An increasing number of firms are moving into a new form of competition which can be described as knowledge-based competition. Firms in knowledge-based rivalry are competing mostly on their learning capabilities. The relative importance of capital and labor as a key input factor in the production process is diminishing in favor of knowledge. Accordingly, firms in knowledge-based competition can be labeled as knowledge-intensive in contrast to capital- or labor-intensive firms (Starbuck, 1992). However, in deciding whether a firm really can be characterized as knowledge-intensive, it has to create unique expertise instead of widely shared public knowledge. Knowledge-intensive firms actively choose the terrain on which to compete. They do not seek to maximize profits simply by minimizing costs, but pursue competitive advantage on the basis of innovation in products, processes, and organization. Superior competitive positions and high monopolistic rents are a result of firm's learning abilities that allow faster and more valuable knowledge creation for problem-solving than competitors (Best, 1990). The credo of knowledge-based competition is, as TOM PETERS (1990) puts it: "Get innovative or get dead." This paper focuses on how knowledge-intensive firms should organize its operations which depend highly on innovative problem-solving. After a quick review and critical discussion of some organizational principles which were put forward by the traditional management literature, a new organizational model will be proposed for mastering the challenges of the new competition. In contrast to the rigid hierarchy, a flexible self-governed organizational form will be suggested that is labeled as heterarchy. The basic idea and underlying assumptions will be summarized. In addition, some leverages for managing heterarchies will be outlined.