)

Some of Dion’s key postings on this topic are "Running a business on Web-based software", "Web 2.0 for the enterprise: Where the action is?"  and "Web 2.0 for the enterprise?". For discussion of the SPARK/MIX 06 event, see Dion Hinchcliffe here and here, David Hill, Dan Farber, and Phil Wainewright here and here. Also, one of the highlights of the MIX 06 event was an exchange between Bill Gates and Tim O’Reilly and the transcript is available here. For commentary on Software 2006 and the Software 2006 Industry Report prepared by McKinsey & Co. and the Sand Hill Group, see Dion Hinchcliffe, Dan Farber and Ross Mayfield here, here and here.

The discussions in these forums raise one key issue: what is the relationship between Web 2.0 and Service Oriented Architectures (SOA)?  Dion in particular has been wrestling with this topic, including his postings on "The SOA with reach: Web Oriented Architecture",  "Web 2.0 The Global SOA" and "Is Web 2.0 the GLOBAL SOA?"

As I indicated in my previous posting, a cultural chasm separates these two technology communities, despite the fact that they both rely heavily on the same foundational standard – XML. The evangelists for SOA tend to dismiss Web 2.0 technologies as light-weight “toys” not suitable for the “real” work of enterprises.  The champions of Web 2.0 technologies, on the other hand, make fun of the “bloated” standards and architectural drawings generated by enterprise architects, skeptically asking whether SOAs will ever do real work.

This cultural gap is highly dysfunctional and IMHO precludes extraordinary opportunities to harness the potential of these two complementary technology sets. Perhaps because of this cultural gap, we lack a crisp articulation of the relative merits of these two technology sets for the enterprise.

We can make a lot of progress by looking at two key tasks addressed by these technologies: connection and composition.  In the early days of Web services (the early standards that became the precursor to both Web 2.0 and SOAs), evangelists painted exciting visions describing the opportunity for enterprises to dynamically compose exciting new applications from modular services.  In practice, though, the early production deployments of Web services within the enterprise have focused on a much more prosaic task: connecting large, unwieldy legacy applications together so that businesses can get more value from the data and application functionality already in place.

Connection of resources

When you talk to SOA proponents today, you will hear a lot about connecting applications and databases, but not a lot about connecting people together and helping to support their interactions with each other.  In contrast, Web 2.0 advocates put a lot more emphasis on the opportunity to connect people together and to support their collaborative efforts.  Web 2.0 certainly also addresses issues of connecting applications and data, but Web 2.0 is distinctive in the social dimension that it explicitly addresses.

The next wave of innovation by enterprises will depend on the ability to connect people together more effectively, especially at the edge of enterprises, and provide them with tools to support collaborative creation.  In this context, Web 2.0 technologies like wikis will play a key role in driving value creation in the enterprise.  As Dion Hinchcliffe has written, the architects and software engineers that dominate enterprise IT departments disconnect in discussions of Web 2.0 technologies because of the strong social aspect addressed by these technologies. SOA proponents ignore these technologies at their peril.

Andrew McAfee has just published “Enterprise 2.0: The Dawn of Emergent Collaboration” (purchase required) in Sloan Management Review highlighting the role of Web 2.0 technologies in connecting people within the enterprise.  It focuses on the potential role of Web 2.0 technologies in knowledge management:

Enterprise 2.0 technologies have the potential to let an intranet become what an Internet already is: an online platform with a constantly changing structure built by distributed, autonomous and largely self-interested peers.  On this platform, authoring creates content; links and tags knit it together; and search, extensions, tags and signals make emergent structures and patterns in the content visible, and help people stay on top of it all.

It’s a great article, but it focuses too much on knowledge capture and not enough on the use of these tools for collaborative knowledge creation. Focusing these tools on knowledge creation is likely to be the way that these tools overcome the skepticism expressed by Nick Carr. For those interested, McAfee responds to Carr at his blog and he has also developed a Harvard Business School case study on Wikis at Dresdner Kleinwort Wasserstein.

Composition of platforms

Both Web 2.0 and SOA technologies re-conceive software as services. Perhaps even more importantly, they view services as platforms.  Rather than viewing services as standalone offers designed to be consumed exactly as written, both sets of technologies start with the vision that the role of any service is ultimately to become the building block for even more services that will be built on top of the original service.

Amazon provides an early, and very limited, example of this opportunity.  By developing an affiliate program and offering a book buying service that can be embedded into other web sites, Amazon has been able to significantly expand its reach and create a much more robust platform for driving e-commerce activity.

Both sets of technologies share the same vision, but they are deeply skeptical of each other in terms of the approach used to accomplish this vision. Web 2.0 champions dismiss SOAs as much too rigid and slow moving in terms of building platforms for cumulative creation. Here’s the irony. SOAs initially generated significant interest within the enterprise because they appeared to offer a much more flexible and rapid way to build new application functionality relative to traditional enterprise application architectures.

What happened?  SOAs were hijacked by an alliance of CIOs and IT consulting firms, each with their own reason for extending the effort required to deploy SOAs.

CIOs have become more and more risk averse for a variety of reasons. As a result, they are very nervous about the deployment of new technologies within the enterprise (and even more so across enterprises).  Their natural instinct is to resist the rapid deployment of new technologies that might disrupt operations in unforeseen ways.

Many IT consulting firms, on the other hand, are economically dependent on projects that require a lot of consultants to work with clients for extended periods of time. As a result, they have a natural incentive to emphasize the complexity and issues associated with SOA definition and deployment.

The growing appeal of Web 2.0 technologies in part stems from this hijacking of SOAs.  Line executives within the enterprise are experiencing mounting frustration over the escalating hype around SOAs, the growing spending over SOA design initiatives and the relatively limited business impact achieved by SOA deployments.  In contrast, Web 2.0 initiatives are leading to a proliferation of mashups (one form of composition), as described by Dion Hinchcliffe in "The Web 2.0 Mashup Ecosystem Ramps Up" and "Some Predictions for the Coming ‘Mashosphere’ "

Breaking the logjam

What is required to break this SOA logjam?  Two things.  First, Web 2.0 technologists need to work on connecting directly with line executives of large enterprises without trying to go through the IT departments. Second, they should avoid the temptation to present grand visions of new architectures and concentrate instead on starting points where these technologies can deliver near-term business impact. (This should not be too hard since by nature Web 2.0 technologists are bootstrappers and hackers.)

Adoption will be guaranteed if they can show that tangible savings can be generated in a six to twelve month period with modest investment.  When they engage these line executives, they should focus on the distinctive value of connecting people and deploying service platforms that support rapid incremental composition of new application functionality. To make these discussions tangible, they can point to the growing array of Web 2.0 software that is usable by the enterprise (see the list compiled by Jeff Nolan at SAP, with a hat tip to Dion Hinchcliffe).

Does this mean SOAs are DOA? Not at all.  SOAs still provide a valuable foundation to support the sustained relationships required for distributed creation.  But these SOAs need to be deployed in a much more incremental and pragmatic way.  Perhaps a little competition from Web 2.0 technologies will help to break the logjam and force both IT departments and IT consultants to adapt their culture and operations to growing business pressure for accelerated impact and learning.

As JSB and I discuss in much more detail in The Only Sustainable Edge, the convergence of SOAs, virtualization architectures and Web 2.0 social software will drive the next wave of value creation within and across enterprises.  The convergence will not unfold smoothly, as much of the current debate confirms, but it will take place – there is too much at stake and each of these technology arenas offers something distinctive in supporting next generation business platforms.

ABC and the Future of Media

There’s been some debate online in the past few days regarding ABC’s announcement that it will make some of its key programs (including Lost and Desperate Housewives, two of my favorites) available on the Internet for free. Fred Wilson and Jeff Jarvis celebrate this as major news, indicating that at least one major media company finally understands what the future of media is about.  Umair Haque jumps in on the other side, arguing that “Disney is making exactly the wrong move.”

I find myself somewhere in the middle, although leaning much more in Umair’s direction.  I wouldn’t say this is exactly the wrong move, but Umair is on to something when he observes:

The point: unbundling media is only half the game: the value creation half. And it’s exactly and totally the wrong half from a strategic point of view.

Rebundling is where value capture will happen – at communities, reconstructors, markets, networks – that direct people’s attention to individualized ‘casts. This is where branding will be reborn – and where advertising is already being disrupted, ripped apart, and reborn (viz, Google, PPC, pay per call, etc)

Umair draws too bright a line between value creation and value capture.  Providers of unbundled media will be able to capture some of the value or there won’t be incentives to create engaging content in the first place. But he is spot on in the belief that rebundling of media will be where the bulk of value capture occurs in the media business. It will certainly be the key to building scalable and sustainable media businesses.

That is one of the consequences of the growing relative scarcity of attention – anyone who can help audiences connect with the most relevant and engaging content will be richly rewarded.

Umair is also correct that branding will be re-born in the process.  Branding in the traditional media business still remains largely with the talent rather than the intermediary.  Few people go to a movie because of the studio that produced it, watch a TV show because of the network that broadcast it, buy a CD because of the music company that produced it or read a book because of the publisher that issued it. Magazines and radio are partial exceptions that prove the rule – it is not accidental that these are the two traditional media businesses with the most “micro-chunked” content.

As content proliferates, this is going to change profoundly.  The most powerful brands in the media business will be held by successful intermediaries that help to consistently improve return on attention for audiences. In the process, the nature of the brand promise will change in a profound way.  It will be a massive opportunity for media companies that understand the shift in economic and competitive dynamics and that focus on the rebundling plays required to build these brands.

There’s another way to frame the strategic opportunity/challenge for media businesses going forward.  In addition to unbundling and rebundling of content, media companies face a choice: do they want to remain product businesses or do they want to become audience relationship businesses? (I developed the distinction between these two types of businesses more fully in a broader article that I wrote for Harvard Business Review on “Unbundling the Corporation” – unfortunately only available online for purchase.)

Of course, media companies have elements of both embedded in their companies today, but their hearts and minds are firmly in the product business.  Here’s the test:  how open is the media company to providing access to third party content on behalf of their audiences?  If the answer is not very open, the company is primarily a product business.  If the answer is very open, then the company is primarily an audience relationship business.

Let’s look at ABC’s website in this context. You would have to look long and hard to find anyone else’s content on this website – it is all about ABC programs. This is not a walled garden, it is a vacuum sealed bubble where third party content is treated like a virus to be exterminated. To its credit, ABC does sponsor message boards where audience members can contribute their views, but how are the message boards organized?  You guessed it, the message boards are organized around ABC programs.  It is all about the product. Anything else is irrelevant.

Now, there is nothing wrong with remaining a product business in the media industry.  If you come up with compelling and engaging products (content), you will still own a profitable business. You may even attract a loyal audience. But the challenge will be to build a scalable and sustainable business.  In a world of intensifying competition and proliferating options, that is going to get harder and harder. In most cases, audience "loyalty" is only as good as the most recent product issued.

In contrast, audience relationship businesses take these proliferating content options as an opportunity, rather than a challenge.  The more options there are, the more value that can be created by organizing, packaging, presenting and adding to these options for specific audiences. It’s a completely different mindset, skill set, culture and economics.

Media companies that want to make the transition from a product business to an audience relationship business don’t have to do this overnight.  There is a pragmatic migration path that evolves from product mindsets to platform mindsets and then eventually leads to a full blown audience relationship mindset.  I  wrote ever so briefly about the transition from product to platform in the media business before, but a fuller discussion of this transition will unfortunately have to wait for a future posting.

So, where does this leave us with ABC and its decision to offer hit programs on the web for free?  It is an important break with traditional media company practices. It will have lots of potentially painful implications in areas like syndication and network/station relationships. It therefore suggests significant courage. It also indicates a realization that survival in the media business hinges on making content more easily accessible.

But it also reveals that ABC is still firmly in the product business. The move does not suggest that ABC recognizes that the path to scalable and sustainable media businesses in the future depends on the transition to an audience relationship business. It certainly does not suggest that ABC “gets the future of media.”

Joga.com and the Return of Community

There’s no doubt about it – community is back, big time.  My personal barometer for this is the number of phone calls I am getting from senior executives of large enterprises where they start out by saying, “remember that book, Net Gain, you published back in 1997?  Well, we need you to come out and talk to us about it.”

In a way, I worry about the resurgence of interest in the concept of virtual communities as commercial enterprises.  Back in the late 1990’s, when I first wrote about this opportunity, virtually every dot com business proposal pitched the “virtual community” concept.  Few of these initiatives had anything to do with virtual communities and most of the ones that did had little understanding of what it took to build a vibrant, sustainable and scalable virtual community. The backlash was predictable.

Now, I fear that history is repeating itself.  For evidence, one need only look at Joga.com, a joint initiative sponsored by Nike and Google (for more information, see the Business Week article “Nike, Google Kick Off Social-Networking Site”).  Joga.com seeks to tap into the global enthusiasm for soccer by building a virtual community so that fans can get together online and share their interest in this sport.

So far, so good.  This is clearly a huge community, there’s a major World Cup tournament coming up this year (for those who are not soccer fans, it is the FIFA World Cup 2006 event – something that happens only every four years) and the opportunities for corporate sponsors to help organize such a virtual community are clear.

But let’s look at the implementation.  Joga.com started as a closed community – you had to be invited to join. While closed communities certainly have a valid place in some contexts, the culture of soccer is inherently open. Joga.com apparently has since opened up, presumably in response to a lot of early criticism of the invitation only policy. Once you get into Joga.com, you find that it  features Nike players, again conflicting with the open and all-embracing culture of soccer. Joga.com is closed in another important sense – it is presented as an entirely self-contained environment with few if any pointers to the enormous wealth of soccer-related content that already exists on the Web.

The organizers of Joga.com were clearly influenced by the huge success of MySpace, so they provided everyone with a personal web page.  Now, for MySpace this worked well as an opening gambit because the early participants were independent bands that got to showcase their music on these web pages and this in turn attracted their fans.  Soccer is different – this is about getting fans involved from the outset and sharing their enthusiasm with each other.  Personal web pages isolate and fragment fans, at least at the outset.

Discussion boards help to build a sense of community and there are some in Joga.com, but they are not easy to find. Also, the organization of the discussion boards swings from topics that are too broad to focus discussion to topics that are too narrow and once again contribute to a sense of fragmentation and isolation, especially in the early stages of community formation.

Joga.com is  facing the challenge confronted by every virtual community – in the early days, it is pretty lonely for the first participants – there are very few others to talk to.  One of the best ways to overcome this obstacle is by providing a rich set of quality content or some provocative experts that can engage community members and precipitate discussion.  Unfortunately, despite a few Google videos and Nike ads, there isn’t much content provided by the organizers to spark or stimulate discussion. The limited content that is available is not well organized and easily findable.

On the other hand, the organizers have clearly spent a lot of time on the design of the site (Business Week reports that the site has been under development for eight months) – perhaps too much time. Especially in the absence of stimulating content, the site comes across as too commercial and cold.

This is not a promising start for a vibrant, sustainable and scalable community.  For a creative alternative that has been flying under the radar screen, check out soccerblog.com (full disclosure: one of the talents behind soccerblog.com, is Christian Sarkar, a collaborator of mine for many years and one of the few guys who really understands what it takes to build successful commercial communities online).

Steve Rubel, over at Micro Persuasion, takes another angle on the story, noting:

It’s a departure from Google’s focus on driving more customers toward search marketing. They’re not just moving into brand marketing programs, but branded communal marketing programs.”

This is certainly a significant initiative in terms of understanding Google’s broader strategic agenda.  Google clearly has aspirations to build out communities and social networks to broaden and deepen its relationships with search users (and to provide additional platforms for context specific advertising).  Its early foray with Orkut met with mixed success at best and Google Groups appears to be gaining some momentum, but this latest initiative indicates that Google will keep trying to carve out a meaningful presence in the community space.

Alex Osterwalder at Business Model Design Blog also has an interesting take on Joga as an illustration of the “Clash of the Soccer Business Ecosystems: Google/Nike vs. Yahoo/Adidas.”  Alex notes that Yahoo! and Adidas signed up as official sponsors for the FIFA World Cup 2006. In this context, the Joga initiative can be seen as an attempt by two other key players to reap the benefits of the excitement around the World Cup without paying large sums to become official sponsors of the event.  He also characterizes the Yahoo!/Adidas play as an example of Web 1.0 thinking versus the Google/Nike play as an example of Web 2.0 thinking.

On the surface, it’s an interesting analogy, but given the concerns outlined above, it is not entirely clear that Google and Nike have really embraced the open and participatory culture of Web 2.0.

Airlines and Cell Phones

Jagdish Bhagwati, one of the most prominent economists in international trade theory, recently weighed in on a topic that is near and dear to my heart.  It’s only indirectly related to international trade – it has to do with the impending approval of cell phone use on airlines.

Bhagwati wrote an op ed piece in the Financial Times last week entitled “Fight the Phone Invasion at 30,000 Feet”.  Observing that noise pollution in public spaces on the ground is spreading like bird flu, Bhagwati warns that:

The final straw in the US (followed, presumably, by everywhere else in rapid sequence) is the impending decision to allow the use of mobile phones on flights. In this way, loud passengers will be free to jabber away in a closed cabin, saying "hi" to Joey, Joel and Josie at home just for the heck of it, or conducting their business, which is no concern of yours, by public declamation.

Bhagwati is passionate and eloquent in his opposition to this new intrusion on our privacy.  Personally, I treasure my time on airplanes as one of the few occasions when I can be out of range in an increasingly connected world. It is the one place where Linda Stone’s “continuous partial attention” still has not become the dominant mode of interaction.

We are already seeing assaults on this sanctuary in terms of wireless data connections that allow us to access the Internet and e-mail while flying 30,000 feet above the ground.  I am proud that I have generally managed to resist the temptation to connect while flying.

But this extension of the connected world is far less upsetting to me.  At least I have the choice whether or not to connect.  If my seatmate chooses to connect, it makes no difference to me.

Cell phones are another thing entirely.  Even if I choose not to connect via cell phone while flying, I am still at the mercy of anyone within a three to four seat radius of me who chooses to connect.  The sanctuary walls will be irretrievably breached.

Bhagwati does not really offer any great solutions for this attack on our privacy.  My personal hope is that some airlines will decide to block cell phone usage in an effort to attract passengers from the airlines that do allow cell phone usage.  Those airlines will have my undying loyalty – I will forgive them all their other service shortfalls.  In an effort to encourage airlines to think twice before approving cell phone usage, I encourage all of you to contact the airlines you fly most often and express your opposition to this assault on our privacy.

In the meantime, if Bose were a public company, I would advise you to go long on Bose stock.  Their QuietComfort 2 noise canceling headphones will become essential travel accessories for anyone seeking respite from the growing cacophony in the air.

The Next Revolution in Interactions

Almost ten years ago, McKinsey sponsored landmark research seeking to quantify the total amount of economic activity consumed in “interactions” – the “searching, coordinating and monitoring required to exchange goods or services.”

Now, one of the authors of that original research report – James Manyika – is leading a new effort at McKinsey to push this analysis one level deeper.  “The Next Revolution in Interactions”, an article published by the McKinsey Quarterly in the fourth quarter of 2005, reports on the initial results of this new work. It is a fascinating article with important implications for business strategy and information technology investment.

James and his co-authors distinguish three forms of work:

• Transformational – “extracting raw materials or converting them into finished goods” – examples cited include “mining coal, running heavy machinery, or operating production lines”

• Transactional – “interactions that unfold in a generally rule-based manner and can thus be scripted or automated” – examples of transactional jobs include cashiers, office clerks, truck drivers and accountants

• Tacit – “more complex interactions requiring a higher level of judgment, involving ambiguity, and drawing on tacit, or experiential, knowledge” – examples of tacit-intensive jobs include retail sales people, customer service representatives, registered nurses and general managers

Broadly, the article makes the case that there has been a pronounced shift in the composition of the US labor force towards tacit work, in part driven by a shift towards a service economy accompanied by aggressive efforts to automate transactional work. The authors point out:

This shift toward tacit interactions upends everything we know about organizations . . . . the rise of the tacit workforce and the decline of the transformational and transactional ones demand new thinking about the organizations structures that could help companies make the best use of this shifting blend of talent.

The article focuses in some detail on the role of information technology in amplifying the impact of tacit labor at three levels:

• “Eliminat[ing] low-value-added transactional activities”

• “Boost[ing] the quality, speed, and scalability of the decisions employees make”

• “Extend[ing] the breadth and impact of tacit interactions” through new and emerging technology

The authors suggest that this shift in the composition of work is important from a strategic perspective as well:

For the past 30 years, companies have boosted their labor productivity by reengineering, automating, or outsourcing production and clerical jobs. But any advantage in costs or distinctiveness that companies gained in this way was usually short-lived, for their rivals adopted similar technologies and process improvements and thus quickly matched the leaders.  But advantages that companies gain by raising the productivity of their most valuable workers may well be more enduring.

They buttress this perspective with some interesting findings on performance spreads:

The performance spread between the most and least productive manufacturing companies is relatively narrow. The spread widens in transaction-based sectors—meaning that investments to improve performance in this area still make sense. But the variability of company-level performance is more than 50 percent greater in tacit-based sectors than in manufacturing-based ones. Tacit activities are now a green pasture for improvement.

In general, I agree with the analysis presented in the article.  In particular, companies in the US have focused on improving labor productivity in large part by reengineering, automating, outsourcing or offshoring transactional activities.  There are significant opportunities to build strategic advantage by developing organizational practices to improve the productivity of tacit labor.

On the other hand, the article reinforces an unfortunate bias among American managers by creating such strong distinctions across the three different categories of labor. US companies tend to look down on transformational and transactional labor, while giving much more status to tacit labor.

In practice, the boundaries across these labor categories are much less clear. Watch a really good front line production worker or truck driver at work and you will see a lot of tacit knowledge shaping performance.  In large part, American managers have created a self-fulfilling prophecy – by defining certain work as routine, they have suppressed tacit knowledge, made existing tacit knowledge invisible and discouraged the development of new tacit knowledge.

In fact, the global success of Toyota (a company briefly referenced in the article) in competing with American auto companies is due in large part to the Toyota Production System, an approach that  makes all workers problem-solvers who are continually pushing the frontier of performance. TPS hinges upon tightly integrating transformational, transactional and tacit activities in a sustained effort to drive rapid incremental improvements in performance.

More broadly, as the pace of change in global markets accelerates and uncertainty increases, the entire notion of routine, rule-based activities ought to be challenged. In the words of my colleague, JSB, companies will need to move from coercive processes to enabling processes that encourage all participants to develop and apply tacit knowledge in their daily activities.  The winning companies will be those that reconfigure their organizations to enable all activities to become tacit activities.

There’s another bias that the article indirectly reinforces.  Confronted by accelerating change, Western executives search desperately for “safe harbors”, sources of advantage that will give them some respite from growing competitive pressures.  The article suggests that productivity improvements in tacit interactions may be more difficult to copy. This may be true, but the real message is that the only sustainable edge will come from accelerating the pace of capability building, rather than relying on any specific set of innovations in tacit interactions.

Perhaps the next revolution in interactions will come from efforts to accelerate the pace of tacit knowledge building in all activities, not just within enterprises, but across enterprises as well.