Managing Innovation in a Commoditizing Marketplace
Geoffrey Moore
Managing Director

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Darwin @ Work
• Global low-cost competition resulting in commoditization
• Leads to natural selection and survival of the fittest
• Darwin’s Mandate
• Innovate to become sustainably differentiated, or
• Accept erosion in margins and revenues
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The Challenge
• We continue to embrace failed models of innovation
• We need to think about innovation in a new way
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The Goal of This Talk
• Reframe the innovation agenda in a way that works
• Special focus on enterprises with established track records
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Return on Innovation
•
Innovation Strategy
•
Funding Innovation
•
Perpetuating Innovation
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

It’s A Vector Math Problem!
= 0
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Bubble-up Innovation
Many Types
When each unit strives to be unique in its own way, the net result is little overall differentiation.
Competitors find it easy to neutralize these efforts
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Innovate to Achieve Competitive Separation
*
Competitor 1
*
Competitor 2
*
Competitor 3
Competitive Set
*
Gain bargaining power by getting separation from your competitive set
Failure to separate means low to no returns on innovation
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Core:
• Processes that enable or reinforce your chosen vector of competitive differentiation
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Context:
• All other processes
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This is not the same as your core competence
This is not the same as your core business
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Differentiation Neutralization
Failed
Attempts Productivity
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Waste
Waste: Innovation projects that even when they succeed fail to create sustainable competitive advantage
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Identify a vector of differentiation to define core
• Core is those processes that create the differentiation
• It is the source of your unmatchable competitive advantage
•
Define all other work as context
• Necessary to your success, but not differentiating
• Apply neutralization and productivity strategies here
• Commit to “beyond class” outcomes
• A set of offers that direct competitors cannot or will not copy
• No “best in class” waste!
• Elsewhere actively promote “good enough” criteria
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Landscape of Competitive Advantage Changes
Indefinitely elastic middle
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A
Technology Adoption
Life Cycle
Growth
Market
B
C
Mature
Market
Time
D
Declining
Market
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020
Fault
Line!
End of
Life
E

Play to the Forces Active in Your Marketplace
Customer
Intimacy Zone
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Product
Leadership
Zone
Category
Renewal
Zone
Operational
Excellence Zone
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Each is a Potential Vector of Differentiation
Line Extension
Innovation
Platform
Innovation
Design
Innovation
Marketing
Innovation
Experiential
Innovation
Organic
Innovation
Product
Innovation
Structural
Innovation
Category Renewal
Harvest
& Exit
Disruptive
Innovation
Application
Innovation
Value Engineering
Innovation
Integration
Innovation
Process
Innovation
Value Migration
Innovation
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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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The Product Leadership Zone
Disruptive
Innovation
* eBay
Application
Innovation
* RIM
Product
Innovation
* AMD
Platform
Innovation
* Google
Create a new category, build the value chain to serve it, and ride its adoption to success
Take an established product or service into a new market where it can tap unmet demand
Take share in an established market with a new offer that dramatically outperforms current market leaders
Stimulate and dominate next-generation growth markets by collaborating with partners
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

The Customer Intimacy Zone
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Line Extension
Innovation
* HP
Gain market share by modifying an established brand to appeal to an underserved market segment
Enhancement
Innovation
*
Motorola
Gain margin share by creating greater perceived value at the surface of an existing offer
Marketing
Innovation
Gain customer preference through differentiated communication and delivery methods
* Apple
Experiential
Innovation
* World of Warcraft
Gain customer preference through differentiating the experience of the offer and its delivery
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Value Engineering
Innovation
*
CDW
Integration
Innovation
*
SAP
Process
Innovation
* Dell
Value Migration
Innovation
* IBM
Take market share by being first to the next priceelasticity inflection point
Protect and extend market share by eliminating the complexity of managing many disparate elements
Win share or margins by productivity gains from reengineering business practices
Win margins by migrating to a new and more highly valued business model
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Pick a small number of innovation vectors for core
• Ideally one
• If more, then fused into one
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Drive your performance beyond category norms
• Competitors either cannot or will not match it
• Their neutralization efforts fall flat
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Declare all other forms of innovation context
• Focus on neutralization where needed (includes table stakes)
• Everywhere else, focus on productivity
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Current Core Becomes Context Over Time
Digital media
Mobile computing
Internet-enabled transactions
Visualization and simulation
Personal computing
Reporting and analytics
On-line transaction processing
Resources migrate to the bottom
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Context Core
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Core
Agile
Context
Aged
Context delivers diminishing returns
Organizations become uncompetitive
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Extract Resources from Context to Repurpose for Core
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“Coins in the Couch”
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Core
Deploy
Differentiation
At Scale
Mission Critical
2. Deploy
Context
Manage
Mission-critical
Processes
At Scale
3. Manage
Non-Mission-Critical
Invent
Differentiated
Offering
1. Invent 4. Offload
Fund next innovation
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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020
Extract
Resources
To Repurpose
For Core

The Growth/Share Matrix
Hi Growth Lo Growth
Hi Market Share
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Lo Market Share
?
Great model but . . .
Fund next innovation
Must first fix two fatal flaws first
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Mission-Critical Context
Core
Process creates differentiation that wins customers
Context
All other processes
Mission Critical
Process shortfall creates serious and immediate risk
Major
Challenge
Non-Mission-Critical
All other processes
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Differentiation
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Clinging to Mission-Critical Context
Context Core
But lack of resources here results in failure to deploy!
Mission Critical
2. Deploy
Mission
critical
Resources get stuck here
Non-Mission-Critical
Resources still get invested here
1. Invent
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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020
Resources are added here for support

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The Six Levers Model
Core Context
1.
Centralize.
Bring operations under a single authority to reduce overhead costs and create a single decision-making authority to manage risk
2.
Standardize.
Reduce the variety and variability of processes delivering similar outputs to further reduce costs and minimize risks.
3.
Modularize.
Deconstruct the system into its component subsystems and standardize interfaces for future cost reductions.
4.
Optimize.
Eliminate redundant steps, automate standard sequences, streamline remaining operations, substitute lowercost components, or otherwise cost- and resource-reduce.
5.
Instrument.
Characterize the remaining processes in terms of the variability of key parameters and develop monitor-andcontrol systems to manage their performance.
6.
Outsource.
Drive processes out of the enterprise entirely to further reduce overhead, variabilize costs, and minimize future investment. Incorporate vendor use of monitor-and-control systems into Service Level Agreement.
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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There are always resources to reclaim
• Coins in the couch are everywhere
• The more mature and successful you have been, the more coins there are
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The key is to repurpose them for core
• Identify core before you go after context coin
• Mantra: Extract resources from context to repurpose for core
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Failure to repurpose begins a downward spiral
• Savings are used to make the current quarter
• You start the next quarter at Square One and with fewer coins
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

We Are Losing Our Work Force Investment!
Core Context
Mission
Critical
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Enabling
Resources
Wanted
Here
Resources
Available
Here
People being released lack the skills to fill the positions being opened
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Resource Recycling Zones
Deployers
Use conventional methods to ramp and manage mission-critical processes at scale
B
Zone
Inventors
Use unconventional methods to create and incubate new core
II III
C
I IV
A Optimizers
Use the Six Levers to extract resources from context to repurpose for core
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Work circulates clockwise
People recycle counter-clockwise within zones
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

Handoff
Deployment
Zone
Handoff
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Executives focus on managing the hand-offs
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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Focus on building role expertise
• Make it an explicit goal of job assignments
• Maintain it through managed reassignments
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Avoid overvaluing task expertise
• Buys you productivity in the short term
• Creates unproductive populations in the long term
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Be cautious about asking people to change roles
• Most people are most productive staying in role
• Revitalization comes from changes in task content
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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•
Return on Innovation
• Performances competitors cannot or will not match
•
Innovation Strategy
• Focusing innovation to create escape velocity
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Funding Innovation
• Extracting resources from context to repurpose for core
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Perpetuating Innovation
• Resource recycling: The perpetual innovation machine
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020

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gmoore@tcg-advisors.com
Darwin and the Demon © 2004, TCG Advisors LLC
April 13, 2020