Another timely, excellent piece of management theory from Geoffrey Moore.
YouTube Chalk Talk -> https://youtu.be/PDiCkAzMq54
Geoffrey Moore makes his living creating new frameworks in business that rationally explain company and market behavior, then using these frameworks to mine epiphanies for we lesser souls.
I remember reading “Crossing the Chasm” in the early 90’s and being blown away by how it made sense of the seeming chaos of the startup world. Chasm created a whole new, rational framework to explain that world. One so robust that it created its own language and definitions that are still being used, that have moved into the business lexicon as baseline facts.
When you hear someone casually toss out a phrase like “Early Adopter” and everyone in the room knows exactly what that is, you owe Geoffrey Moore’s insight. Few people can describe a market dynamic so clearly and then tell you why you care, why it matters and what you can do about it.
His new work Zone to Win is one of those books. The framework it creates is already moving into the lingua franca of the business world.
Why? Why do we care?
Because we are living in what can be called ‘the disruption economy’. There are waves of new and disruptive technologies assailing today’s companies. Disruption has been around forever but today is different. The disruptions are coming faster and with greater magnitude.
Immense shifts of private capital have created an disruption machine where disruptions at scale are being accelerated and pushed into every market every day.
Existing companies are being battered. They face, what Mr. Moore calls a ‘crisis of prioritization’. Do you focus on shoring up your traditional business that is under attack by the disruption? Or do you invest in owning the next disruption?
The problem is that current revenue and profit come from the existing customers and business, but future revenue and profit will only come from the disruptive business. If you stand still your business is eventually eaten by the disruption. If you shift to a new business, you sacrifice your revenue and profit?
Every large business is confronted by this impossible choice. What to do?
The only way a business can survive is to 1) catch the next wave and 2) prevent the next wave from catching you. This means you must play offense and defense at the same time.
It’s like coaching a youth soccer team. Before they get coaching the kids all just chase the ball. To win they need to spread out and play positions, or zones of offense and defense.
And this is where we need a new framework to figure out how to allocate our priorities. Because the old business and the new business are entirely different investments profiles and each needs to be successful.
This new framework is the ‘Zones to Win’. It is a four-box framework.
- The performance zone – this is where the existing business lives. This is where your existing revenue and margin comes from. You need this business to do well and continue create returns for the investors and cash for the business. How you incent and drive this engine?
- The productivity zone – this zone is all the tools and enhancements that squeeze revenue and profit out of the performance zone. What defensive investments can you make to fend of disruptions to your existing business? How can you optimize?
- The incubation zone – This is a birthing area for new ideas. Similar to a venture capitalist the incubation zone is where you have a portfolio of nascent innovations that may turn into disruptors themselves (offense). Or may be co-opted to help defend the performance business (defense).
- The transformation zone – This is where you pick one innovation from the incubator and you scale it rapidly to a) disrupt a business (offense) and b) create a new line of performance business that is equal to or more than 10% of your overall revenue.
At any point in time your business can be on offense by being the disrupter, one defense by being the dsruptee, or in a state of half-time where there is a pause in disruption. Where you are will determine your response.
The beauty of this framework is that it answers the ‘question of should I preserve my existing business or jump into a new business?’ The answer is ‘yes’ but use the framework to institute clarity and rigor so that you can do so successfully.
I’ll skip the performance zone and the productivity zone for now because they are similar to what you’re doing already. The framework just gives them focus, clarity and investment priority.
The incubation and transformation zones are what’s potentially new to a company. The incubation one is a way for companies to isolate and nurture innovation so that it too has clarity and investment without getting in the way of the performance zone.
These can be either internally developed technologies or acquisitions. You are farming all of these innovations like a venture capitalist in the expectation that one of them is going to break out and make it big, perhaps once a decade.
The rest will either be folded into existing offerings as enhancements for defense or offense, or they will be discontinued.
The big difference in this framework is the transformation zone. This is where we take one of the incubation zone initiatives and purposefully scale it to a new line of business.
Most big companies are terrible at this. They try to use the existing go-to-market infrastructure to launch and scale the new innovation. It doesn’t’ work. It creates conflicts of interest with the performance zone.
The key to the transformation zone is understanding that it takes a unique go-to-market engine to scale a new innovation. It has to scale quickly. The market opportunity window is quite small. You need to capture that opportunity and do it quickly.
This is where we talk about ‘Investment Horizons’.
Horizon One – Investments in Horizon One will be realized in the current fiscal year.
Horizon Two – Investments that will come to fruition in 2-3 years but will have negative cash flow until then.
Horizon Three – Investments that will pay back in 3-5 years and that are mostly your portfolio of R&D.
This how the company prioritizes investment. Horizon one is where we have performance and optimization of the current operating goals. Investments in Horizon two consist scaling an innovation to be a significant contributor in 2-3 years. Investments in Horizon three create the inventory of those investments.
It’s a brilliantly clear framework for the corporate world of today.
It allows the CEO, the BOD and every player on the field to focus on exactly what they need to do to make the company successful. It enables companies to defend their businesses against disruptive technologies while proactively nurturing and launching disruptions of their own. It enable the playing of offense and defense in a coherent and cohesive manner.
You can even apply this to your own life. Most of us have a portfolio of things we are working on and are forced to balance our investments of time and energy. If you look at the, let’s say 10 or so good ideas or projects you’re working on, how do you pick one and give it the attention to scale?
Most of us will try to average our energy investment across multiple projects which doesn’t move the needle in any of them. Or we will work hard on one but give up too early. Could the Zone to Win framework help you answer your personal conflicted priorities questions?
This is a great work of business theory in a small, easily digestible book. Buy it now because your CEO has already read it and is implementing this framework and you’ll need to know where you fall into it.