Organizing For Disruption
Back in 2015, I was looking at emerging organization models for a societal shift to a very different era. While organizations have experimented with many of these, the truth is, most still struggle with this critical structural change. One impactful model was positioned by Geoffrey Moore in his book titled Zone to Win. Given how relevant the topic is today, I am reposting my synopsis of the book below. In addition, here are three additional posts on the topic as well:
COMPETING IN THE AGE OF DISRUPTION
This future series continues with a look at a new book by Geoffrey Moore titled Zone to Win: Organizing to Compete in an Age of Disruption. In my last post on Emerging Models, I looked at a model based on business type. The model explored by Mr. Moore is based on zones, and came to life in his work with Salesforce.com and Microsoft. With Salesforce, the model supported a focus on disruption (offense), and with Microsoft, it supported a posture against disruption (defense). The four zones as identified by the author are depicted in the visual below:
Performance Zone — Mr. Moore describes this zone as the engine room for operating established businesses on proven business models. The focus of the zone is on revenue derived from established businesses that are sustaining the status quo. It houses the organizations that make and sell the core offerings. Performance is achieved by delivering goods on time, on spec, and on budget, while making the number every quarter.
The Productivity Zone — this zone is where enabling investments in shared services reside. These cost centers include marketing, central engineering, technical support, manufacturing, supply chain, customer service, human resources, IT, legal, finance, and administration. Functions in the corporation without direct accountability for a material revenue number go here. The focus is on applying sustaining innovation to productivity-enabling initiatives targeted primarily at the performance zone with the bulk of the ROI expected to fall into Horizon 1. Initiatives in this zone are delivered via systems and programs that ensure regulatory compliance, efficient operations, and effective competitive performance.
The Incubation Zone — this zone plays enabling host to fast-growing offers in emerging categories and markets that are not yet producing a material amount of revenue. Mr. Moore describes the charter as a positioning of the enterprise to catch the next wave — the domain of Horizon 3. Any significant return on investment in this domain is several years out, and revenues for the portfolio are in aggregate no more than a percent or two of the total top line. Mr. Moore views this portfolio as too small to participate productively in the operating model of the performance zone, and so the two zones should be isolated from one another.
The Transformation Zone — This zone according to Mr. Moore is the place in an established enterprise where a disruptive business model goes to be scaled to material size. Offense is the primary focus with a goal of rapid scale towards a stable, material, net new line of business that constitutes ten percent or more of current revenues. The desired outcome is a growth trajectory that promises both increased size and superior profitability. The challenge here is that virtually every force inside and outside your company will be working against you — often referred to as the antibodies that kill innovation in traditional companies.
To be effective, these zones must work synergistically to drive performance improvement. The goal is to catch the next wave, incubate it through an independent operating unit (IOU), and move it to the transformation zone to drive scale and material size, with support from both the productivity zone and the performance zone. Mr. Moore uses a performance matrix to help visualize the role of channels of revenues (sales) versus sources of revenue (BUs). He advises that inclusion in the matrix be limited to material sources of revenue that are at least 10%. When the transformation zone drives the emerging category innovation to this 10% benchmark, a new row is created in the matrix and the new business is managed as part of the core. The visual below captures this flow:
The book looks at two paths through the zones: offense and defense. Mr. Moore positions the goal of zone offense as a mechanism to add a net new row to the performance matrix. The effort is driven by the transformation zone, with heavy lifting done by the performance zone. The fledgling business has to be scaled to material size within a finite window of opportunity, typically three years or less. The visual below describes zone offense:
The second path is zone defense, which focuses innovation on neutralizing a disruptive threat. This defensive posture is not about differentiation, but responding to the disruption in a timely manner. To neutralize, you must co-opt some portion of disruptive innovation (think taxi’s in San Francisco using the Flywheel mobile app to combat Uber) and integrate it into your established offering. The result should be good enough to allow customers and partners to get enough benefit from a combination of old and new to make your overall deal better than one they would get from the disruptor. The visual below describes zone defense:
The rationale for this framework is nicely articulated by Mr. Moore throughout the book. He uses his Salesforce and Microsoft experiences as case studies to support the approaches articulated. I highly recommend the read. As a reminder from my last post, this is one of several emerging frameworks, each with applicability for the structural change that lies ahead.
Originally published at http://frankdiana.net on November 23, 2020.