DIGITIZATION. Just as the smaller companies will use technology to gain economies of scale, larger companies will harness technology to reduce the costs of complexity. McKinsey's Bryan points out that technology allows Bank of America to manage a continent-wide bank of $700 billion in assets as effectively as it once managed a single-state bank with $7 billion.

At the very core of the 21st century corporation is technology, or what most people today call digitization. Put simply, digitization means removing human minds and hands from an organization's most routine tasks and replacing them with computers and networks. Digitizing everything from employee benefits to accounts receivables to product design cuts time, cost, and people from operations, resulting in huge savings and vast improvements in speed. Everything a company does involves what Bryan calls ''interaction costs,'' the expenses incurred to get different people and companies to work together to create and sell products. In the U.S. alone, Bryan surmises, such interaction fees account for over half of all labor costs. Digitization lowers these expenses dramatically. ''You are going to see unbelievable speed and efficiencies,'' says John T. Chambers, Cisco's CEO. ''Truly efficient companies, particularly in the first couple of waves of change, will be able to drive [overall] productivity at 20% to 40% a year.''

Think of it this way: A typical bank transaction costs $1.25 when handled by a teller, 54 cents when done by phone, or 24 cents at an ATM. But the same transaction processed over the Internet, without the hefty capital and real estate costs of ATMs, costs a mere 2 cents. The productivity improvement isn't incremental. It's revolutionary--on the order of more than 60 times. Similar examples already abound. Not long ago, for instance, Corning Inc. (GLW) spent an average of $140 to procure the parts and supplies needed to make a single product. Simply switching to a Net-based catalog system reduced procurement costs to one-twentieth of that amount. Humana Inc. (HUM), the health-care provider, reduced the average cost of handling a job application and resume from $128 to 6 cents by digitizing the process, largely by eliminating labor costs. ''The truly great businesses of today and especially tomorrow have powerful bit engines, digital systems for capturing, managing, and leveraging information both inside and outside the company,'' says Mercer Management Consulting Inc. partner Adrian J. Slywotzky.