21st century business managing

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Cortada, James W.
21st century business: managing and working in the new digital economy / James
W. Cortada.
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Includes bibliographical references and index.
ISBN 0-13-030569-3
1. Business—Data processing. I. Title: Twenty-first century business: managing and
working in the new digital economy. II. Title.
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To my children, Beth and Julia,
who are entering a fascinating New World of work



Contents

Preface

xi

Introduction: What is the Information Age?

xix

CHAPTER 1 A New World Born: It Is More Than
Just Technology 1
Foremost an Age of Information Economics 3
The Search for a New Value Proposition 13
Globalization and Digitalization 23
Political Realities 38
Implications and Actions 44

Endnotes 47

CHAPTER 2 Waves of Learning, Waves of Best
Practices 51
Rise of the Competency-Based Enterprise 55
How Knowledge Management Is Transforming
Commerce 65
Business in a Process-centric World 70
Understanding How Waves of Change Work
vii


viii

80
Implications and Actions 87
Endnotes 89

CHAPTER 3 Who Are These Knowledge Workers?
95
Introducing Familiar Roles and New
Functions 97
Where They Came From 100
How Are Knowledge Workers Leveraged
Today? 103
Knowledge Management, Value Chains, and KStrategies 110
How Knowledge Management and
e-Business Work Together 116
Implications and Actions 120
Endnotes 131

CHAPTER 4 Changing Work: Role of the Internet
135
The Issue of the Net 137
What Makes the Internet Different 145
Issues, Assumptions, and Questions 148
A Sober View of the Future 159
Implications for Success 164
Endnotes 165

CHAPTER 5 Digitizing Supply and Value Chains
169


Contents

ix

The Value of Viewing Everything as a Supply
Chain 173
The Emerging New Value Chains 186
Special Role of Communications and
Computers 194
Some Realities 201
Endnotes 202

CHAPTER 6 Choosing a Future for Your Company
205
The Future of the Business Enterprise 207
Making Trends Work for the Firm 215

Nature of Management Practices 221
Cyber Manager or Knowledgeable Leader?
224
Nature of Measured Success 228
An Issue of Leadership and Management 234
Endnotes 237

APPENDIX A On Keeping Current: A Strategy and
Some Useful Reading 239
Some Great Reading 241

Index

247



Preface

The business climate today is in a state of flux, evolving in
many ways, but essentially from the forms familiar to managers and workers during the Second Industrial Revolution into
new ones. For sake of convenience, I call the new environment
the Information Age, and we work in the New Digital Economy
because the Internet has changed so much how we use computers and work. This book is about what tasks both managers
and workers in this period of transition from one economic
order to another are doing and need to do to be successful.
The answer lies largely in doing three things. First, managers
have to perform many basic tasks of management essentially
unchanged from one decade to another. For example, managers still have to run organizations that generate a profit. Second, both managers and workers need to leverage technologies
quickly and effectively and, in the process, adapt to the consequences of such actions. You see this strategy already at

work—using the Internet for new channels of distribution of
products and services—but the activities required extend far
beyond this new merger of computing and telecommunications. Third, most managers and workers have to work effectively in companies (even government agencies) that live in
two worlds, that of the old Industrial Age and in the emerging
Information Age.
This book is about how to carry out these new requirements. In the early 1990s, an author of a book such as this
would have had to defend the notion that things were changing.
Today, such an author finds readers very familiar and accepting
xi


xii

of the notion that things are changing, often very rapidly. So,
the discussion has moved on to the next level, what to do about
it. While I have a great deal to say about what people are doing
and need to do, let me begin by delivering some good news:
The fundamentals of management, as described, for example,
by Peter Drucker in more than a dozen books and 35 articles,
still apply. What is changing is how these fundamentals are
being executed because there have been important technological changes in the past decade, such as the arrival of the Internet. The services and knowledge content of work has increased
sharply as well. Most workers today are also experiencing the
consequences of the simultaneous survival of pre- and postindustrial economies in many industries and in various
nations.
Noneconomic conditions have also changed, affecting
workers around the world. The Cold War is over, and one consequence has been an enormous expansion of international
trade. One byproduct has been the growth of free trade practices. A second has been both the expansion of democracies
(especially in Latin America and in Central Europe) but also
significant chaos in what used to be the old Soviet Union. It
became more difficult to do business in Russia, but a lot easier

to sell goods in China.
Economic sociologists argue that we are moving from
economies that focused on the physical manufacture of goods
to new ones in which assets are information and knowledge,
where the key skills are not centered around making things
but around using information technology. Microsoft is worth
more than General Motors. Welcome to a new work environment! There are many issues, but the central one is how are
we to respond to change? Change is taking place at different
speeds across various industries. It is playing out in various
forms around the world. In this book I recognize and accept
that change is occurring, often profoundly, but—and this is
where my message differs from that of many other commentators—it is occurring more in an evolutionary rather than a
revolutionary manner. Looked at over long historic periods, as
opposed to just over the past couple of years, I conclude that


Preface

xiii

the adjective evolutionary is a more accurate way of describing what is going on. It is from that perspective of viewing
events as evolving that I find answers to the questions about
how you can thrive in such a period of change. To be sure,
change is more or less intense from one industry to another,
and occurs at an uneven pace. Successful managers and workers view their duties as more than just keeping up with the
Internet and e-everything. To be successful, the key insight
they need is to apply many of the basics of business and managerial practice either in response to changing circumstances
or to create those changes, and to do it holistically, thoughtfully, but with a grip on reality.
This book is written for anybody who works today, particularly in highly industrialized (economists would say “advanced”)
economies. I address my comments to the skilled and experienced employee and to the newly minted MBA who knows her

way around the Internet. The senior executive also needs help
because he or she worries about the implications of many of the
new technologies causing changes in their industry. Middle managers often feel the crush of change earliest in an organization,
since they are the ones who normally alter processes, buy and
use computers, and experience the consequences of changing
market conditions. This book is very much intended to reassure
them that the changes underway can be exploited to make their
work rational and successful, although their lives will remain
fraught with change and churn.
As enterprises increasingly came to share managerial
responsibilities with non-managerial employees over the past
two decades, it became essential for “empowered” workers to
understand and practice the basics of management. As members of teams, as process owners, and as users of an organization’s assets, they had, for all intents and purposes, assumed
many of the roles and responsibilities of managers. This role is
as profound a change as the arrival of the Internet, for
instance. There is a melding of manager/non-manager roles,
even though traditional command-and-control and hierarchical organizations still exist. Because the roles of managers and
non-managers are blending together, yet often simultaneously


xiv

remain apart, I frequently apply the terms management or
managers to the tasks of workers.
The term worker needs further redefinition. In the midtwentieth century, the word would have conjured up images of
men wearing blue shirts, hard hats, walking around with lunch
pails, and proud to be members of a union. By the 1980s, many
observers were calling white-collar office personnel workers,
not just white-collar workers. They included in this category
lawyers, doctors, consultants, and accountants. By the end of

the 1990s, we also had Web masters and process engineers.
Today, the term workers is widely used to include anyone who
draws a salary; that is how I use the word in this book. I raise
this issue because some commentators on modern economic
conditions use the term just to refer to either blue-collar
employees (an old economy perspective) or in reference to
non-managerial personnel.
I have organized this book around major topics, themes
that address what people are dealing with as they transcend
both the old and new economies. The chapters help to catalog
and rationalize the changes underway and how work must be
done. Because the changes I discuss have already started, we
have specific examples available of how that is occurring, and
what is working well, to guide your own personal behavior.
Chapter One looks at the big picture of what is happening
to business in general. I describe how the world of work is
transitioning from the Second Industrial Revolution to one
based on information and the use of information technologies
in ways that are not necessarily clear today. The chapter
explains the fundamental historical features of the Information Age and how they differ from the past, viewing changes
through the eyes of managers and workers. Driving forces in
the new economy include technology, but more important, the
hunt for new ways to make money and profit.
Chapter Two discusses the notion of learning organizations
set within the context of managerial best practices. Knowledge, skills, historical perspective, and knowledge management represent key sources of change as companies move into
the new economy. Key themes in this chapter explain how


Preface

xv

institutional knowledge management and personal skills development make sense, and how historical perspective makes it
easier for you to see what practices are essential during the
transition. I reaffirm the value of process management as a relatively new, yet highly effective, way of organizing work.
Chapter Three discusses the role of knowledge, and knowledge workers, because in a services-centric economy, institutional and personal knowledge is essential to an individual’s
economic success. Best practices in knowledge management
represents a core body of actions people and firms can take to
simultaneously exploit the old and new economic realities. I
set the issue of knowledge management into the context of
such new technological influences as e-business and the Internet.
Chapter Four is devoted to a broad discussion about the
nature of work, especially as it is affected by the introduction
of the Internet into the daily activities of workers. I argue that
the Internet, more than any other current development, is
fundamentally altering how work is done. That change is both
at the individual task level and in the way organizations organize, allocate, and perform work. It even affects what work is
done and by whom. So, understanding the Net, its potential,
and the way it is evolving is essential to successful performances by workers and organizations.
Chapter Five looks at how people are hunting for new ways
to generate profit, using value and supply chains. If one had to
pick the current battlefield upon which the old and new economies are campaigning, this is it. The most important use of
the Internet today is in the fundamental redesign of supply
chains, because they are being digitized and are the major
source of new economic value. The costs of operation are
declining and the flow of goods and money is increasing in
speed and accuracy. In short, these new supply chains are
making it possible to squeeze out inefficiencies, improving
productivity while allowing firms to connect in new ways to
suppliers and customers.

Chapter Six is all about patterns of behavior among managers and workers that make it possible to live in both the old


xvi

and new economies and which are essential to success in the
Information Age. I argue that despite the ambiguity of all the
change going on, we are not its victims; rather, we can help
shape our own futures with proven techniques. I discuss a
variety of those actions, ranging from effective forms of leadership to a raft of activities managers are finding effective for
themselves, their firms, and their employees.
To a large extent the topics I have chosen are those drawn
from my own experience and research on modern business
practices. Other commentators often discuss some of the topics
in one fashion or another. These issues usually include the
Internet and knowledge management, while others, for instance
that of value propositions and the modern role of the supply
chain are almost ignored. Others prefer to emphasize the role of
the Internet. I argue that the changes underway include a great
deal more than just the Net. Like other workers, my thinking is
most profoundly a byproduct of my own collective experiences.
I feel blessed to have spent the last quarter of the twentieth century at the crossroads where the old and emerging new economies meet. As an employee of IBM during that entire period, in
positions that allowed me to observe both technological innovations and how users responded and exploited these changes, I
feel like a jaywalker in the middle of a busy avenue in New York
or Hong Kong, about to be run over by people on their busy way.
But I feel that I am also at the center of the action. I have been
witness to the cutting edge of many things, within an organization that has enjoyed the benefits of the changes described in
this book and also the travail such transformations force on all
of us. I learned from customers and colleagues that we do not
have to panic as the economy of the world changes; we are all

better prepared to work well during the shifts. As you and I are
propelled along to the Information Age we are beginning the
ride of our lives. Just like a roller coaster ride at an amusement
park, this one will be fun, frightening, but in the end, safe.
No book is solely the product of the author. We borrow
from people who know so much, thoughtful commentators
who are willing to take the time to put their notions on paper,
and, of course, those who stare at manuscripts while they are


Preface

xvii

still poorly written. My colleagues at IBM have been especially
supportive of my work. John K. Condon taught me a great deal
about what governments are doing in applying technologies,
shattering any image I might have had that public agencies are
not progressive. Donald Cotey, Larry Prusak, and Eric Lesser
exposed me to the nuts-and-bolts of knowledge management.
Ray Lamoureux, one of IBM’s key experts on e-business strategies, taught me almost everything I know about the subject,
while Harvey Thompson made clear how customers and firms
are increasingly coming to interact. Gary Cross went through
my discussions about supply chains to make sure that this
material reflected exactly what was happening today. A special
thanks for encouraging my work goes to Michael Albrecht, Jr.,
the executive who worries the most about what skills and
capabilities IBM’s consultants need in the future. Over the past
several years, clients, customers, and others have answered
questions and tightened up my thinking. They made clear how

work is changing, management practices improving, and yet
how we are living in a period of transition in which we operate
in two worlds at the same time. For the sake of convenience, I
simply refer to these worlds as the Industrial Age and the
Information Age. I thank them all profoundly for their help.
The team at the Financial Times and Prentice Hall have
been very supportive. In addition to wanting to publish this
book, my editor, Tim Moore, had excellent ideas about how to
enhance it. My manuscript improved enormously when Russ
Hall scrubbed through every sentence and idea. Moore’s production staff did a wonderful job in efficiently moving this
book through to publication. I also want to thank Jeff Modjeski
at IBM for once again preparing the graphics for one of my
books. The views expressed in this book are mine alone, and
do not necessarily represent those of IBM, the many individuals who advised me on how to write this book, or of the publisher. Any weaknesses or errors of judgment or fact are my
fault, for which I ask for your tolerance. The subject of this
book is much like a cathedral under construction in that we
have walls up, the roof is being worked on, but it is not yet
fully clear what the final building will look like. But you have


xviii

to take a measure of the building under construction if you are
to continue the job well.
James W. Cortada


Introduction:
What Is the
Information

Age?
To count is a modern practice, the ancient method was to guess; and
when numbers are guessed they are always magnified.
SAMUEL JOHNSON

The term “Information Age” has now been in so much use
in recent years that you are expected to know what it means.
It conjures up images of people who make their living solely by
pushing information about, such as lawyers and teachers, or
programmers and stockbrokers. Others argue that what makes
today the Information Age is the fact that so many people rely
on computers, especially since the advent of the personal
computer and the Internet. Sociologists would have us believe
that the Information Age is one in which people are networked
together through technology and rely on such things as television, radio, and computers with which to conduct their lives,
creating a culture different from that which came before it.
Economists write that the Information Age is one in which
either the computer sector of the economy is massive or the
number of office workers doing knowledge work has been
growing, providing an economy with more than its Gross
Domestic Product. But here are you and I, having to make
sense of what the Information Age is about. I describe many of
the features of the Information Age in this book, yet I focus
only on those elements of the new age that most directly affect
businesses.
Complicating our understanding of the Information Age
are the changes this age has experienced over the years. Yet a
xix

xx

clear understanding of its structure is crucial if you want to be
successful in this Information Age fishbowl. Beginning in the
late 1950s, business professors (such as Peter Drucker) and
economists (such as Princeton University’s Fritz Machlup)
began talking about an emerging era in which information and
knowledge were becoming increasingly the gold of the new
period. By the early 1970s, Alvin Toffler, author of Future
Shock, and Daniel Bell began to talk about a Post-Industrial
Society. By the end of the 1980s, the phrase Information Age,
or Age of Information, became popular as titles of articles and
books. By my calculation, that means the Information Age as a
concept has been around for a quarter of a century. A great
deal has happened in that time. For one thing, the Information
Age today is not what it was when professors and writers
began to label our time as something different than the Industrial Age.
Having the wrong image of what it is would repeat the
problem Saddam Hussein had in 1991 when he thought U.S.
Marines would land on his beaches just the way they invaded
islands in the Pacific during World War II. He was most surprised when, instead of wading to shore out of beach landing
craft as depicted in so many news films from World War II,
they flew over the beaches in large helicopters and landed
behind his forces. They seized large parcels of territory in a
matter of days, while Marine pilots bombed and strafed his
positions. Had Iraq’s dictator had a more current view of how
U.S. Marines assaulted enemy positions, he might have implemented different defensive strategies that would have allowed
him to block the Americans. Instead, he lost tens of thousands
of soldiers. The analogy of the Persian Gulf War works in suggesting that the same risk exists for those managers whose definition of the features of the Information Age are wrong.
Before I can discuss how managers are operating in this

emerging new era, we need to understand a few of its salient
features. These include understanding social and economic
issues, and simultaneously, how technology and management
practices influence each other. While this book will focus on
management issues, this introduction has as its purpose to


Introduction: What Is the Information Age?

xxi

present some key elements of the “big picture,” the economic
and social fishbowl in which you and I live and work.
Economists looking at the U.S. situation, beginning in the
1950s, first observed the notion that something was changing.
Essentially, what they began and continue to document is how
an increased portion of the Gross National Product is being generated by such things as education, computers, media, information, and so forth, and also how the percentage of the work
force involved in these activities is growing. While economists
debate the numbers, they are nonetheless significant, with
some experts today arguing that over 60 percent of the U.S.
economy is involved in the creation and use of information as
value added activities.1 The argument goes that a similar process, although less extensive, is evident in other economies,
particularly in Western Europe. The rise of the Information
Economy—what I prefer to call the New Digital Economy—has
been described in many ways, but mainly as a response to the
need to control operations of large corporations and government agencies. The argument holds that this need led to the
use of more information tools, while proliferation of PCs and
the Internet, along with telecommunications, created new economic opportunities. In time, the increased complexity of
research and development, products, and use of technology so
evident today became a major byproduct of the new era. These

are just a few of the explanations.
Toffler and Bell did much to bring the attention of the
American and British public to the notion that a new era was
upon us in the 1970s with their bestselling books.2 I will have
more to say about their work in Chapter One. However, what a
person needs to understand is the observation made by sociologists and economists that there is a direct link between the
emergence of an information-centric economy and the expansion of the service sector of the same economy at the expense
of the agricultural and industrial sectors. In other words, as a
percentage of the total economy of an advanced industrial
society, providing services increased regardless of whether or
not the economy as a whole grew in size. Again, depending on
whose numbers you consult, in the U.S., for instance, the service sector is sometimes recorded as high as 75 to 80 percent


xxii

of the Gross National Product, with lower percentages for
Western Europe and East Asia. The shift to a service economy
and culture has been underway all through the twentieth century. Sociologists like Bell described what society is about
today using such models as a postindustrial form. Common
features of this new world include the fact that economic
growth and expanded productivity are increasingly emerging
from the creation of new knowledge. Employment increases in
nonagricultural and nonindustrial sectors. Some of these service sector jobs, for example consultants and software programmers, also are paying extraordinarily well, thereby verifying the economic value of such activities. This does not mean
that manufacturing is going away. Far from it. It just means
that as a proportion of the total economy it increasingly is
contributing a smaller amount.
Information-rich jobs emerge as crucial in this new setting,
not just service jobs with low information content. One image
of service sector jobs conjures up a picture of millions of people working in fast food restaurants, or clerks stuffing papers

into file cabinets. That is an old and increasingly inaccurate
image of the service sector, one that would have been of
greater use in the 1950s than it is today. Now we have the situation where the amount of knowledge, education, skill, and
experience needed by an individual to generate economic
value is sharply rising. It is why Bill Gates—a knowledge
worker—is worth billions of dollars. It is why companies like
IBM, EDS, Ernst & Young, and others employ hundreds of
thousands of college-educated consultants, generating billions
of dollars in revenue. Economists measure the change primarily by shifts in the structure of employment, in changes in
career and job categories, and by tracking the increased
requirements for formal education.3
I discuss the consequences of such changes throughout
this book, but I want to point out a few just to stimulate your
thinking and advance our understanding. For one thing, new
products and services increasingly require better-trained people. When a skill is in great demand there is not enough of it to
go around, with the result that a person’s ability to expand a


Introduction: What Is the Information Age?

xxiii

business initiative may be constrained by a lack of sufficient
arms and legs to do the work. For another, the evolution to a
new age is going on now, so managers have to deal with a spectrum of problems and issues that can be summarized as a
combination of living simultaneously in the old (the Industrial
Age) and in an emerging one (the Information Age, or more
precisely, in the Digital Economy) making it difficult to construct a business model based on one or the other.
This duality of cultures, both economic and social, also
plays out in policies and practices of governments rooted in

the Industrial Age but trying to figure out when to do things
differently in the Information Age. For example, should a government tax goods where they are made and physically sold
(Industrial Age thinking) or do you tax transactions consummated on the Internet (Information Age)? Does a government
in a highly industrialized country such as Canada, Great Britain, or the United States support free trade and risk low-skilled
manufacturing jobs migrating to less developed economies,
putting voters out of work in the more advanced nations?
What does a policy maker or a government regulator do in
countries like France or Japan, where the evolution to service
sector economies is picking up steam but the manufacturing
sectors are still strong? These are difficult questions, but as
every senior executive understands, the answers public officials arrive at have profound implications for the successes
and opportunities businesses face.
Besides economic and sociological implications, there is
the most obvious feature of the Information Age to deal with:
technology. By technology I mean more than simply computers, or even the ubiquitous computer chip, which is popping up
in all manner of products and services. I include in this category such things as complex equipment, advanced processes
(e.g., modern open-heart surgery), and the knowledge required
to use these.
Scientific and engineering knowledge expanded so much
and so rapidly in the past century that nothing seems the
same. If I had to pick a single driver of change in the Information Age, it would be this combination of newly developed and


xxiv

applied knowledge of scientific and engineering principles, and
the growing faith and reliance on them for economic growth.
That is why in this book I argue that both modern managers
and their staffs must be students of the nature of technology.
What historians of technology tell us, however, is that this

is a very difficult thing to do, despite the many books being
published by business school professors on how to manage
technology. As one distinguished historian of technology, Joel
Mokyr, argued, technological progress is normally unpredictable.4 You should not assume technological progress is inevitable or straight-lined. Mokyr means that surprises come out of
nowhere with positive and negative consequences (e.g., the
biology professor who invents grass that does not grow, thus
putting lawn mower manufacturers out of business while creating a windfall opportunity for garden supply shops). When
technologies are attacked, it is not because of a paucity of
ideas or knowledge, but because of social forces at work (e.g.,
government policies discouraging the use of new technologies). Expansion in our knowledge of science and technology,
which has occurred over the past three centuries in the West,
is primarily the result of a mixture of two circumstances. First,
there always was a practical materialistic approach in which
people believed that they could manipulate nature for economic gain (along with the belief that such activity was
acceptable behavior). Second, there existed continuous and
unrelenting economic and political rivalry (competition) for
hegemony. Over time, a diversity of intellectual and political
creativity made it possible to increase the treasure of technological knowledge and experience, thereby causing the huge
surge in the standard of living of the more advanced economies that we have experienced over the past two centuries.
So, the frontiers of innovation and novelty continued to be
pressed back, driven in large part by positive economic incentives.5 Many historians and economists support the same
point when they describe the success of the West as due to its
form of economic structure, called capitalism, which generally
was allowed by public officials to evolve with minimal con-