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Forget what you know about management, says business strategy guru Gary Hamel. It won't help you meet the challenges that face your company today.

"We're now living in a world where it's innovation that creates wealth," says Hamel, founder of the consultancy Strategos and a visiting professor at the London Business School. For more than 20 years, Hamel has studied what companies need to do to compete. He pioneered, with C.K. Prahalad, the concept of core competencies -- the unique expertise a company possesses that provides competitive advantage. In 2000, Hamel's book Leading the Revolution exhorted readers to embrace change as the dotcommers had and reinvent their business models.

In his new book, The Future of Management, Hamel argues that the principles and practices used to run most companies were invented to solve a problem -- how to be more efficient -- that today's businesses have largely mastered. "The most critical prerequisite to driving higher levels of efficiency is conformity -- to policy and standards and guidelines and quality protocols -- and yet, obviously, the most fundamental kind of prerequisite for innovation is diversity in thought and action."

Hamel suggests revamping every management concept -- from how employees use their time to how funding is allocated to projects so that managers may inspire workers, identify the most promising business ideas and marshal the resources to execute them. IT organizations will play a critical role in two ways: first, by building systems that companies will use internally to facilitate innovation and second, by identifying how companies can use new technologies to upend established business models and deliver new products and services. He spoke recently with CIO Executive Editor Elana Varon about what IT leaders need to do differently.

People have always complained that management squelches innovation. What made you decide they were right?

Gary Hamel: Partly, it's having worked for the last 20 years to help companies of all sorts innovate. The work that my company, Strategos, has done through the years with companies like Shell and Nokia and others created billions of dollars in market value. But as soon as you turned your back, organizations reverted to type.

It seemed to me it was time to go back to the genetic foundations of management and of large organizations and understand how we make companies systematically more innovative than they have been over the last hundred years.

Do you think there's a difference between old companies and new companies? The examples in your book, such as Whole Foods Market and Google, employed unconventional management models from the start.

Gary Hamel: It's certainly easier to build a more innovation-friendly management model if you're starting with a clean sheet of paper. Having said that, most of the people who start new companies come out of large companies. So you find that industrial age management DNA in a lot of young companies. One exercise I sometimes do with folks is to suppose they want to start an entirely new company. How radically would they change the way that company is organized or managed? Most people can't think of a very radical alternative.

What do you mean when you say that the Internet is the best metaphor for 21st-century management?

Gary Hamel: Management is about doing two things. One, it's about amplifying human capabilities to create the conditions that inspire people and to encourage people to give the best of themselves. The second dimension is aggregating human capability so people can do collectively what they couldn't do individually. Like building a Boeing 787, for example.

The Internet is doing exactly what management is supposed to do. It's amplifying and aggregating human capabilities. It's democratizing the tools of creativity, from digital cameras to blogs to the ability to do mash-ups. The Net is also surprisingly good at aggregating human capability. Linux is the fastest evolving piece of software that human beings have ever created.

The three big challenges for companies over the next generation are going to be: Adaptability -- how you build things that can transform themselves. Innovation -- how you mobilize the imagination of every single person in your organization. Engagement -- how you create organizations that are so engaging emotionally and intellectually that people want to bring their capabilities to work. What's the most adaptable innovative and engaging thing on the planet? The Internet.

IT leaders aspire to be enablers of business innovation. How do IT departments have to change to do that?

Gary Hamel: Think about the insights that people need to be innovative, the insights they need into customers, into technology, into competitors. In most companies, those insights are held very narrowly in functional specialties across the company. Number two, you have to be able to experiment and try new things. The third thing you need to innovate is resources, and most companies today are run so tightly that it would seem that every dollar of capital and every hour of human effort is already dedicated to some mission-critical project.

We've done work at Whirlpool to help them create an IT-enabled innovation system where every employee has access to those insights, where it's easy for employees to propose their ideas, where there's a process for peer review for new ideas so you can bring the wisdom of the entire organization to bear.

It's not anything here that's rocket science. It just requires a new set of priorities for IT people. One of the questions you have to ask is, to what extent do our IT systems make us more adaptable as a company, or less? When I'm innovating in companies and we want to try something new, the single biggest brake on that is almost always the IT function. First of all, they're going to tell you they're so overwhelmed that they can't get to the request for the next six months. Number two, they're so driven by issues of security and control that if you want to touch the IT system, it almost takes an act of God. When we're helping companies innovate, whatever we do with IT we almost always do around the existing systems, but it just takes too long and it's too top-down and it's too centered on control to be very helpful.

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