Productivity of the mind.

The single greatest challenge facing CEOs is to raise the productivity of knowledge throughout the enterprise. It is an economic truth that real earnings and real incomes cannot be higher than productivity for any length of time. And knowledge and insight into customer behavior--as opposed to mere information--is the fuel that propels innovativeness. In this issue, we take a closer look at a number of sources of productivity of the mind and what CEOs are doing to leverage this for competitive advantage. At the heart of any productivity growth is what Peter Drucker called "the discipline of innovation"--the hard work of systematizing all the sources of new opportunities and translating this into products and services customers will value.

In our roundtable discussion "Making Innovation Work" (p. 52), CEOs and technology experts examine the practices and strategies that companies use to achieve this.

Although there are innovations that spring from flashes of genius, most, usually the successful ones, result from conscious attention to customer needs. As roundtable participants point out, many innovations start small and can be as simple as a Big Mac or as technical as a Texas Instruments calculator.

Similarly, contributor Dale Buss chronicles in our cover story the new thinking in American manufacturing where entrepreneurs and innovators are striving to create business models that can survive in an outsourced world. While attention is focused on the country's embattled auto industry, a number of U. S. manufacturers are staying competitive by relying on various strategies, often used in combination, that give them flexibility in staying close to their customers.

And what about the CEO's obligation to raise his or her own productivity of knowledge? In his recently published book (excerpted on p. 32), The Secret Language of Competitive Intelligence: How to See Through & Stay Ahead of Business Disruptions, Distortions, Rumors & Smokescreens, Leonard Fuld, who heads a Cambridge, Mass., competitive intelligence and research firm, explores how business leaders as diverse as Novartis's Dan Vasella, Monster.com's Jeff Taylor and AMR former CEO Bob Crandall cultivate habits of mind that enable them to understand and act upon tactical and long-term threats and opportunities. In the end, business innovation is a contact sport. It is also a force multiplier, meaning size doesn't always confer an advantage, as companies such as eBay, Google and Skype have shown to great effect.