Reading Passage 1

The Cost of Survival

Most corporations aren't managed for change.

By Peter McGrath

    In the go-go years of the late 1990s, no economic theorist looked better than Joseph Schumpeter, the Austrian champion of capitalism who died in 1950. His distinction? A theory he called  "creative  destruction." The idea was straight-forward: in with the new, out with the old. Companies had life cycles, just as people do. They were born, they grew up. And when a better competitor came along, they died due to capital starvation. It was the way things were, and the way they should be. The markets had no sentiment. Capitalism was relentless, unforgiving.

    In their book "Creative Destruction" (367 pages. Doubleday. $27.50), Richard N. Foster and Sarah Kaplan of the consulting firm McKinsey & Co. apply Schumpeter's logic in the context of a

technology-driven economy. They want their corporate readers to understand the implications of one basic idea: there is an inescapable conflict between the internal needs of a corporation and the total indifference capital markets hxdye for those needs. Managers care desperately about the survival of their companies. Investors don't give a hoot. This was always true, the authors say, but until recently nobody really noticed because of the relatively languid pace of economic change. No more. In the 1920s, when the first Standard & Poor's index was compiled, a listed company had a life expectancy of more than 65 years. In 1998 the annual turnover rate of S&P firms was nearly 10 percent, implying a corporate lifetime of only 10 years.

   How does anyone manage in this environment? Foster and Kaplan argue that companies today must embrace "discontinuity," the idea that everything they hxdye always done is now irrelevant. Consider Intel:' by its top executives' own accounts, the company had to kill its ground-breaking memory-chip business once it became clear that Japanese companies could deliver essentially the same product at a lower price. Intel then moved into the much more lucrative microprocessor business. It was an obvious decision, but one that was hard to make. Memory chips were Intel's core competence. They were at the heart of the company's self-image. The transition was wrenching, said Intel chief Andrew Grove. But as a result, the company survived and prospered.

   From now forgotten automobile companies like Studebaker to early technology leaders like Wang, the corporate landscape is littered with the bones of companies that couldn't adapt to change. At bottom, say Foster and Kaplan, corporations are managed for survival." They presume continuity in the business environment. They fail to introduce new products for fear of cannibalizing current product lines. They turn down acquisition opportunities to keep from diluting earnings. They prize rational decision making and internal control systems. They resist contrary information, and often punish managers who voice it. And all the while, capital markets are dedicated to finding and funding new competitors. Incumbents ignore this fact to their peril: if they don't cannibalize their product lines, someone else will do it for them. Even the greatest of brand names are not immune. As the authors ask rhetorically, would IBM even exist today had it stuck to its core business in mainframe computers? "Unless the corporation can learn to overcome the natural bias for denial," they write, "it will, in the long term, fail, or at best underperform."

    The successful company, Foster and Kaplan conclude, is one that manages for discontinuity. It presumes change. It is comfortable with fluid and even vague decision making. It has relatively flat hierarchies. In short, it adopts the fearlessness of capital markets themselves. And it doesn't hxdye to be a start-up, or even a young company. Typical success stories include Coming, which shifted its business from glass to optical fiber just in time to capture a growing market, and General Electric, which dumped one fifth of its asset base in the first four years of Jack Welch's tenure as CEO.

Not long ago, it was fashionable to liken business to warfare. Executives were reading Sun-tm, Machixdyelli and Clausewitz for guidance on how to overcome the competition. But business differs from war in one vital respect. In war the advantage lies with the defense. In the New Economy, as Foster and Kaplan make clear, it belongs to the attacker.

Reading Passage 2

Is Someone Spying on You ?

Spying on your kids in your home is one thing. But what about when your employer snoops on you at work? Big Brother is almost certainly watching you. A staggering 82% of major U.S. corporations admitted to electronically monitoring their employees, in a recent study conducted by the American Management Association (AMA). But it's not just worker efficiency (browsing ESPN. Com while on the job) that companies are monitoring. Many employers worry that they'll be liable for sexual harassment and other charges brought against employees who misuse e-mail and other Web-based communications. The case of Peter Chung, who was fired from the New York City investment firm Carlyle Group for boasting about his dating exploits in an e-mail to his pals--a missive that subsequently made its way to a far broader audience--is a recent example of how employers are taking a tougher stand on misuse of office e-mail.

    An entire industry of surveillance products that cater to wary employers has grown out of this

backdrop of mistrust and caution. With no comprehensive federal law in place for the regulation of employee surveillance, almost all on-the-job activities are fair game. Voice mail and e-mail are routinely scrutinized by nearly half of all major U. S. companies, as are individual computer files. Soilware such as SpectorSoWs Spector can monitor and record every keystroke, log visited websites and even take snapshots of an employee's screen every 30 seconds. Companies are also turning to filters for their computer networks to block out inappropriate material. More than 15% of the U.S. firms surveyed in the AMA study said that they routinely videotaped employee activities in the year 2000. And a number of smaller repair-service companies are considering installing global-positioning-satellite devices in company cars to deter employees from goofing off while away from the office.

   Some workers are fed up and hxdye decided not to take it anymore. Barry Steinhardt of the National ACLU says that his office increasingly "gets lots of calls from workers who want to know what they can do about their employers spying on them."

   So what can you do to protect yourself ? One way to hide your footsteps on the Web is through an anonymizer program like Zero Knowledge's Freedom ($59.95 at www. freedom.net). It allows you to surf the Net undetected and to send and receive encrypted e-mails. Note though, that your company's network security system will probably snag the encrypted data, so be prepared to explain it. A better solution might simply be to educate yourself and know what they know. The Privacy Foundation (www. Privacyfoundation.org) offers a free bug-detection program. The site also has plenty of workplace-surveillance articles and links to other products that undermine the efforts of intrusive employers. Only you know whether it's smart to do this from your work PC.

Reading Passage 3

Bush to thank Canberra for support
CANBERRA, Australia (CNN) -- U.S. President George W. Bush has arrived in Australia's capital on the last leg of his Asia trip to thank Prime Minister John Howard for his steadfast allegiance to the U.S. and support for the war on terror.
Bush will address a joint sitting of the national Parliament, visit the national war memorial and discuss trade and the terror war with Howard during his 21-hour stay.
The Australian government hopes to use the visit to advance the progress of discussions which could lead to the striking of a free trade deal between the two nations.
The Australian government has been a staunch supporter of the Bush administration's war on terror, contributing troops and military hardware to the actions in Afghanistan and Iraq and backing the U.S. position in international forums such as the United Nations.
Bush has described Howard as a "good friend" and a "man of steel" and the two leaders appear to hxdye established a genuine rapport.
But Bush also created a diplomatic hiccup last week by referring to Australia as a "sheriff" in the Asian region, a description which does not sit well with some of Australia's neighbors who consider Canberra to be too closely aligned to Washington.
During his speech to the parliament, Bush is expected to thank Howard's conservative government for its support, and justify the use of military force in Iraq.
Bush is the fourth U.S. president to visit Australia, following Bill Clinton, his father George Bush and Lyndon Johnson in making the trip Down Under.
Police are expecting around 5,000 demonstrators to attend rallies on Thursday with most voicing their anger over the Iraq war. They are also protesting the detention of Australian citizens at Guantanamo Bay military prison.
But security will attempt to prevent protestors from getting within 500 meters of the president and hxdye banned loudspeakers being directed at the official party.
The Canberra visit is the final leg of a six-nation tour by President Bush which included attending the APEC leaders summit in Bangkok, Thailand.
The trip also coincides with a four-day visit from Chinese President Hu Jintao to Australia, although the two leaders' paths will not cross. Hu will also address the Australian parliament.
Bush arrived in Australia from Indonesia where he spent three hours on the tourist island of Bali, the site of deadly terror bombings a year ago which killed more than 200 people, including around 90 Australians.
Bush has praised Indonesia for its support in the global war on terror and vowed to win the fight against terrorism.
"Today we pay tribute to the victims, we remember the suffering of their families and we reaffirm our commitment to win the war on terror," Bush said at a press conference on Wednesday with Indonesian President Megawati Sukarnoputri.
Before the Bali attacks last October, Indonesia -- the world's most populous Muslim nation -- was criticized for ignoring the terrorism problem and militant Islamic extremism within its borders.
The Indonesian terrorist attacks hxdye been blamed on the al Qaeda terror network's arm in Southeast Asia, Jemaah Islamiyah, which has an estimated 3,000 members.
In the wake of the nightclub blasts, Jakarta doubled its efforts to crackdown on terrorism and apprehended dozens of JI suspects which earned the praise of international leaders.
While both leaders characterized their talks as productive and positive, Megawati admitted that the two leaders did not agree on every issue.
"Despite the fact that we do not always share common perspective ... we both continue to hold mutual understanding that it is to the interest of the two countries to maintain consultation and cooperation in the pursuit of global peace," Megawati told reporters.
With anti-U.S. sentiment in Indonesia at an all-time high, Bush also pushed to ease a growing gulf in attitudes towards America among Indonesia's Muslim population.
He met with eminent Hindu, Islam and Christian leaders during the Bali stopover for frank talks described by Megawati as a "positive development".
"Both sides were in agreement about the importance of religious tolerance as one of the major pillars of democracy in Indonesia," she said at the press conference.
The U.S. president urged Indonesia not to allow terrorism to be born out of religion.
"Americans hold a deep respect for the Islamic faith," Bush said. "We know that Islam is fully compatible with liberty and tolerance and progress because we see the proof in your country."
"Terrorists who claim Islam as their inspiration defile one of the great faiths. Murder has no place in any religious tradition. It must find no home in Indonesia," he said.
-- Senior White House Correspondent John King and CNN Correspondents Atika Shubert and Dana Bash and Senior Editor Grant Holloway contributed to this report.

Reading Passage 4

Trade, N. Korea top Hu's agenda
SYDNEY, Australia (CNN) -- Chinese President Hu Jintao has arrived in Australia for a four-day visit with talks on trade and North Korea high on the agenda.
Hu was greeted Wednesday morning at Sydney airport by Australian Prime Minister John Howard, who thanked him for his key role in attempting to defuse the nuclear standoff with Pyongyang.
"I thanked him for the very constructive role that China is playing, and we'll hxdye an opportunity when he's in Australia later this week to hxdye a further discussion," Howard said Wednesday after Hu's arrival.
"China remains the key player," he said.
Australia is keen to forge closer economic and political ties with China, which is already a major trading partner.
Hu will attend a lunch hosted by Australia's official head of state, Governor-General Michael Jeffery, Wednesday then meet with Australian business leaders in Sydney Thursday morning.
Australia will be hoping to build on the success of last year's $17.5 billion deal to supply China with liquefied natural gas, and win contracts related to the 2008 Beijing Olympic Games.
But the main prize is a free trade deal with Asia's emerging economic powerhouse.
Already two-way trade between the nations is worth around $15 billion a year, with Australia primarily exporting energy and raw commodities, such as iron ore, and importing low-cost manufactured goods.
Hu and Howard will sign a number of trade agreements on Friday in Canberra, with media tipping one of those will be a deal to begin a feasibility study into a bilateral free trade pact.
The Australian newspaper Wednesday quoted Canberra sources as saying such a study would take up to two years but that there was "a genuine willingness" on China's part to bolster economic and trade links between the two nations.
Australia is also hoping to strike a similar deal with the United States and to pull off both deals by the end of the decade would be considered a crowning achievement for the Howard government.
Hu is scheduled to address a joint sitting of the Australian parliament on Friday, one day after U.S. President George W. Bush does the same.

The two visits hxdye prompted a security clampdown in the national capital, although the leaders' paths will not cross during their time in Australia. 
Canberra protests are expected for Hu's visit from supporters of the Falun Gong movement, Free Tibet activists and critics of China's human rights record.