Moore’s answer is that you must think beyond things of the mere moment -- products, services -- and find ways to coevolve with other players ideas that provide continuous value to customers. In this wheel of coevolution, you want to be the hub, the part that holds the community together.

Moore’s favorite example of a business that left the others behind is Jim Henson’s Muppets. The Muppets were the brainchild of a shy man who overcame his shyness by speaking through cloth puppets he made himself. The product, while beginning humbly, was one of pure imagination, and thus could never be cloned.

Henson’s business practice from the beginning was to see what enabling entities were at his disposal, and figure out ways fit them together to benefit others. Thus his Muppets were a late night hit on Washington DC TV. Then he saw that something interesting was happening in something called public television. He worked with educators, PBS, and Children’s Television Network to help create Sesame Street. Now that he had an audience, he created his own series, The Muppet Show. Books, licensed toys, videos, movies and other ideas spun off from his characters.

The key to avoiding commoditization is to do two things at once: continuously innovate while increasing the economies of scale.

Economies of scale are familiar to every business. You achieve them by increasing volume, lowering variable costs, achieving high variable returns, and consolidating your suppliers.

Continuous innovation is a steep challenge, but it can be achieved through raw expertise; through patents and/or legal regulatory protection; by optimizing capacity; by identifying and connecting with customers, and by forming deep relationships with "complementer" businesses across your industry; and through innovation trajectory. If all this fails, Moore said, you can always buy your competitor and swallow him whole – strategic acquisition.

Moore showed how Henson, no one's idea of a compleat businessperson, nevertheless negotiated all of these requirements of economies of scale and continuous innovation.

A traditional outlook on business is nearly useless when the business occurs on the Internet. Jerry Yang and David Filo founded Yahoo in their college dorm, less than four years ago. Yahoo, which enjoys an annual $200 million revenue stream but has earned scant profits, is nevertheless approaching $4 billion in capitalization, and with 65 million page-views a day, is striving, much as America Online is, to be a front door to the Internet for the world. Both companies differentiate themselves from competitors by providing a unique experience for their users.

GeoCities, Amazon.com, and America Online itself are other examples of the new way of doing business, by differentiating the customer experience.

Winners and "winning losers"

Technology is a tough business, though. Moore applies his economies of scale/unique innovation to test the groups within the computer industry. Makers of microprocessors and operating systems (think Intel and Microsoft) have unbounded opportunity in each category. Makers of systems (motherboards) are OK for economies of scale but limited by standards and pricing in innovation. Actual computer makers (Compaq) are killed in both areas, squeezed on price and customer expectation. Marketing and distribution of technology allows economies of scale but only a little unique customer experience.

The superscale companies, those scoring highest on both issues of scale and innovation, are (surprise) Microsoft and Intel. Each company has been masterful in a different way creating a business ecosystem in which it calls the shots.

Those caught up in the old treadmill of economies of scale, like Compaq, but unable to deliver a convincing differentiator of experience, wind up as "winning losers."

Those doing well in neither category occupy the junkheap of the computer industry, the graveyard of the value chain.

Superscale players are not afraid to step outside their own business. Eli Lilly was able to innovate a great product, a "slick insulin" that prevented the clumping that causes severe longterm side-effects in diabetics: blindness and limb loss.

Problem was, insurers did not want to pay the extra amount for this preventive therapy. So Lilly went to the government and explained the long term economies of healthier diabetic patients, and together are working out a funding mechanism by which HMOs would be encouraged to use the product

The Intel Roller Coaster

Moore talked about how Intel, from whose an amusement park roller coaster in Sunnyvale, Calif. is visible, had matured from a traditional "clobber the competition" company to a coevolutionary one.

In 1991 Intel had a problem. Clonemakers were poised to commoditize its microprocessors, leaving the company with potentially declining margins. Their decision: to accept that competitors would try to steal their lunch, but to respond with a different approach. The company decided to greatly expand manfacturing capacity, and throw unprecedented sums of money at R&D.

The new approach was coevolution. With IBM on the wane, there was room for a new industry leader, and Intel decided to be it. (Microsoft also did, in another way.) Intel would thrive by the creation of new standards, and to do this, it would work with companies in supporting industries -- telecommunications, systems, semiconductors, etc.

The company created an inner circle of favorite companies. Gateway, for instance, was its PC partner. These partners got all the good stuff Intel made first, and in return Intel got the momentum for a new standard. And Intel became a venture capitalist, putting its cash where it could best influence the direction the computer industry was taking.

The copycats -- ADM, Cyrix, and others -- can still clone the chips. But they can't be the hub of the new industry wheel, the emerging community.

Leaders of the new era won't see their task as performing individual heroic feats within their companies, but as moving other organizations to move with them toward common goals.

Moore used the example of communoity activist Saul Alinsky, who organized for voters' and workers' rights in the 1960s. Alinsky would visit a town, find out who was powerful locally, meet with them, and cut deals to win their cooperation.

That's what the new leader must do -- identify the players in an industry, and find out what it will take to get them to play with you.

Rule #4:

"Values are
your most important asset."

What if you opened your mind as wide as it can go, Jim Henson-style? Imagine maximizing both your economies of scale and your ability to innovate for customers. All you have to do is pair unmatched resources with unmet needs.

It not only can be done in your business, but it can be done to solve enormous problems that cross business boundaries.

Moore gave the profound example of a bank you have never deposited money in -- Grameen Bank, of Bangladesh. Grameen Bank is the brainchild of a professor named Muhammad Yunus.

Yunus, pondering the problems of his very poor nation, came up with the idea of lending money for productive purposes to very poor people. Not money for food, but money to make money to buy food -- money for a cow, or work tools, or a loom. A loan of as little as $15 could save lives.

He came up with the idea of creating loan groups. Everyone in the group was lent money, with the understanding that if one of the group fails to repay, no group member could borrow again. (And people pay back under this system -- the 98% payback is better than Visa or American Express experience.)

(A tribute to Muhammad Yunus of Grameen Bank)

Grameen has loaned $2.5 billion to 2 million members. And Yunus has not stopped there. He created a phone company, which puts cell phones into distant villages, so no one is entirely cut off from instant communication. He has created a pension fund, to care for the working poor when they are too old to work. He has even identified the feasibility of using fiber optic alongside rail lines as a conduit for his country's high-bandwidth Internet connections!

Moore thinks Yunus deserves the Nobel Peace Prize, More important, he is a symbol to us that values and business are not alien to one another, that business can be the means to fulfilling one's deepest values, and that business itself should be driven by the ideas that we are passionate about.

Did you know that USA Today exists because Gannet identified excess capacity at its newspapers that only printed color on weekends? Even during the early years when USA did not make money, its intelligent use of capacity showed that the company was attuned to its ecosystem

Moore says that organizations are adapting in new ways and creating new forms because they are doing strategy in a new way. Instead of a plan riddled with what-if scenarios and pointless projections, people are seeing strategy as economic development -- identifying opportunities, finding allies, achieving new economies and innovations.

Note: readers wishing to learn more about community-building might like to hear what Francis Fukuyama, author of Trust, said at last year's Tomorrowday.

He told how General Electric climbed out of the box of its corporate thinking as it sought ways to optimize the interactions of its medical companies. Its medical Systems division had always functioned as a superscale company. But other divisions lagged. The thinking did not stop until the company boosted the synergy by bringing in GE Capital as a finance and IT partner to new businesses, a physician-directed HMO and a national network of walk-in clinics. Separately the companies were lackluster; together they may be dynamite.

Is your business up to the challenge of coevolution, of working outside its own box to create a new community?

It takes more than core competencies, which look backward, at exiting masteries. It means mastering things you don't even know about yet. Yahoo, the Internet guide, must master something no one has managed yet, the challenge of converting eyeballs into money. They have the traffic, now can they coax the traffic to drop a penny in the bucket as it passes through?

Intel has created a community in the technology sector that is bigger than Intel itself. It uses a carrot and stick technique to keep community members and itself aware of opportunities. It has proven itself more adept at the new way of doing business than Microsoft, whose great talent so far seems to be manhandling other businesses in the industry.

Intel is not the new corporate form, and yahoo isn’t there yet, either. But something is happening out there. He cited Thermo Electron's investment advance: investors investing in Thermo Electron also invest in all the companies Thermo Electron is invested in.

It's like the Japanese keiretsu or network of families, only stronger. The Japanese system is clubby and stagnant, and contributed not only to Japan's inefficiencies in key industries, but also to the deceptive practices underlying its economic turmoil.

The new form, of communities working together and sharing technology and accountability, is more like the Bangladeshi lenders' groups. Taking responsibility for one another's successes and failures, we may indeed see the death of a stale kind of competition.