Author Archives: Geoffrey Moore

About Geoffrey Moore

Geoffrey A. Moore is an author, speaker and business advisor to many of the leading companies in the high-tech sector, including Cisco, Cognizant, Compuware, HP, Microsoft, SAP, and Yahoo! Best known for Crossing the Chasm and Zone to Win with the latest book being The Infinite Staircase. Partner at Wildcat Venture Partners. Chairman Emeritus Chasm Group & Chasm Institute

Aesthetics – Part One

Leave a reply

Aesthetics - Part One

GUEST POST from Geoffrey A. Moore

The Infinite Staircase offers readers a metaphysics and an ethics shaped by the 21st century’s understanding of how the world came to be. It has little to say, however about esthetics, and that is too large a part of human experience to neglect. With that in mind, I am going to address the topic in two short essays.

The first essay, the one you have in hand, is an interaction with The Cambridge Dictionary of Philosophy’s entry on the topic. I found myself constantly quarreling with it, and I wanted to sort out why, hence this piece. What I see now is that I was clearing a space to dig deeper into the issues I truly care about. That’s what the second essay is intended to do.

Of course, this begs the question, do you even need to read this essay? I mean, just because I have to clear my throat before I speak doesn’t mean you have to listen to it. That said, if you are academically oriented, or have ever taken courses in philosophy, I suggest you do read this if only to clarify your own point of view. If, on the other hand, you are simply interested in the nature of the esthetic experience itself, feel free to ignore this piece, but do keep an eye out for the next essay.

Essay #1: A Dialog with Cambridge

NOTE: The format of the dialog is to present the Cambridge material in blockquote format and my responses to it in normal text.

Aesthetics: the branch of philosophy that examines the nature of art and the character of our experience of art and of the natural environment.

The purpose of esthetics, as of any academic discipline, is to investigate a body of forces in order to better understand its nature and determine how best to incorporate it into our strategies for living. In the case of esthetics, the forces under study create psychological experiences, and it is these experiences that provide the data upon which the discipline is based.

Because the concept of experience is central to the understanding of esthetics, we need to get clear about its meaning. In particular, we need to distinguish between two common understandings of the term, one of which is central, the other of which is tangential to our purposes.

Here are the two definitions, taken from the Oxford English Dictionary:

  1. The actual observation of facts or events considered as a source of knowledge.
  2. The fact of being consciously the subject of a state or condition, or of being consciously affected by an event.

Definition 2 is the one that is central to our purpose. We are interested in the impact of an object on a subject, what it is like to be “consciously affected,” something that depends very much on the properties of both the subject and the object. We investigate this experience first by examining the residue of its impact on the subject and then by seeking attributes in the object that account for it.

This is where Definition 1 comes in. It is a tactic we use in pursuing a better understanding of what is happening under Definition 2. But we need to be careful here as we cannot objectively observe the facts in question—they are inherently subjective and can only be contemplated internally or reported externally. That means there can be no purely objective basis for esthetics. We must keep both subject and object in view at all times, focusing specifically on what is happening when we are being internally affected by an externally occasioned event.

It emerged as a separate field of philosophical inquiry during the eighteenth century in England and on the Continent. Recognition of aesthetics as a separate branch of philosophy coincided with the development of theories of art that grouped together painting, poetry, sculpture, music, and dance (and often landscape gardening) as the same kind of thing, les beaux arts, or the fine arts.

The fine arts are indeed all within the scope of esthetics. As a group, however, they are highly refined. Their force tends to be more ethereal than many people can experience, particularly modern audiences that are more global and less privileged than the eighteenth century thinkers who created the concept initially. As a result, we should not position the fine arts as the centerpoint of our category but rather at one end of a more inclusive spectrum, albeit one we have as yet to define.

Baumgarten coined the term ‘aesthetics’ in his Reflections on Poetry (1735) as the name for one of the two branches of the study of knowledge, i.e. for the study of sensory experience coupled with feeling, which he argued provided a different type of knowledge from the distinct, abstract ideas studied by “logic.” He derived it from the ancient Greek aisthanomai (to perceive), and “the aesthetic” has always been intimately connected with sensory experience and the kinds of feelings it arouses.

“Sensory experience coupled with feeling” is as good a starting point as any for capturing the full spectrum of aesthetic experience. It is still too general, as there are many such experiences that are not aesthetic, but it gives us a point of departure. The challenge is that when we try to convert any such experience into knowledge, of necessity we must express ourselves in language, and this can be confusing because the experience itself is pre-linguistic.

That is, to use the framework of The Infinite Staircase, sensory experience coupled with feeling takes place on the stairs of desire, consciousness, values, and culture—all prior to the stairs of language, narrative, analytics, and theory. When we use these higher stairs to explain what is happening on the lower ones, we are prone to imposing their structure in ways that ride roughshod over the subtleties of the actual experience. This is reflected throughout the list of questions that follow.

Questions specific to the field of esthetics are: Is there a special attitude, the aesthetic attitude, which we should take toward works of art and the natural environment, and what is it like?

The answer is no. This is an example of analytics seeking to reposition experiences that arise from below by proposing that they descend from above. That is, the refined analytical intellect is positioning itself at the center of an experience during which it was not even present. This is a big mistake, one that implies aesthetic experiences are reserved for the few who possess refined sensibilities when in fact they are universal.

Is there a distinctive type of experience, an aesthetic experience, and what is it?

The answer is yes, and in the lexicon of philosophy, it falls into the category of qualia. The entry on qualia from Wikipedia provides a useful introduction, defining it as subjective conscious experiences, examples of which include the perceived sensation of pain of a headache, the taste of wine, and the redness of an evening sky. As qualitative characteristics of sensation, qualia stand in contrast to propositional attitudes, where the focus is on beliefs about experience rather than what it is directly like to be experiencing.

Now, to be fair, pain does not qualify as an aesthetic experience, but the taste of wine and the color of red certainly do. The key point is that all the examples stand in contrast to propositional attitudes, the domain of analytics, which can be about aesthetic experience but not integral to it.

Is there a special object of attention that we can call the aesthetic object?

Yes, there is. It is whatever body of forces that are creating the impact on the subject, be that the wine, the evening sky, a painting, a story, or a piece of wood. But the object alone cannot be said to be inherently aesthetic. Only after it has evoked a sensory experience coupled with feeling can it be so termed, and then only with respect to subjects in whom that experience has been evoked.

Finally, is there a distinctive value, aesthetic value, comparable with moral, epistemic, and religious values?

Yes, there is. To put things in perspective

  • Moral value consists of behavior that is beneficial to others and consistent with social norms.
  • Epistemic value consists of justified true beliefs that lead to effective action in the world.
  • Religious value consists of spiritual experiences and commitments that provide sacred and undeniable guidelines for life in the world.

In such a context, aesthetic value consists of pleasurable, contemplative, non-utilitarian, resonating experiences that we characterize as beautiful, refreshing, and inspiring.

Some questions overlap with those in the philosophy of art, such as those concerning the nature of beauty, and whether there is a faculty of taste that is exercised in judging the aesthetic character and value of natural objects or works of art.

The nature of beauty is indeed an elusive topic, one where we need to be humble, but with respect to the faculty of taste, we can be more assertive. In the eighteenth century, judgments of taste were appropriated by a social class that privileged refinement and intellect over sensibility and joy. In the nineteenth century, the Romantic movement aggressively worked to overthrow and reverse this polarity, and in the twentieth, cultural relativism worked to deny the validity of any aesthetic judgments that extended beyond the personal preferences of the person making them within the norms of the culture they are inhabiting. All three positions contain an element of truth, and none by itself does a good job of accounting for the overall nature of beauty. The good news is that they are not incompatible with one another, so a synthesis of all three can potentially provide a stable foundation for esthetic theory.

Aesthetics also encompasses the philosophy of art. The most central issue in the philosophy of art has been how to define ‘art’. Not all cultures have, or have had, a concept of art that coincides with the one that emerged in Western Europe during the seventeenth and eighteenth centuries. What justifies our applying our concept to the things people in these other cultures have produced?

It is justifiable to apply our concepts to our experience of things other cultures have produced and how they stack up against our cultural norms. We just should not apply them to their experiences or the status of the things in their culture. The temptation to do so derives from seeking to locate the aesthetic force solely in the object. That is not a tenable claim.

There are also many pictures (including paintings), songs, buildings, and bits of writing that are not art. What distinguishes those pictures, musical works, etc., that are art from those that are not?

They do not evoke the pleasurable, contemplative, non-utilitarian, resonating experiences we call beautiful, refreshing, and inspiring.

Various answers have been proposed that identify the distinguishing features of art in terms of form, expressiveness, intentions of the maker, and social roles or uses of the object.

None of these topics is off limits, but each one can take us down a rabbit hole if we try to use it as definitive of what constitutes art. That begs the question of how we would define art, but we will leave that to the second essay.

Since the eighteenth century, there have been debates about what kinds of things count as “art.” Some have argued that architecture and ceramics are not art because their functions are primarily utilitarian, and novels were for a long time not listed among the “fine arts” because they are not embodied in a sensuous medium. Debates continue to arise over new media and what may be new art forms, such as film, video, photography, performance art, found art, furniture, posters, earthworks, and computer and electronic art. Sculptures these days may be made out of dirt, feces, or various discarded and mass-produced objects, rather than marble or bronze. There is often an explicit rejection of craft and technique by twentieth-century artists, and the subject matter has expanded to include the banal and everyday, and not merely mythological, historical, and religious subjects as in years past. All of these developments raise questions about the relevance of the category of “fine” or “high” art.

When discussing esthetics in general, over-rotating to fine or high art is simply a mistake. It is a valid subcategory, but not to the exclusion of other sensory experiences coupled with esthetic feelings. Once again, we see the analytical intellect overstepping its bounds, seeking to impose itself as an arbiter of aesthetic value when its proper role is to be an interpreter of aesthetic experience.

Another set of issues in philosophy of art concerns how artworks are to be interpreted, appreciated, and understood. Some views emphasize that artworks are products of individual efforts, so that a work should be understood in light of the producer’s knowledge, skill, and intentions. Others see the meaning of a work as established by social conventions and practices of the artist’s own time, but which may not be known or understood by the producer. Still, others see meaning as established by the practices of the users, even if they were not in effect when the work was produced. Are there objective criteria or standards for evaluating individual artworks?

All these views are legitimate in their own right, provided we surface the context in which the judgment is made. What is not legitimate is to overrule a rival approach, asserting one’s own as the only valid one. Overall, the goal is to get as much insight as possible into the body of forces at work in an esthetic experience, any way we can.

There has been much disagreement over whether value judgments have universal validity, or whether there can be no disputing about taste if value judgments are relative to the tastes and interests of each individual (or to some group of individuals who share the same tastes and interests). A judgment such as “This is good” certainly seems to make a claim about the work itself, though such a claim is often based on the sort of feeling, understanding, or experience a person has obtained from the work. A work’s aesthetic or artistic value is generally distinguished from simply liking it. But is it possible to establish what sort(s) of knowledge or experience(s) any given work should provide to any suitably prepared perceiver, and what would it be to be suitably prepared?

With respect to this question, we should acknowledge that university degree programs in the humanities do purport to teach this kind of knowledge and thereby suitably prepare the perceiver to appreciate the works being studied. As a practical exercise, this is invaluable. Where things can go astray is when the judgment “this is good” floats free of its moorings in culture-specific subject-object relationships and imposes itself as objective fact.

It is a matter of contention whether a work’s aesthetic and artistic values are independent of its moral, political, or epistemic stance or impact.

They are independent. Clearly works of art can have moral, political, or epistemic dimensions, but these are outboard of the aesthetic dimension. When criticism seeks to interpret art through these kinds of filters, be they Marxist, feminist, deconstructionist, or the like, we have left the realm of the humanities behind and ceded authority instead to the social sciences.

Philosophy of art has also dealt with the nature of taste, beauty, imagination, creativity, representation, expression, and expressiveness; style; whether artworks convey knowledge or truth; the nature of narrative and metaphor; the importance of genre; the ontological status of artworks; and the character of our emotional responses to art.

The paragraph above represents a laundry list of what for me are all the interesting topics. It warrants an entire essay of its own. That will be the subject of the essay to follow.

Work in the field has always been influenced by philosophical theories of language or meaning, and theories of knowledge and perception, and continues to be heavily influenced by psychological and cultural theory, including versions of semiotics, psychoanalysis, cognitive psychology, feminism, and Marxism.

Here we see more ceding of authority to the social sciences. It is not that they have nothing to add. It is that they are appropriating the aesthetic experience to promote another agenda. That agenda may indeed be worthwhile, but it cannot substitute for aesthetic analysis.

Some theorists in the late twentieth century have denied that the aesthetic and the “fine arts” can legitimately be separated out and understood as separate, autonomous human phenomena; they argue instead that these conceptual categories themselves manifest and reinforce certain kinds of cultural attitudes and power relationships. These theorists urge that aesthetics can and should be eliminated as a separate field of study, and that “the aesthetic” should not be conceived as a special kind of value. They favor instead a critique of the roles that images (not only painting, but film, photography, and advertising), sounds, narrative, and three-dimensional constructions have in expressing and shaping human attitudes and experiences.

And this is the ultimate ceding of authority to the social sciences, to which I am viscerally opposed.

That’s what I think. What do you think?

Part Two coming soon!

Image Credit: Pexels

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Unlocking Trapped Value from the Technology Adoption Lifecycle

Leave a reply

Unlocking Trapped Value from the Technology Adoption Lifecycle

GUEST POST from Geoffrey A. Moore

For some time now I have been making the case that investment decisions, be they made by customers engaging with a new product and vendor or private equity firms backing a new technology and entrepreneur, should begin with finding the intersection between the innovation at hand and a pool of trapped value it can release, thereby creating the return on investment. That said, one of the core principles of investing is called risk-adjusted returns, meaning that the greater the risk you take, the higher the return needs to be. My expertise is in the risks related to technology adoption, where the risk factors change over the course of a new technology’s deployment. With that thought in mind, here is how the trapped value thesis needs to risk-adjust to adapt:

  • Early Market: very high technology adoption risk. The prize here has to be quite large indeed. Typically it will come in one of two forms. For B2B investments, it will be like an oil reservoir that, if tapped correctly, will produce a gusher. Regulated industries have pockets of trapped value all over the place that fit the bill. Also, industries like automotive and real estate, which are restructuring their relationships with dealers and agents, would qualify. By contrast, B2C investments tap into trapped value that looks more like shale oil—no deep pockets, but incredibly broad presence. Media, transportation, and hospitality have funded extraordinary returns for Netflix, Uber, and Airbnb, not because the trapped value was severe but because it was so pervasive. The point is, early-stage venture investing needs to target home-run bets to warrant the risks it takes. Same goes for visionary customers in B2B markets who are the early adopters of these technologies. They are taking on significant risk so they need to be targeting outstanding rewards.
  • Crossing the Chasm: high technology adoption risk, but readily mitigated. The challenge here is that the technology has great potential for any number of use cases but needs some additional support in every case to achieve the desired end result. The chasm-crossing playbook focuses on a single use case in a single industry and geography in order to create a killer “whole product” that nails the use case and to build a coalition of customer references and partner successes that will keep the market growing even as the technology vendor expands into other segments. Here the trapped value should be intense but narrowly confined, designed to meet three critical success factors:
    1. Big enough to matter (it should be able to generate 10X your current year’s billings target)
    2. Small enough to lead (if you crush your plans, you should get 50% segment share)
    3. Good fit with your crown jewels (if you win, nobody is going to displace you).

    As you can see, there is risk here, but it is manageable through market focus and disciplined execution, the key risk reduction factor being how compelling is the customer’s reason to buy.

  • Bowling Alley: modest adoption risk. The challenge here is to expand beyond your first “beachhead” vertical into adjacent use cases with the same segment as well as adjacent segments with the same use case. Part of the source of reduced risk is that you have a working playbook from the first vertical. Much of the source, however, comes from the emergence of local ecosystems of partners who complete the whole product solutions for each use case. These partners make their living supplementing the technology vendor’s product or platform, and their extra talent, domain expertise, and segment focus represent a major risk reduction. As a result, the trapped value rewards have a lower hurdle to clear to garner investor interest and customer buy-in.
  • Tornado: low adoption risk. The risk here is the opposite—getting left behind as the world embraces the shift to a new normal. The trapped value that drives a tornado is released by “killer apps.” These apps may not release the most trapped value, but they represent a sure winner to start with, making the buying decision a no-brainer. The point is, if you want to get any traction in the tornado, you have to lead with a killer app, a no-regrets offering that delivers simple-to-consume rewards and gets everyone onto the new platform. That means the trapped value must be easy to target and the value of releasing it must be obvious to all, especially to the end users who will be the prime beneficiaries.
  • Main Street: very low adoption risk. The primary adoption challenge here is converting conservative end users who simply do not want to switch to yet another new technology. The trapped value now exists in nuisances, little bits of inefficiency that have workarounds but are annoying. From the point of view of productivity, the cost savings from eliminating them are minimal. But in terms of the user experience, as well as customer satisfaction, the impact can be substantial. B2C enterprises spend most of their R&D here focused either on eliminating “hygiene” issues or innovating with new “delighters,” both of which can increase demand, the cornerstone for volume operations success. B2B enterprises use six-sigma analytics to scout their value chains for bottlenecks that increase latency, something that adds risk without adding value, and frustrates even their most loyal customers.

The key takeaway is that there are different kinds of trapped value, each occupying a different sweet spot in the Technology Adoption Life Cycle. As a vendor and potential leader of a go-to-market ecosystem, you must be crystal clear about the kind of trapped value you are targeting, the kind of risk-taking it warrants, and the kinds of solutions that will get the most traction.

That’s what I think. What do you think?

Image Credit: Unsplash

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Accelerating Change in Consumer Packaged Goods

Leave a reply

Accelerating Change in Consumer Packaged Goods

GUEST POST from Geoffrey A. Moore

I had the pleasure of engaging with a team of executives from a Global 2000 Consumer Packaged Goods (CPG) company, and as always from such encounters, I learned something new.

The team is focused on accelerating change, and I was sharing with them the zone management model, and how each zone is intended to keep a characteristic pace. The Productivity Zone, by design, goes the slowest because its job is to take extra time in order to reduce risk and cost. The Incubation Zone, again by design, goes the fastest because its job is to take extra risk and pretty much ignore cost in order to reduce time.

What the team made me realize is that, given all the change coming at them (and, yes, we had been talking a lot about Generative AI and related technologies), they needed their Productivity Zone to speed up, come what may. The more I thought about it, the more I realized that this is not just a single CPG enterprise talking. Every Volume Operations enterprise at its core runs on processes. There is no other way to operate at scale, which means the Performance Zone is completely dependent on them. But here’s the thing—all those mission-critical processes are invented, maintained, and improved by the Productivity Zone.

So, here’s the challenge in a nutshell: How can you possibly speed up something that is inherently designed to go slow? Or, to make the goal more specific, how do you incubate a truly disruptive process and then, at the right moment, use it to transform your most conservative organizations?

Readers of this blog will not be surprised to hear me advocate for aligning the zone management framework with the Technology Adoption Life Cycle as a roadmap for how best to navigate these waters. Here’s how it plays out in four acts:

  1. Act One: Incubate, focusing on early adopters who are looking to explore the opportunities, leveraging a project model. You intend to prove the feasibility of the new process, and you will do whatever it takes to do so. Your goal is to show what good could look like while at the same time taking technical risk off the table, leaving adoption risk as the primary remaining challenge.
  2. Act Two: Transform, focusing exclusively on a single underperforming function led by pragmatists in pain, leveraging a solution model. You intend to use the breakthrough technology to completely revamp the process in question, taking it from underperforming to stellar. Your goal is to create a credible set of references to support your transition to Act Three.
  3. Act Three: Perform, focusing first on processes adjacent to those addressed by Act Two, ones that are performing adequately but could definitely be improved, led by pragmatists who are reluctant to change until they see others go first. You intend to create a groundswell of adoption that will convert their reluctance to change into a fear of missing out. Your goal is to lead with a “killer app,” highlighting whatever portion of your technology that can deliver a quick win, and then follow that up with a complete roll-out.
  4. Act Four: Secure, focusing on the revamped process end to end, monitoring quality from final deliverable back through each step, working with process managers who will be maintaining their portion of the new system. You intend to continuously improve following a data-driven approach supplemented with whatever analytics and AI can provide. Your goal is to operate at scale with unprecedented productivity and agility.

The key point of this framework is that it is linear. You take it one act at a time, and you do not skip over any acts. Your key metric is time to complete, both at the level of each act and of the whole play. With respect to anything transformational, know that most people appreciate it may take more than one year, and no one will give you three years. So you have a maximum of eight quarters to get to Act Four (which will be ongoing thereafter).

That’s what I think. What do you think?

Image Credit: Pexels

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Are Humans Just a Fleshy Generative AI Machine?

Leave a reply

Are Humans Just a Fleshy Generative AI Machine?

GUEST POST from Geoffrey A. Moore

By now you have heard that GenAI’s natural language conversational abilities are anchored in what one wag has termed “auto-correct on steroids.” That is, by ingesting as much text as it can possibly hoover up, and by calculating the probability that any given sequence of words will be followed by a specific next word, it mimics human speech in a truly remarkable way. But, do you know why that is so?

The answer is, because that is exactly what we humans do as well.

Think about how you converse. Where do your words come from? Oh, when you are being deliberate, you can indeed choose your words, but most of the time that is not what you are doing. Instead, you are riding a conversational impulse and just going with the flow. If you had to inspect every word before you said it, you could not possibly converse. Indeed, you spout entire paragraphs that are largely pre-constructed, something like the shticks that comedians perform.

Of course, sometimes you really are being more deliberate, especially when you are working out an idea and choosing your words carefully. But have you ever wondered where those candidate words you are choosing come from? They come from your very own LLM (Large Language Model) even though, compared to ChatGPT’s, it probably should be called a TWLM (Teeny Weeny Language Model).

The point is, for most of our conversational time, we are in the realm of rhetoric, not logic. We are using words to express our feelings and to influence our listeners. We’re not arguing before the Supreme Court (although even there we would be drawing on many of the same skills). Rhetoric is more like an athletic performance than a logical analysis would be. You stay in the moment, read and react, and rely heavily on instinct—there just isn’t time for anything else.

So, if all this is the case, then how are we not like GenAI? The answer here is pretty straightforward as well. We use concepts. It doesn’t.

Concepts are a, well, a pretty abstract concept, so what are we really talking about here? Concepts start with nouns. Every noun we use represents a body of forces that in some way is relevant to life in this world. Water makes us wet. It helps us clean things. It relieves thirst. It will drown a mammal but keep a fish alive. We know a lot about water. Same thing with rock, paper, and scissors. Same thing with cars, clothes, and cash. Same thing with love, languor, and loneliness.

All of our knowledge of the world aggregates around nouns and noun-like phrases. To these, we attach verbs and verb-like phrases that show how these forces act out in the world and what changes they create. And we add modifiers to tease out the nuances and differences among similar forces acting in similar ways. Altogether, we are creating ideas—concepts—which we can link up in increasingly complex structures through the fourth and final word type, conjunctions.

Now, from the time you were an infant, your brain has been working out all the permutations you could imagine that arise from combining two or more forces. It might have begun with you discovering what happens when you put your finger in your eye, or when you burp, or when your mother smiles at you. Anyway, over the years you have developed a remarkable inventory of what is usually called common sense, as in be careful not to touch a hot stove, or chew with your mouth closed, or don’t accept rides from strangers.

The point is you have the ability to take any two nouns at random and imagine how they might interact with one another, and from that effort, you can draw practical conclusions about experiences you have never actually undergone. You can imagine exception conditions—you can touch a hot stove if you are wearing an oven mitt, you can chew bubble gum at a baseball game with your mouth open, and you can use Uber.

You may not think this is amazing, but I assure you that every AI scientist does. That’s because none of them have come close (as yet) to duplicating what you do automatically. GenAI doesn’t even try. Indeed, its crowning success is due directly to the fact that it doesn’t even try. By contrast, all the work that has gone into GOFAI (Good Old-Fashioned AI) has been devoted precisely to the task of conceptualizing, typically as a prelude to planning and then acting, and to date, it has come up painfully short.

So, yes GenAI is amazing. But so are you.

That’s what I think. What do you think?

Image Credit: Google Gemini

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Making Ring-fenced Funding Work

Leave a reply

Toughest Challenge Series: Episode 2

Making Ring-fenced Funding Work

GUEST POST from Geoffrey A. Moore

Inspired by the HP Incubations Team

Here’s the challenge. Everyone gets that you need to ring-fence funding for incubating Horizon 3 initiatives. At the corporate level, with the CEO’s direct sponsorship, this can be managed as a separate operating unit with its own budget. The challenge is when the incubation is nested. That means it is being funded out of the operating budget of a Performance Zone business unit, not from some special set-aside allocation.

Nested incubation represents the majority of internally funded Horizon 3 investments. (M&A is a different vehicle, funded out of capex not opex, and is not subject to the challenges we will discuss here). The reason there is a strong preference for nested incubations is that, if successful, they are of immediate interest to the business unit’s current customer base as well as its partner ecosystem. That is, while there can be high technical risk, there is little to no market risk. That said, it is still early days, the technology is not proven, product-market fit still needs to be determined, so it is in no position to generate ROI in the current fiscal year.

The challenge comes to the fore in a tough year where the corporation has to cut back on its operating expenses. Everybody is expected to take a haircut, tighten their belts, suck it up, and carry on. The problem is, when it comes to managing incubations, this simply does not work. Incubation is all about getting and maintaining momentum. If at any point you take your foot off the accelerator, you will lose momentum, and you will never get it back. Instead, you will salvage what you can from the R&D and write the whole thing off to bad timing. But let’s be clear: this is not management, this is mismanagement.

So, what’s the fix? It starts with the business unit surfacing its incubation opportunity during the annual budgeting process. It proposes to set aside a portion of its next year’s budget dedicated to funding the incubation, with funding released on a VC-model based on milestone attainment. This is documented and agreed to at the Executive Leadership Team level. If bad times hit, the choice is never to take a haircut; it is either to carry on or cancel things altogether, and it is made in dialog with the ELT since either way it could have a material impact on the enterprise’s market valuation.

Once the nested incubation has been agreed to, then the business unit leader is responsible for ensuring its funding stays ring-fenced. In particular, this means that resources assigned to the incubation effort cannot be “borrowed” by the current product lines to temporarily address an urgent need. Again, this is all about maintaining momentum.

To ensure this works as planned, here is a tip from a long-time friend and colleague who is the CFO at a major enterprise:

All ring-fenced items are documented and agreed upon at the ELT level. The way it works is the finance team who work with the budget holder is the guardian of all ring-fenced spend. When changes need to be made, they can’t touch ring-fenced spend. Of course, you have to limit the number of ring-fenced items to give freedom of execution to the leaders, but it’s an effective mechanism.

That’s what he thinks. And that’s what I think too. What do you think?

Image Credit: Google Gemini

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

VC-Backed Firms in Regulated Industries

Leave a reply

The Times They Are A-Changin’

VC-Backed Firms in Regulated Industries

GUEST POST from Geoffrey A. Moore

This week I have had conversations with executive teams of VC-backed firms working in three different regulated industries: Healthcare, Telco, and Financial Services. All of them reported that their sales pipelines were around 3X what they were a year ago. We didn’t dig into why, although I expect that it means the incumbent providers are under increasing pressure to modernize their operating models and streamline their infrastructure models to meet customer demand and pricing pressure.

The reason we did not get to discuss why this is happening is that each of the teams was more focused on how — how do we adapt our playbook to this new development? You might not think an upsurge in demand would be a problem, but all three of these firms are at least an order of magnitude sub-scale to properly address the demands of their target customers. How do you ride such a wave demand without wiping out? How do you scale and not break your company?

Understanding the Dynamics of the Situation

The easiest way to see what is going on here is to examine it through the lens of the Hierarchy of Powers. Here’s how it plays out:

  • Category Power. The category is shifting from resisting the next wave to embracing it, albeit reluctantly, because the status quo is deteriorating, and it is clear something has to change. This leads to the upsurge in RFPs and RFIs that each company is now seeing. Budget is being created whereas before it had to be scrounged. This is great news for each enterprise, but it has its challenges.
  • Company Power. Compared to the Tier 1 prospects each of these companies is targeting, their own is tiny indeed. All of them lack the global reach and depth of personnel their customers require. Nonetheless, these are their most valuable prospects, so they must find a way to engage. That’s the core of the challenge.
  • Market Power. Each company has already focused on a single vertical—that is how they got as far as they have. Now they are going to have to focus even more rigorously in order to control their exposure to too much demand coming at them too fast and too soon. To secure market power, to become the go-to vendor for their category of offer for this vertical, they must prioritize the right subset of prospects and do whatever it takes to get them over the line.
  • Offer Power. This is where each company shines. It is why they are each attracting the attention of companies that a year ago were not returning their calls. Their products, however, are highly complex, and the implementations even more so, so they cannot support runaway growth. Moreover, the regulated industries they serve impose rigorous, one might even say onerous, demands, creating a whole series of hoops to jump through before they can get to the other side. How do you “catch the wave” when the sign on the beach says “proceed with caution”?
  • Execution Power. At the end of the day, this is the crux of the challenge. How can a subscale company with a world-class offer meet the demands of a regulated industry dominated by behemoth enterprises? How should it adapt its playbook?

Adapting the Playbook

Given this change in dynamics, here are the kinds of adaptions that are called for:

  • Control your destiny by narrowing your focus. The key for all three enterprises is to win a handful of Tier 1 accounts that the rest of the industry looks to for best practices. Winning these accounts will establish them as the go-to choice for the industry as a whole. This objective trumps all others, and every organization inside the company needs to reprioritize its workload accordingly.
  • Hold fast to your priorities. This is an internal transformation that requires strict discipline to execute. In the past, it was OK to step off the path to address an impromptu request because the demand for everyone’s time was less insistent. Now it is not. Use weekly commits as a way to make workloads visible, and intervene whenever they are drifting off course.
  • Stay very focused on your top-tier target accounts. Every one of them is a priority, even when they may not be giving you all the reception you want. Conversely, all other prospects are a distraction even when they are inviting you in.
  • Continue to serve your existing customer base. These are not the Tier 1 players we are targeting, but they are references that can help win those accounts. In addition, they are the early adopters who put their faith in you. You must do right by them.
  • Align with a big friend. Your target customers need you to bring many more resources to the table than you have inside your company. The good news is that these same customers work with global service providers who specialize in helping them on-board next-generation offers. You need to secure strong support from at least one of these, and you probably cannot easily support more than one, so pick one you think you can trust, and go all in with them on your go-to-market planning.
  • Let the big friend help you clear your regulatory hurdles. Time is your scarcest resource, and unfortunately, regulated industries are not good at moving swiftly. It’s a mismatch in operating models. VC-backed companies take risks to save time; regulated industries take time to reduce risk. This is not something you are well positioned to deal with. Global services firms, on the other hand, already have relationships with the regulatory authorities you must interface with, not to mention the bandwidth to work through the mandated processes. Do whatever you can to get their help in expediting whatever needs to be done.
  • Create the solution playbook that you and your GSI friend will co-deliver. Do not let the GSI take over the implementation. You know a lot more about what it takes to make your solution work than they do. But you can make sure that the work is profitable for them by giving them the playbook and letting them bill for their time. You don’t need the services revenue anywhere near as much as you need the Tier 1 account win.
  • Defer inbound requests that take you off strategy. You don’t have to say no. You just have to say, not yet. Given the amount of stress that any Tier 1 engagement will put on your firm, taking even one account that is off-script risks breaking your camel’s back.
  • Defer inbound interest around an acquisition. You are at an inflection point in value creation that is potentially extraordinary, the very outcome you and your investors have been preparing for. This is not the time to let go of the reins, particularly if they are going to get handed to an established enterprise whose culture is likely to clash with yours. Moreover, you cannot afford the distraction of all the due diligence that M&A discussions necessarily entail. M&A cannot solve your Tier 1 problem. You have to do that yourself.

Now, to be clear, there are exceptions that could overrule any one of the prescriptions above, so each team needs to review them in light of its own history and circumstances. The key point is that when the market is shifting from a state of scarcity to one of abundance, there is a short time window to catch that wave. The large competitors cannot move fast enough to do this themselves — that is why they are interested in making an acquisition. You are agile enough to do so, but you are painfully subscale — hence the need for the somewhat drastic prescriptions above. Navigating this part of the journey is tricky, but if you stay focused on winning (and keeping!) a handful of Tier 1 accounts, you are making the best bet.

That’s what I think. What do you think?

Image Credit: Google Gemini

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Capitalizing on Disruptive Innovations

Leave a reply

Capitalizing on Disruptive Innovations

GUEST POST from Geoffrey A. Moore

In Silicon Valley, we are in love with disruptive innovations, largely because we make a lot of them and have profited exceedingly well from so doing. But for anyone on the receiving end, the relationship is not so rosy. Yes, the potential for gain is extraordinary, but the path to getting there is strewn with attempts that have fallen far short of the hype. How can one engage responsibly with this sort of opportunity? Here’s a framework that can help.

Capitalizing on Disruptive Innovations Stairway to Heaven Framework

There are four proven ways to capitalize on disruptive innovation, and they are organized here in terms of escalating risk and reward. Each stair appeals to a different persona in the Technology Adoption Life Cycle, the bottom one attracting conservatives, the second, pragmatists in pain, the third, pragmatists with options, and the fourth, visionaries. Each stair can be managed to its targeted reward, but it is very hard indeed to manage two or more stairs in tandem. Most failures occur because management is not decisive about which gains it is committed to achieving and in what priority order it should be served. Needless to say, there is a better way.

The first use of this framework is to explore the possibilities of each stair for your enterprise. That is, if you were to prioritize this stair, what would success look like, how would you expect to measure it, and what costs and risks would be entailed? You want to talk this through as a team, ensuring everyone gets heard. Specifically, you want to make sure that the adoption personas of the most powerful people in the room do not dominate this part of the dialog. They are likely going to make the call in the end, but it is critical that they hear everyone out before they do.

Let’s try this out with everyone’s latest favorite example—generative AI. Imagine you are a member of the executive team at a pharmaceutical corporation, and you have charged your IT team to come up with a GenAI strategy. Wisely, they have come back to you with an array of options, arranged in a stairway to heaven. Here’s what they might say:

  • Automate. There is a whole series of regulatory compliance obligations that today we outsource overseas to be serviced by a lower-waged workforce. Not only would automating these tasks reduce our costs, it would also lower the error rate and continuously improve performance as more and more machine learning is put to work. This is a low-risk, modest-return option. There would be no disruption to any of our other operations, and we in IT could learn a lot about a technology that is mutating far faster than anything we have ever seen before.
  • Reengineer. Our proteomics research scientists are having a real problem with the combinatorial explosion of all the possible 3D configurations a given 2D sequence of amino acids might adopt. By focusing our generative AI models on just this one problem, we can vastly accelerate our discovery phase, transforming our problem set from completely intractable to continuously improving. This is a medium-risk, high-return opportunity that is confined to a single department, thereby minimizing disruption to the rest of our value chain.
  • Modernize. Our go-to-market teams are competing for smaller and smaller slices of time from the physician offices they call upon. We need relevant messaging to get the appointment and highly personalized content to get buy-in from both the doctors and the nurses. Today we rely on experience and anecdotal data, which works OK for our long-tenured members but makes recruiting, onboarding, and ramping a nightmare. By focusing our Large Language Model on all the data in our CRM systems, combined with all our data from the labs, clinical trials, patent submissions, as well as the patient records we have access to, we can arm our GenAI with more information than any one human could process. We still will have humans in the loop to monitor and adapt this material throughout the sales process, but they will be much better equipped to compete than ever before. This is a high-risk, high-return opportunity that will impact a large portion of our workforce, so we plan to stage the implementation to capture learnings as we go.
  • Innovate. Deep Mind’s AlphaGo program taught itself to play go at the highest level by playing against itself millions and millions of times. We think we can take a similar approach to drug discovery. It’s a moon-shot idea, and our data scientists are still in their own discovery phase, but this could be a game-changer for the industry. We’d like to take a VC approach to funding this effort, ring-fencing the funding across several years, but holding ourselves accountable to meeting material milestones along the way.

As you can see, there is a case to be made for each stair, but there is only so much time, talent, management attention, and working capital to go around, so it is critical that the executive team prioritize these four options and sequence them appropriately. Different teams will come up with different priorities. You are not looking for the “right answer.” You are looking for the one that will yield the best risk-adjusted returns for your enterprise under current conditions.

That’s what I think. What do you think?

Image Credit: Geoffrey Moore, Google Gemini

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Dualism is Bunk – Emergentism Rules!

Leave a reply

Dualism is Bunk - Emergentism Rules!

GUEST POST from Geoffrey A. Moore

Readers of The Infinite Staircase (who are not many but whom I highly esteem) will know that it describes reality as constituted not of two but rather of eleven separate levels. At the bottom of the staircase is physics, all matter, no mind. At the top is theory, all mind, no matter. But there are nine layers in between, and here is the amazing thing. Each one is not only distinctly separable from the one above and below it, it is also defined by what I will call a characteristic attribute.

Now, getting that characteristic attribute right is no small feat, so consider the following a first cut at something that undoubtedly can be improved upon. (Start at the bottom and work your way up the staircase.)

OK, I am not crazy about the word imitational, but setting that aside, this list specifies an amazing amount of structure in a relatively confined space. All the italicized words represent fruitful fields of study in themselves, and taken together might constitute a Masters Degree in Reality.

Needless to say, every one of these claims is debatable, so let me just close by saying,

That’s what I think. What do you think?

Image Credit: Geoffrey Moore

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Allocating Resources to Solve Horizon 2

Leave a reply

Another Tough Challenge

Allocating Resources to Solve Horizon 2

GUEST POST from Geoffrey A. Moore

We’ve known about this problem forever—how do you find a principled way to allocate budget across three different horizons of ROI.

  • Horizon 1 pays off in the current year and equates to the funding needed for you to make your operating plan and meet or beat investor guidance.
  • Horizon 3 pays off downstream, typically by making a speculative bet on an emerging category or market that would come to fruition in the out years. Since it is still early days, these bets are relatively small and can be measured by and managed to venture milestones.
  • Horizon 2 is the troublemaker. It calls for a material investment in gaining power in the near term in order to compete effectively in the mid-term. That investment will come out of Horizon 1, either from the Performance Zone trying to make the number or from the Productivity Zone trying to supply the needed support to do so, and most likely both.

In short, both internally and externally, Horizon 2 investments are not popular, even though everyone recognizes that they are critical to long-term success. So what is the process by which one can do right by them?

The key is to recognize that the ROI from Horizon 2 is measured in units of power, whereas that from Horizon 1 is measured in units of performance, and that the two must not be mixed. Now, to be clear, performance creates the funding for power, and power creates the foundation for performance, so they are deeply intertwined. But each has its own metrics of success, and the time lag between them says they cannot be blended.

Power always precedes performance. To underfund power is to jeopardize your future performance, the ultimate result being the liquidation of your franchise. To underfund performance, on the other hand, is to jeopardize the cash flow that you need to fund power, putting your market cap at risk, the ultimate result being to attract an activist investor who will oversee the liquidation of your franchise. There is no safe path to take, only a precarious middle way to traverse.

Now, again to be fair, in good times when your category is enjoying secular growth, you get to have your cake and eat it too. That is, you produce amazing cash flow, have a fabulous market cap, and have resources aplenty to invest as you choose. My colleagues still refer to the period leading up to the first tech bubble as “ the time of the great happiness.” Be that as it may, for most of us in 2024 (our friends in GenAI being a notable exception), this is not such a year. We have to make tough choices, and we have to make them now.

So, back to process — and CFOs, take note because you’re likely the one to be leading it.

  1. Separate strategic planning from annual budgeting by at least one quarter.
  2. Charge each business unit to pitch a strategic plan that would create returns substantially above and beyond their current operating model. Included in this plan is a ballpark estimate of the funding that would be required to implement it.
  3. Facilitate an Executive Leadership Team review of the overall portfolio of opportunities, culminating in a rank-ordered list.
  4. Consult with the CEO to determine how much of next year’s operating budget can be allocated to strategic investments, and in that context, which investments should be prioritized for funding. This funding will be allocated in advance of the operational budgeting and ring-fenced to ensure it is spent as intended.
  5. Most strategic investments will be funded as nested incubations, meaning they will be managed within an existing business unit, and are funded as part of their operating budget. However, you must insist that these efforts be isolated, measured, and accounted for separately from the core business, as they are intended to deliver power outcomes, not performance outcomes, and need to be held accountable to different success metrics. (If you do not do this, their operating budget funds will drift away to supplement Horizon efforts to make the number, and the strategic initiative will falter for lack of sufficient investment.)
  6. Truly disruptive incubations, on the other hand, need to be funded outboard of the current business unit structure, in a corporate Incubation Zone, governed by an Incubation Zone board managing a ring-fenced Incubation Zone fund, following the operating model of venture capital. This is covered in detail in Zone to Win.
  7. At this point budgeting can turn its attention to Horizon 1 and how best to allocate funding to hit the current year’s financial targets.

This process solves for two perennial missteps in annual budgeting. The first we might call “the leftovers approach.” First, you allocate all the resources needed to make your Horizon 1 commitments, and then you look to what’s left to fund strategic initiatives. There will be some resources in the kitty, but not as much as there could be since Horizon 1 managers want to reserve some contingency funding. The result is a bias toward modest investing in incremental innovations that do not create future power but rather extend the current footprint.

The second misstep we can call “the variable approach.” Here you allocate half the resources at the beginning of the year and make the second half allocation contingent upon meeting the Horizon 1 plan for that period. The problem here is that strategic initiatives require sustained investment throughout their time in the J-curve. If you flinch and pull back at any point, you lose momentum, never to be regained. This is a big advantage venture-backed companies have over in-house efforts and one of the reasons why VCs love to invest in a downturn.

That’s what I think. What do you think?

Image Credit: Unsplash

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Tackle Your Toughest Challenge This Year

Leave a reply

Tackle Your Toughest Challenge This Year

GUEST POST from Geoffrey A. Moore

This is the first in what I hope to be an extended series of blogs focused on a single topic: What is the toughest challenge your company faces today, and what would it take to overcome it? I’ve reached out to my network, so I have a few good ones to start with, but needless to say, I would be very interested to learn what you are up against in your enterprise. In the meantime, here is my first shot on goal:

“I think we had stopped innovating for a long time. Customers were disappointed. But over the past few years, we have made massive improvements to our products. In fact, many who use the products feel like they are best in class. Our big challenge is getting the market to recognize that we are not the company we were a decade ago. This tends to be very easy to accomplish in small pockets but is a huge challenge at scale.”

There is a whole cohort of global enterprises that are facing this conundrum, including the iconic enterprise tech companies that rode the client-server/Internet wave to become the great growth stocks of the 1990s, who then became overshadowed by the massive mobile/cloud wave that has driven consumer tech successes in this century, and who are now institutional, single-digit-growth anchor holdings in today’s value investors’ portfolios. What would it take to free their future from the pull of the past?

The answer comes in two parts. First, they have to participate in a wave of disruptive innovation that is inside the tornado, with AI and ML being likely current candidates. They don’t have to be the first mover or even the category leader, but they do have to gain a substantial share of some piece of the pie, enough for the world to see they are a real player and that their growth prospects have therefore materially changed. This is something that can — indeed must — be powered by internal forces, management committing to the risk, engineering committing to the task, go-to-market committing to the sales, and everyone competing like crazy to get enough share to be taken seriously.

This is a big deal in itself, but not as the quote above makes clear, the toughest challenge. Instead, it creates the toughest challenge, which is how to get the world to acknowledge and buy into the good work that has been done and that is continuing to be done. Specifically, the challenge is how to change the narrative.

Narratives are how we make sense of the world. They are the stories we tell about ourselves, our friends, our enemies, the products we use, the causes we participate in — you name it, if we have any stake in it, we tell stories about it. These stories circulate, and after a while, they become institutionalized as received wisdom or established reputation or brand image. As with “your father’s Oldsmobile,” everybody knows that so-and-so is such-and-such, without anyone giving it much thought. These narratives become signposts along the road of life. We expect them to stay the same. And that, of course, is what makes them so hard to change.

To change the narrative you need a forcing function. This has to be external to your enterprise, something that causes the world to reorient itself, and in so doing, to realize that its old signposts may no longer serve. In tech, we have been blessed with a plethora of forcing functions, something Joseph Schumpeter taught us to call “waves of creative destruction.” Such waves radically alter the allocation of budgets, and in so doing, they run roughshod over the old highways along with any of their signposts. To change your narrative, you have to position your enterprise in their path.

Satya Nadella’s “Cloud first, Mobile first” is a good example. Cloud threatened to creatively destroy Microsoft’s back office franchise, and mobile threatened to do the same to its PC operating system monopoly. Both were forcing functions. Now, it turns out that mobile did not work out for them, but cloud surely did. The point is, Satya’s tagline redefined Microsoft’s position, putting it in line for a whole new generation of investment. AMD is doing the same thing with AI chips, following Nvidia’s lead, just as Microsoft was following Amazon Web Services. Iconic companies do not have to lead the next wave. Nobody expects that, although Apple astoundingly did so not once, not twice, but three times within a space of little more than a decade. But because iconic enterprises have global footprints, because they are well positioned to capitalize on the new wave of change, they get the benefit of the doubt once they have demonstrated they can deliver products or services that make the grade.

That phrase “Satya’s tagline” leads me to my last point. You would think that changing the corporate narrative should be the function of corporate marketing, but it never is. First of all, it is unpopular, and marketing teams, aligned as they are with sales teams, are reluctant to do anything that would offend. Second, marketing does not have the clout. It wasn’t the tagline that anchored Microsoft’s change. It was the CEO himself, with the backing of the board.

And buried therein lies the third challenge — changing the narrative is deeply unpopular with value investors, particularly when it entails internal investments that impact earnings per share. It is not easy for a board of directors, who are continually reminded they are there to represent the interests of the shareholders, and the CEO, who is highly compensated to manage for shareholder value, to take a step back and do what they believe is the right thing for the long term.

Beneath a change in any corporate narrative, therefore, there is an underlying meta-narrative about the role of enterprise in relation to all its stakeholders. This includes its customers, partners, employees, and communities, as well as its investors. In that context, customers are family — they have skin in your game and are likely to stick with you through thick and thin. Investors, by contrast, do not. Your company is a financial instrument in their portfolio, and should it cease to perform the financial role they have in mind for it, they have no reason to hold onto it. You still need to take their interests seriously — they are your financial foundation — but they are not your reason for being. Customers are. So should you undertake to change your narrative, focus on why your customers need you to do so. They are your North Star.

That’s what I think. What do you think?

Image Credit: Pixabay

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.