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

Innovating in a Downturn

Leave a reply

Innovating in a Downturn

GUEST POST from Geoffrey A. Moore

Downturns are wake-up calls. They ask us to sharpen our focus and be more disciplined in our allocation of resources. It’s a tough-love regimen that can make our enterprises more healthy as long as we commit to the program.

There are three ways to get a return on innovation, each fit for a different purpose, as follows:

1. Differentiation

Differentiation is key for acquiring new customers. Your goal is to overcome the inertia of the status quo, and to do so, you must make an offer that is sufficiently disruptive that a prospect will come over to your side. Slightly better doesn’t cut it. You need to focus on one vector of innovation that is lights-out superior and delivers a value proposition others cannot match. Then you need to marry your offering to a customer challenge that is sufficiently urgent and important to require immediate attention, downturn or not, creating a whole product that fulfills a compelling reason to buy. That in hand, you need to rotate your marketing and sales coverage to play most of your games on this chosen turf. None of this requires heroics, but all of it goes against whatever inertial momentum inside your own enterprise remains from a decade or more of leveraging economic tailwinds.

2. Neutralization

Neutralization is key to both defending, or even expanding, your customer base when a challenger throws their hat in the ring. They are making the disruptive offer, and your goal is to get to good enough, fast enough. This allows your customer base to reject the challenger offer, good as it may be, because in the greater scheme of things, with your other value add, plus your good-enough response, it is safer and more sensible to stick with you. The key here is speed. Innovation teams want to have the best offer in the market, but there is no time for that. It is a hard ask for them to prioritize good enough, but any delay leaves your core business exposed. On the other hand, if your offer really is good enough, your account teams can pitch a consolidation offering to the customer base which can replace one or more of their current point-product vendors via a suite offering from you. Done well, you can grow share of wallet share in a downturn, which is by far the most profitable path to take.

3. Optimization

Optimization is key to maintaining viability in a downturn. Revenues are likely down, which means operating expenses must follow suit. This is particularly important in a period of rising interest rates where taking on additional debt is truly dangerous. Done well, optimization not only saves money and frees up resources to invest in differentiation or neutralization, but it also improves the customer experience by streamlining the processes that underpin the core of your business. The key is to combine the value disciplines of operational excellence and customer intimacy, focusing them on the processes that are unnecessarily slow, complex, or onerous. Again, the challenge is to overcome the lulling force of inertia. Change is never welcome, as there is a J-curve in every learning curve, and in a downturn, people are fearful of losing any ground even temporarily.

One Final Point

These three paths of innovation do not blend. Combining any two will dilute the impact of both. This leads to waste at a time when return on investment is crucial. You can run the playbooks in parallel, but you must not let them merge.

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

Image Credit: Unsplash

Subscribe to Human-Centered Change & Innovation WeeklySign up here to get Human-Centered Change & Innovation Weekly delivered to your inbox every week.

How Do You Measure Power?

Leave a reply

How Do You Measure Power?

GUEST POST from Geoffrey A. Moore

In a recent blog, I argued that management needs to be accountable not only for delivering current performance but also for investing in power initiatives that will fuel future performance. Compensation systems that focus solely on the former too often result in a hollowing out of the enterprise, as we have seen with any number of iconic companies that have “performed” their way to the sidelines.

But this begs a key question—how do you measure power? Specifically, what kind of metrics could supply a stable foundation for management accountability and executive compensation?

In my book Escape Velocity, when discussing managing for shareholder value, we introduced a framework called the Hierarchy of Powers. The idea is that investors, who are buying a share of your enterprise’s future performance, value your company based on how much power they think it has relative to other investments they could be making. In this context, we claimed there were five classes of power that got evaluated in the following order of priority:

  1. Category Power. Is your core business in a category that is growing, stable, or declining? This, we claimed, is the single biggest predictor of future performance.

  2. Company Power. Within that category, where is your company in the pecking order of companies? If you are number one, that is a huge advantage. If you are number two, it also provides tailwinds. After that, there are no more tailwinds to be had.

  3. Market Power. For companies that focus on one or more vertical markets, is your company the default choice for major prospects and customers in that segment? Wherever this is the case, it gives a material boost to your sales momentum and thus your company’s valuation.

  4. Offer Power. Do you get preference and/or premium pricing due to the differentiation of your offer? Do you win the lion’s share of any competitive bake-offs?

  5. Execution Power. Do you have a history of meeting or beating guidance on a consistent basis?

The model has stood up well over the years, but there is still the question of how to ensure accountability for investing in power when so much of our attention (and compensation) is focused on creating the next quarter’s performance. To that end, my colleague Philip Lay and I have been sorting through objective measures that signal material gains in power, ones that executive teams could readily track, and compensation programs could use to calibrate bonuses.

Here’s what we propose should be the top two metrics for each class of power:

Category Power. The focus here is on portfolio valuation—how many categories does the enterprise participate in, and how is each category faring. Meaningful changes in category power typically come through M&A, often supplementing organic innovation that is looking to scale quickly. Top two metrics for each category assessed:

  1. Category Maturity Life Cycle status. The key stages are secular growth, cyclical growth, stagnant, and declining.
  2. Technology Adoption Life Cycle status. This model focuses specifically on the period of secular growth, breaking it up into the following stages: Early Market, Chasm, Beachhead, Bowling Alley, Tornado, and Main Street. The two big valuation changers are winning a beachhead market segment in the Bowling Alley and participating with meaningful share in the Tornado.

Company Power. In high-growth categories, the focus is on bookings growth and competitive win rates. In mature categories, it is on the stability of the installed base as well as bargaining power both with suppliers and with customers. The top two metrics are:

  1. Market share within each category. By far the most important metric, as market ecosystems organize around and give preference to the category leader.
  2. Balanced mix of power and performance categories. For global enterprises, in particular, portfolio balance creates optionality to deal with both bull and bear markets.

Market Power. In emerging categories, dominating a target market segment, as opposed to merely participating in it, is critical to crossing the chasm and creating a sustainable franchise. In mature categories, target market segment focus is key to creating above-market growth. The top two metrics are:

  1. Segment share. The most important metric because ecosystems that serve market segments organize around a segment leader only when it has dominant segment share.
  2. Growth rates within target market segments. This is particularly important in any economic downturn that impacts different market segments to highly varying extents.

Offer Power. This metric and the next are closely aligned with delivering performance in the current fiscal year. That said, they still signal successful investments in power. The top two power metrics are:

  1. Magic quadrant status. This is the most widely circulated third-party measure of offer power.
  2. Win/loss record in head-to-head competitions. This is the most credible measure of offer power.

Execution Power. This really is the land of performance, but there is still power in reputation. Top two metrics are:

  1. History of “meeting or beating” commits, be they forecast or, release dates. This is what gives confidence to customers and partners to give your team the nod.
  2. Customer success metrics. These include Net Expansion Rate, Net Retention Rate, and Promoter Score, all of which validate that you are keeping your sales promises.

Guidelines for Using the Metrics

Metrics are a device to ensure visibility and accountability, and nowhere is this more important than when dealing with something as abstract as power. The key is to associate the right metrics with the right people, the ones who can have the most impact on the level of power in question. This works out as follows:

  • Top Executives: Category Power, Company Power. The two key levers here are using M&A to strategic advantage and using the annual budgeting process to allocate resources asymmetrically to achieve strategic objectives.

  • Middle Management: Market Power, Offer Power. The two key levers here are using market segmentation to strategic advantage and allocating the resources under your control asymmetrically to achieve dominant shares in target market segments.

  • Front Line: Execution Power. The key lever here is to align and focus the resources under your control or influence them in order to deliver the performance you have committed to.

For purposes of compensation, promotion, and overall alignment, these metrics align well with OKR objectives and can be used wherever OKRs are focused on increasing power. Again, the goal is not to replace performance metrics but rather to complement them.

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

Image Credit: Unsplash

Subscribe to Human-Centered Change & Innovation WeeklySign up here to get Human-Centered Change & Innovation Weekly delivered to your inbox every week.

Management Accountability in Two Dimensions

1 Reply

Performance and Power

Management Accountability in Two Dimensions

GUEST POST from Geoffrey A. Moore

In Silicon Valley, we talk a lot about leadership but perhaps not enough about management. That’s because we are famous for working the fuzzy front end of things, where management is premature and leadership is paramount. But to have real impact on the world, you must eventually lean on strong management to operate at scale. So, what exactly does that entail?

First and foremost, management is about delivering the performance committed to in the plan. Everyone gets this, and while there are major differences in styles of management, all are measured ultimately by performance metrics, and no one is confused. We may not like the numbers we are supposed to make, but we know what they are, we have some idea of what it will take to make them, and we will get report-outs along the way to tell us how we are doing.

Such is not the case, however, with a second dimension of management accountability—the need to continually invest in ways that will power future performance. Performance consumes power as a means to create returns. If we focus 100% of our resources on performance, we will eventually exhaust all our existing sources of power and will be unable to compete effectively going forward.

Seems obvious enough, but here is the problem. We do not define power anywhere nearly as clearly as we define performance. We do not have reports that tell us how we are doing on the power side of the equation. We are often not really clear about what power we should be going after, what investments could be specifically targeted to deliver power, or what metrics would verify that we have succeeded. Worse still, our performance compensation systems can actually incent us to ignore all this ambiguity around “power management” and focus solely on meeting our performance commitments, particularly when resources are tight. Worst of all, as power dwindles, it becomes harder and harder to make the number, which puts more pressure on the resources we have, which further disincentivizes investing in future power. The result is a downward spiral from which it is painfully hard to escape.

So, what can we do to prevent it?

To begin with, we will need a map—specifically a power map, an understanding of the geography of our current power base. We can develop one through root cause analysis. That is, if we are in the Performance Zone, we can ask, where are our products successful, where are they not, and why? Where are our sales efforts successful, where are they not, and why? Similarly, if we are in the Productivity Zone, we can ask, where are our systems working as promised, where are they not, and why? Which of our programs have delivered the change in state promised, which have not, and why? (Note: if we are in the Incubation Zone, we are already an investment in power, so this exercise would not apply.)

Root cause analysis, by its very nature, shifts the focus from the domain of performance (effects) to that of power (causes). The deeper this analysis can penetrate, the more insightful our map of power becomes. This is a good opportunity to engage the entire team, not only to improve the quality of the analysis, but also to help everyone develop their own management perspective.

Once a power map is in view, then the question becomes, if we could intervene in only one place, where could we have the most impact, and what would it take to bring it about? We are looking for a specific initiative that could change the game within whatever time limits are appropriate to the situation. Here are some examples:

  • In response to a weakening industry status, Sybase leveraged the financial crisis in 2008 to boost its power on Wall Street, a long-dormant part of its power map, with a campaign that focused on portfolio risk analysis, capitalizing on the unique attributes of its columnar database for online analytics. The success of that campaign bought valuable time to develop a mobile app platform for hosting enterprise applications on the iPhone, something that led to SAP acquiring the company at a premium in 2010.

  • In response to the successful performance of the iPod and iTunes (almost half of Apple’s revenue in 2007), subsequently being exposed to the existential threat of smartphones eventually assimilating music players, Apple invested deeply in the iPhone, leveraging its existing wireless downloading infrastructure to liberate programs and content from carrier control. Today, the iPod is effectively embedded in the iPhone, and it is that device that supplies 50 percent of Apple’s revenue.

  • In response to drastically deteriorating industry power at IBM in the early 1990s, Lou Gerstner completely reframed the enterprise’s power map, rejecting the view that future power would come from disaggregation, asserting instead that it would come from global integration. Leveraging an emerging global trend in e-commerce, he and his team transformed the company into a services-led powerhouse that helped lead the IT industry for another decade.

These examples, of course, represent big power maps. Most of us play on a considerably smaller stage. But the principles are the same:

  • Leave conventional wisdom behind
  • Take a fresh view of the power dynamics influencing your organization
  • Launch a single focused initiative that tees things up for future success

All that remains is to create accountability for power outcomes. Accountability begins with identifying a single accountable person. People often shy away from this because they associate it with someone to blame. That is neither the point nor the role. Rather, this person is the quarterback of the initiative. To be really clear, they are not the team owner (that would be the executive sponsor) nor are they the coach (that would be the line manager in charge of delivering both performance and power), but rather they are the person on the field taking input from teammates to make the best calls in the moment. Without this single point of coordination, initiatives are unable to take decisive action under conditions of uncertainty—in other words, they underperform in game-time situations.

The next thing we need is a good way to keep score. This can be tricky because indicators for power are not as easy to see as those for performance. Nonetheless, we cannot manage what we cannot measure, so we need to get creative here. One place we can look for ideas is from our customer success operations. There the focus is on onboarding, adoption, usage, and upsell—all of which are signals of whether power is waxing or waning. Whatever the initiative we are managing, we need to create proxies to detect these kinds of signal and use them to track our progress.

Finally, we need to tie meeting power metrics with compensation, not only for the single accountable person but also for the organization making the resource sacrifices to enable the investment required. This will typically be in the form of bonuses for hitting key metrics within a given time limit. Not only do such bonuses motivate, they also make clear to the rest of the enterprise that this initiative is important, and that the people leading it are committed to its success.

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

Image Credit: Unsplash

Subscribe to Human-Centered Change & Innovation WeeklySign up here to get Human-Centered Change & Innovation Weekly delivered to your inbox every week.