MODERN COMPANIES HAVE systems they need to use and systems they need to own. But there seems to be some loss
of focus in the management of these
two categories of capability and this
may be quite dangerous to the future
of the enterprise.
In his seminal work Post Capitalist Society1 the late management guru
Peter F. Drucker noted the world has
left the era of capital and has now entered the era of knowledge. The cash
and hard asset economy is receding
and the knowledge economy is on the
ascendant. Money is still important;
possessing a mound of cash will assist
you in consumption, but it may not
help much in construction, in building things, in acquiring knowledge.
According to Drucker, the critical success factor these days is knowledge:
the ability to store and employ knowledge and the ability to create and operationalize it.
Trends and Means
In dealing with a number of situations,
companies, and government agencies
in the last few years, I have noticed a
few trends that are quite disturbing.
Two of these trends are contradictory
and they relate to how companies build
and use computer systems.
If we are indeed moving into the
knowledge economy, where knowl-
edge is the defining and limiting asset
of the world, we are confronted with
the issue of where to keep the stuff. As
I have noted in my previous Communi-
cations columns,a we are now moving
all the knowledge of the human race
from the media of brains and books
into an executable software form.
If knowledge is the key asset of the
future, then the ability to create or discover that knowledge is the key wealth-generation activity. Since that knowledge will be stored mostly in software,
software development should (and
will) become the driving force of the
new economy. But do companies and
countries understand this? If they do,
then do they behave as if this capability is the engine of growth that will al-
a Starting with my first Communications “The
Business of Software” column: P.G. Armour,
The case for a new business model.
Commun. ACM 43, 8 (Aug. 2000), 19–22; DOI:
low them to flourish in the future? In
many cases, it appears not.
What You Use, What You Own
There are two kinds of operational capability that companies need. They
involve systems that execute “
supporting” knowledge and systems that execute “vital” knowledge.
Supporting knowledge is the operationalized knowledge that companies
require to support their business.
Companies must pay their employees
and pay their bills so they need access
to payroll and accounts payable systems or services. But few companies
need to know how to build these systems. The same is true for many types
of capabilities in many types of companies—they need to be able to use the
knowledge in these systems, they do
not need to own it.
Vital knowledge is the operationalized knowledge of what the company
does for a living, why it exists. This
knowledge, how it is obtained, how it
is built upon and, most importantly,
how it is operationalized (in the software form) is the most critical asset for
many companies. Organizations need
to own this knowledge in all its forms,
especially the executable ones. But
many companies do not realize this.
A New Life on Lease
Years ago I worked with a transportation equipment leasing company. Their
primary function was predicting the
equipment leasing needs of their customers, forecasting and managing the
Owning and Using
On vital and supporting systems.
If knowledge is
the key asset of
the future, then
the ability to create
or discover that
knowledge is the key