Escape Velocity
Free Your Company’s Future
from the Pull of the Past
Geoffrey Moore
Managing Partner
HarperCollins
Paper & eBook format
Release Date: Sept 6, 2011
Introduction
The Problem: We’re Stuck
• Technology and globalization keep changing the game
• Extraordinary opportunities, each also a threat
• We must engage with these new growth opportunities
• But face massive internal resistance to reallocating resources
• Year in, year out, we end up with the same old portfolio
• Nothing new ever achieves materiality—we are well and truly stuck
• How can we achieve escape velocity?
• How do we free ourselves from the pull of the past?
Companies Who Did Not Escape
•
Burroughs - Sperry Univac - Honeywell - Control Data
– MSA – Cullinet – Cincom – ADR - Digital Equipment
Company - Wang - Data General – Prime – Apollo Tandem - Kodak – Polaroid - Lucent – Bay Networks -
Nortel - Compaq – Gateway – Packard Bell - Lotus Ashton Tate – WordPerfect - Borland – Software
Publishing – Aldus - Novell – Banyan - Motorola –
Nokia - Pacific Bell - Quest - America West – Nynex –
AT&T – Silicon Graphics – Sun – Ingres – Informix
The Mistake We Keep Making
• We focus on performance, not on power
• Performance Is critical to success, and we are good at managing it
• Power fuels performance; without it there is no performance
• So we must continually renew power if we are to perform long term
• But we do not know how to manage power consciously
• We recognize power when we see it
• But we lack the frameworks and metrics to go out and acquire it
• And our systems do not hold us accountable for doing so
• So instead we manage performance more intensely
• Which, of course, consumes even more power
• Making us even more anxious as performance gets harder to create
• Making our focus on performance even more intense
Beware the performance trap!
The Solution: Manage Power Directly
• Focus on power first, then on performance
• Create a “power generation” plan before your performance plan
• Allocate resources to power programs before performance budgeting
• Focus on go-to-market resources more than R&D
• Drive accountability for power into the operational plan
• Add power metrics to performance metrics
• Earmark resources for power program usage only
• Modify the compensation plan so that power objectives matter to all
• Use the Hierarchy of Powers to frame the effort
• Provides a common vocabulary to get everyone on the same page
• Structures power issues in ways that are directly addressable
The Hierarchy of Powers
Category Power
Growth rates of your major categories
Company Power
Performance compared to your competitors
Market Power
Growth rates of your target markets
Offer Power
Differentiation of your offerings
Execution Power
Speed and impact of your key initiatives
Goal : Align all of the above to achieve escape velocity
The Hierarchy of Powers
How Much Power Do You Have Today?
Category Power
Are we in hot high-growth categories, or do we have
category envy?
Company Power
Do customers and competitors see us as the team to
beat, or is that someone else?
Market Power
Are we winning the key “primaries,” and are we
winning them fast enough?
Offer Power
Do our core offers set the bar, or are we playing a lot
of catch-up?
Execution Power
Can we make stuff happen and make it stick, or are we
continually pushing the reset button?
Where do we have anchor strengths?
Where do we have to do better?
Case Example: The Power of Apple
Category Power
Music, mobility, & media: All hyper-growth
Company Power
The team to beat in all three
Market Power
No current need to target market segments
Offer Power
iPod, iPhone, iPad + iTunes, AppStore
Execution Power
All of the above in less than one decade
And that is why Apple is currently
the most highly valued company in high tech
“Mere Mortals” Case Examples
Cisco – Sybase – Agilent – Cognizant
Akamai – BEA – Adobe – Amdocs
Documentum – SAP – Activant – Lawson
BMC – Agile – McAfee – Autodesk
Synopsys – Rackspace – TeleAtlas
Symbol – Compuware
Our Agenda
Present frameworks for each level of the Hierarchy of Power to
• Assess the current landscape of threats and opportunities
• Identify the most attractive “power plays” for your company
• Guide the planning and execution of those plays
Category Power
Reengineering Portfolio Management
Category Power Diagnostic
•
Where is category growth contributing to our overall growth objectives?
Where is lack of category growth inhibiting our growth objectives?
•
•
To the degree we participate in multiple categories, how well balanced is
our overall portfolio in terms of contribution to current earnings, current
growth, and future growth objectives?
•
•
Common pattern: strong on current earnings and future growth, weak on current growth
In light of the above, do we need to enter a new category, divest ourselves
from a category we are currently in, or stay the course with our current
portfolio?
•
•
Organizations tend to over-commit to their legacy franchises in large low-growth categories
Most companies stay with their current positions regardless—this is the pull of the past
Is there time to develop our category position organically, or must we
leverage M&A as well?
•
For companies over several billion dollars is size, the answer is almost always the latter
Category Maturity Life Cycle
Revenue Growth
Indefinitely elastic
middle
A
Emerging
Market
B
C
Growth
Market
Mature
Market
D
Declining
Market
Fault
Line!
E
End of
Life
Technology Adoption
Life Cycle
Time
Where Are Your Resources Today?
A Portfolio Analysis Framework
Low Growth
Material
B
C
A
D
Not Material
FUTURE REWARDS
PRESENT REWARDS
High Growth
Typical Portfolio Pattern for a Public Company
High Growth
Low Growth
Material
2 3
1 4
Not Material
What is the first question the board asks?
Why don’t we have more businesses in Quadrant 2?
Pursuing Growth in a Mature Category
Successive Generations of R&D Have Diminishing Impact
High Growth
Material
Not Material
Low Growth
What’s Going On?
• Market is well established and highly material
• Customer relationships are established, products are well known
• Cost of sales is low
• R&D investments continue to improve the product
• For a while, better is better, and new R&D drives revenue growth
• After a while, good enough is good enough, pricing deflates, growth stalls
• Unit growth continues, but revenue growth flattens
• Lots of competitors meet the good enough standard
• Market bifurcates into commodity (growing) & value-add (shrinking)
Overfeeding a herd of aging cash cows—
waste of good fodder
Pursuing Materiality for an Emerging Category
Successive Attempts at Market Development fail to Cross the Line
High Growth
Material
Not Material
Low Growth
What’s Going On?
• Next-generation initiatives are not transitioning to materiality
• Products are immature, relationships are few
• Cost of sales is high
• Growth rates are high, but off a small base and at a high cost
• Overlay sales forces, dedicated marketing, complex services
• The more revenue you target, the higher the added cost
• Field organization cannot bear the cost burden
• Must prioritize resources to make the current quarter
• Next-generation initiatives are left to get by as best they can
Underfeeding a herd of hungry heifers—
never reach material size
Freeing Your Company’s Future
The Three Horizons Model
Step-Out
Businesses
On-board next
generation for
revenue growth
& share growth
Current
Businesses
Defend &
extend the
franchise
Horizon 1
0 to 12
months
Horizon 2
12 to 36 months
Horizon 3
36 to 72 months
Growth
Options
Explorations
into future
high-growth
businesses
Portfolio Dynamics
High Growth
Horizon 3
Horizon 2
Horizon 0
Horizon 1
Material
Not Material
Low Growth
“Horizon 0”
Negative growth
Portfolio Dynamics
The Impact of Performance Management
High Growth
• This leads H1 managers to
hoard spare resources to
ensure they can meet them
Horizon 2
Horizon 0
Horizon 1
Material
Not Material
Low Growth
• Performance management
focuses on meeting material
commitments (Horizon 1)
• That crimps H2 efforts because
they compete with H1 for the
same resource pool
• It also makes H1 managers
reluctant to exit H0 businesses
(because every little bit of
revenue helps)
• Horizon 3 is unaffected by any
of these portfolio dynamics
Horizon 3
The Horizon 2 Gap
• All the other horizons are OK
• H1 gets first dibs at resources
• H3 gets funded outboard of the process
• H0 is snuck in under the covers
• H2 is out in the cold
• H2 competes directly with H1 for resources
• H1, under pressure to meet current obligations, does not release
resources willingly
• H2 cannot compete with H1, particularly when metrics and
compensation focus on material returns in the current year
This is not a failure to invest in R&D innovation
This is primarily a go-to-market problem
Meeting the Horizon 2 Challenge
Best Practices in Four Key Areas
• Planning & Budgeting
•
Organizational Structure
• Metrics
•
Compensation
These practices adapt venture capital ideas
to enterprise realities
Best Practices: Planning & Budgeting
Separate Resource Pools for Each Horizon
• Organize planning and budgeting by horizon
• All funding requests are attached to one horizon only
• Funding requests compete within each horizon
• Funding request do not compete across horizons
• Executive team determines overall resource allocation
• Sets percentages for H1, H2, and H3
• Functions each directed to allocate according to overall plan
• Special attention is paid to all market-facing functions
• Interlock to ensure functional allocations align with corporate priorities
Don’t fund next-generation R&D
if you are not willing to fund the go-to-market surcharge
Best Practices: Organization
Business Unit Structure for Horizon 2
• Line function structure is the default model for enterprises
• Best way to achieve efficiencies at scale
• Best support for professional and career development
• Integrated business unit with dedicated resources key to H2
• BU structure achieves much greater effectiveness
• Faster and more agile to adapt to changing market dynamics
• BU structure is virtual and temporary
•
•
•
•
Team is seconded from the line functions, reports directly to BU GM
Participants are 100% dedicated to BU which covers all their costs
GM reports directly to CEO or EVP for Next-Gen Businesses
Organization dissolves once H2 initiative graduates to H1
Best Practices: Metrics
Different Metrics for Each Horizon
TIMEFRAME
HORIZON 1
(0-12 mos)
HORIZON 2
(12–36 mos)
HORIZON 3
(36-72 mos)
Driving
Goal
Run a
Business
Become a
Material Business
Enter a
Business
Key
Performance
Indicators
Revenue vs plan
Target accts vs plan Name-brand customers
Bookings
Sales velocity
Deal size
Contribution margin
Deal size
Name-brand partners
Market share
Segment share
PR buzz
Wallet share
Time to tipping point
Flagship projects
“Time Ex”
“Cap Ex”
“Op Ex”
Best Practices: Compensation
Everyone is on the Hook
• CEO and his or her direct reports
• Significant variable compensation tied to each Horizon 2
initiative achieving its core metrics
• BU GM
• All variable compensation tied to meeting the BU’s Horizon 2
metrics
• Business Unit participants
• Significant variable compensation tied to the BU meeting its
Horizon 2 metrics
Horizon 2 initiatives are “must win” battles
Be careful how many you undertake
Company Power
Making Asymmetrical Bets
Company Power Diagnostic
•
Which power game are we playing: Complex Systems or Volume
Operations? Which power tier are we on: Tier 1, Tier 2, or Tier 3?
•
•
For that game and that tier, what is our ranking relative to our peers? Do
we want to proactively change our game, our tier, or our ranking?
•
•
Normally you do not change your game, but you do change your tier or ranking
Do we have crown jewels that could power this change in state? Are
there disruptive market forces in play that could enable us (or our
competitors) to gain new power?
•
•
Achieve escape velocity relative to your reference competitors on the same tier with the
same business model
To achieve escape velocity requires exceptional force: it cannot be done incrementally
Are we making a sufficiently asymmetrical bet to distance ourselves from
the competition definitively and sustainably?
•
Most organizations fall short on this criterion. People are too afraid to make an error of
commission and so they fall into making an error of omission
Two Business Architectures
Complex Systems vs. Volume Operations
Effectiveness
Sweet
Spot
Sweet
Spot
Complex
Systems
100
Complexity
101
102
Government
Programs
Volume
Operations
Volume
103
104
105
106
Number of Customers
Enterprise
Small
Business
Figure 3.2
107
108
Consumer
109
Societal
Entitlements
The Models are Polar Opposites
Area of
Focus
Complex Systems
Model
Research
Qualitative Interviews
Quantitative Analytics
Assembled Architectures
Stand-Alone Modules
Exploit scarcity
Exploit abundance
Manufacturing
Adaptive Methodologies
Deterministic Processes
Marketing
Relationship Marketing
Branding & Promotion
Sales
High-Touch Persuasion
Low-Touch Distribution
Consultative Dialogs
Closed-Loop Transactions
Design
Sourcing
Services
Volume Operations
Model
For escape velocity initiatives,
choose one as your competitive frame of reference
The Power of Tiers
•
Three Tiers
• Tier 1: Flagship enterprises
─
Cisco, Microsoft, Singtel
• Tier 2: Known brands with niche followings:
─
Juniper, Mozilla, T-Mobile
• Tier 3: Brand-less companies with low prices
─
•
OEM/ODM supply chain companies
Tier strategy
• Markets support all three tiers for both architectures
• Escape velocity initiatives can focus on winning the #1
position in your current tier or moving up a tier
Achieving Escape Velocity
Asymmetrical Bets Change the Balance of Power
*
*
Competitor 1
*
*
YOU
Competitor 2
*
Competitor 3
Competitive Set
Same tier
Same architecture
Create unmatchable
capability in your core
innovation zone
Over-invest to the point
that competitors cannot
or will not follow
Redefine buying criteria
for the category by
setting a new standard
Innovation Zones
Pathways to Escape Velocity
Product
Leadership
Zone
Customer
Intimacy
Zone
Operational
Excellence
Zone
Disruptive
Innovation
Line Extension
Innovation
Value
Engineering
Application
Innovation
Enhancement
Innovation
Integration
Innovation
Product
Innovation
Marketing
Innovation
Process
Innovation
Platform
Innovation
Experiential
Innovation
Value Migration
Innovation
Product Leadership Innovation Types
Disruptive
Innovation
• Results in a new category. Not backwards compatible. Order
of magnitude improvement.
• Enterprise:
Genetic sequencing (Applied Biosystems)
• Consumer:
Online auctions (eBay)
Application
Innovation
• Also called solution innovation. New markets for existing
products by finding unexploited uses.
• Enterprise:
Fin services for high tech (Silicon Valley Bank)
• Consumer:
GPS range-finders for golf (Sky Caddie)
Product
Innovation
• Existing products in existing markets differentiated through
dramatic increase in price/performance
• Enterprise:
Telepresence (Cisco)
• Consumer:
iPad (Apple)
Platform
Innovation
• Repositioning a ubiquitous product to become an enabler of
entire class of new offerings built on top of that product
• Enterprise:
Relational databases (Oracle)
• Consumer:
Game-enabling computers (Sony)
Customer Intimacy Innovation Types
Line Extension
Innovation
• Creates a subcategory to engage new customers or re-engage
old ones. Underlying infrastructure remains unchanged.
• Enterprise:
Rugged mobile computers (Symbol)
• Consumer:
Children’s Tylenol (Johnson & Johnson)
Enhancement
Innovation
• Innovation in finer and finer elements of detail with less and
less impact on the primary function of the offer
• Enterprise:
High-quality color printing (Xerox)
• Consumer:
Fashion watches (Swatch)
Marketing
Innovation
• Focuses on differentiating the interaction with a prospective
customer during the purchase decision process
• Enterprise:
Pro bono executive briefings (McKinsey)
• Consumer:
American Girl stores (Mattel)
Experiential
Innovation
• Innovation based on differentiating the experience of the
offering (as opposed to its function)
• Enterprise:
• Consumer:
Package status visibility (Federal Express)
First class airline travel (Singapore Airlines)
Operational Excellence Innovation Types
Value
Engineering
Integration
Innovation
• Extracts direct cost from a product or service without
changing its external properties
• Enterprise:
Business Process Outsourcing (Tata)
• Consumer:
Feature phones (Nokia)
• Integrates many disparate elements into a single centrally
managed system, reducing indirect operating expense
• Enterprise:
• Consumer:
Process
Innovation
• Extracts waste from enabling processes by removing nonvalue-adding steps from the work flow
• Enterprise:
• Consumer:
Value Migration
Innovation
Enterprise Resource Planning (SAP)
TV/phone/video/Internet service (Comcast)
Lean Manufacturing Process (Toyota)
Social networking (Facebook)
• Redirects the business model away from a commoditizing
element in the value chain toward one more rich in margins
• Enterprise:
• Consumer:
Software as a Service (Salesforce.com)
From razors to razor blades (Gillette)
Selecting Your Core Innovation Type
•
Good fit with your crown jewels
• Play in the innovation zone you are most qualified for
•
In demand at this point in the category’s life cycle
• Product leadership plays best in secular growth categories
• Customer intimacy and operational excellence are better for
cyclical growth categories
•
Has not been preempted by your competition
• When you attack your competitors’ strengths, it is not likely you
will become unmatchable any time soon
Crown Jewels Checklist
• Technology
• Expertise
• Platform products
• Passionate customer base
• Scale
• Balance sheet
• Brand
• Relationships
• Business model
• Other
Making the Asymmetrical Bet
•
Restrict the competitive set
• One architecture, one tier to escape from
•
Over-invest in the core innovation zone
• To the point where competitors cannot or will not follow
• Leverage a mega-trend
• To fill your sails with wind
•
Leverage one or more crown jewels
• To win and to retain dominant power
Disruptive Mega-Trends
• Globalization
• Changing demographics
• Digital technology
• Disruptive business models
• Regulatory interventions
• Emerging market opportunities
• Global warming
• Terrorism
• Other
The Standard to Meet
•
Customer base adopts enthusiastically
• Never-before-seen price/performance
•
Ecosystem rallies to support
• Everyone wants to get onto the new bandwagon
•
Reference competitor is left behind
• Cannot or will not compete on these terms
•
Investors revalue the franchise
• Moves the P in the P/E ratio
Executive Leadership Style Required
We Must Look to Leaders instead of Managers
Leaders
•
•
•
•
•
•
Asymmetrically allocate their
time and attention
Change the game to their
advantage
Expect mistakes and correct
them quickly
Get out in front of their peers
Test their relationships
Are visionaries
Managers
•
•
•
•
•
•
Equitably allocate their time
and attention
Play the hand that they are
dealt
Take extra time to avoid
mistakes
Stay in step with their peers
Preserve their relationships
Are pragmatists
Look to managers drive on the straight stretches
Look to leaders to take you through the turns
If We Fail, Why We Fail
•
Performance bias
• Compensated for performance only, no accountability for power
• Always safer to play the hand you are dealt
• Leads to privileging managers over leaders
•
Internally focused and driven
• All about making our numbers
• Lose sight of our mission to be in service to the world
• Not adapting to mega-trends
Market Power
Guaranteeing Early Wins for
Asymmetrical Bets
Market Power Diagnostic
•
Is targeting a market niche a priority for our current strategy to succeed?
•
•
Is the market segment we have targeted big enough to matter, yet small
enough to win decisively?
•
•
Normally a sign either your target market or whole product is not sufficiently focused
Are we capturing a price premium commensurate with the unique value
proposition we provide?
•
•
Your whole product must blow away the competing alternatives
Are we winning market power fast enough?
•
•
Pay attention to your fish-to-pond ratio
Are our market-specific commitments sufficiently focused and intense to
assure we will win market power?
•
•
Are we looking to start a fire?
Same problem as above. Discounting means you have not cleared the bar
Do we have a clear line of sight to expansion growth opportunities in
adjacent market segments?
•
Market segments must also be pathways to future growth
Understanding Market Segments
Think of the Dynamics of Presidential Elections!
The Logic of Market Power
• Markets are self-referencing communities
• People buy what their peers buy
• People are loyal to what their segment is loyal to
•
Clear winners are a must
• In the absence of a clear winner, people hesitate
• If the situation persists, the market fragments with no winner
•
Winning is contagious
• People in adjacent segments are influenced
• Partners want to get on the winning bandwagon
9-Point Market Strategy Framework
Capturing the Target Market
Key sponsor
1. Target Customer
2. Compelling Reason to Buy Core problem
Complete solution
3. Whole Product
4. Partners and Allies
Function of whole
product complexity
5. Sales Channel
6. Pricing
Legitimate alternatives
Value based
7. Competition
8. Positioning
Next growth segment
Needed for whole
product
9. Next Target
Differentiation
Target Market Initiatives
•
What are TMIs?
• Massive attacks on highly focused targets
• A separate playbook based on Crossing the Chasm and
Inside the Tornado
• Taught by the Chasm Institute, facilitated by CI, The Chasm
Group, and TCG Advisors
• Not covered in this material
•
Why invest in a TMI?
• Ensures early wins
• Dramatically accelerates initial adoption
• Jump-starts broader adoption from a position of power
Eight Great Reasons for a TMI
• Gaining market adoption for a disruptive technology
• Penetrating a new geography
• Getting out from behind the market leader
• Anchoring a turnaround
• Solving for the “stuck in neutral” problem
• Capitalizing on a great niche opportunity
• Exploiting the “granularity of growth”
• Capitalizing on a market in transition
Additional Frameworks
Target Market Initiatives are the core curriculum of The Chasm Institute
(www.chasminstitute.com)
There are currently over 300 slides in library illustrating frameworks that
pertain to this topic.
Please contact them for further information.
Offer Power
Allocating Resources Asymmetrically
Offer Power Diagnostic
•
Is this offer a proven hit, a potential hit (escape velocity candidate), or
more of a product-line filler?
•
•
For proven hits, have we neutralized our reference competitors’
innovations sufficiently to keep them in our competitive set?
•
•
This is all about being beyond compare
For product line fillers, have we optimized these to the maximum for gains
in resource utilization and cost reduction?
•
•
This is all about getting to “good enough” fast enough
For escape velocity initiatives, is this offer sufficiently differentiated to gain
escape velocity from its competitive set? What can we do to amplify its
differentiation further?
•
•
This establishes the basis for the type of innovation investment (see following)
This is all about spending the minimum to fill a space in a product line
Where are we wasting resources chasing a competitor’s tail, going
beyond good enough but falling short of beyond compare?
•
This is where established enterprises waste the preponderance of their innovation
Offer Power
Getting a Return from Innovation
Differentiation
Neutralization
Productivity
Offer Power for Escape Velocity
Three Mandates to Execute in Parallel
Differentiate
Separate from your competitive set
Neutralize
Catch up to your competition
Optimize
Reduce the drag of legacy
Differentiate
Separate From Your Competitive Set
*
Competitor 1
*
Competitor 2
*
*
YOU
*
Competitor 3
Competitive Set
Differentiate
Leverage your
unmatchable capabilities
to create an
unmatchable offer
Failure to separate means
more of the same
battling day to day on
price and execution
Cases Examples & Cautionary Tales
Innovating to Differentiate
Case Examples
Cautionary Tales
• Google
• AskJeeves
• Sun Workstation
• IBM PS2
• Amazon Kindle
• Sony Reader
• Apple iPhone
• Palm Treo
• Cisco Telepresence
• HP Halo
Separate yourself from the pack
Sustain the gap
Leverage Crown Jewels for a 10X Effect
• Salesforce.com
• SaaS for a 10X reduction in installation and operating costs
• Skype
• Peer-to-peer IP telephony for a 10X reduction in long distance charges
• Wikipedia
• Open source collaboration for a 10X increase in speed and a 100X
reduction in cost for encyclopedia development and maintenance
• VMWare
• Cross-platform virtualization technology for a 10X reduction in IT capital
equipment purchase and maintenance
•
Akamai
• Internet overlay network for a 10X improvement in content delivery
latency reduction
Neutralize
Catch Up to Your Competition
*
Competitor 1
*
Competitor 2
*
*
YOU
*
* 3
Competitor
Competitive Set
Neutralize
Neutralize a competitor’s
differentiating innovation
by reaching “good
enough” quickly
Refocus the market
back on your
differentiation
Failure to neutralize
quickly can result in
market leaving you
behind
Cases Examples & Cautionary Tales
Innovating to Neutralize
Case Examples
Cautionary Tales
• Microsoft & the Mac
• Nokia & the iPhone
• Microsoft & the Web
• Lotus Notes & the Web
• Netflix & the Web
• Blockbuster & Netflix
• Google Apps & MSFT Office
• Yahoo & Google Search
• Apple & Kindle
• Borders & Kindle
Catch up fast
Assimilate the innovation
Price/Benefit Sensitivity
HI
Operational
COST
PERFORMANCE
Excellence
LO
Customer
CONVENIENCE
Intimacy
Product
Leadership
Price Sensitivity
Focus Neutralization Where it Matters Most
PREMIUM
LO
HI
Benefit Sensitivity
Optimize
Optimize
Cut Yourself Free from the Long Tail
Pct Value Delivered
25
20
15
10
5
0
A
B
C
D
E
F
G
H
I
J
K
M
N
O
P
Q
R
S
T
U
V
W
X
Attack the bottom 10% of your workload:
1. Centralize this population under a single manager
2. Freeze maintenance
3. Install a “no surprises” end of life program
Y
Z
Freeing Resources Trapped in Context
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.
Optimize
Optimize
Tighten Up Your Flabby Middle
Pct Value Delivered
25
20
15
10
5
0
A
B
C
D
E
F
G
H
I
J
K
M
N
O
P
Q
R
S
T
U
V
W
Engage the “flabby middle” of your workload:
1. Target the big pockets of resource waste
2. Isolate them through API-like process firewalls
3. Reengineer to streamline
4. Reintegrate
X
Y
Z
Freeing Resources Trapped in Context
The Six Levers Model
Core
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
Context
Optimize
Optimize
Redraw the Core/Context Boundary
Pct Value Delivered
25
20
15
10
5
0
A
B
C
D
E
F
G
H
I
J
K
M
N
O
P
Q
R
S
T
U
V
W
X
Recharter. Rearchitect. Reallocate.
1. Redefine the boundaries
2. Transfer the investment responsibilities
3. Focus on risk management & agile responsiveness
Y
Z
Freeing Resources Trapped in Context
The Six Levers Model
Core
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.
Context
Three Innovation “Playbooks”
Optimize
Differentiate
Neutralize
Core Value
Separation
Time
Cost
Focal Point
Unmatchable
Good enough
Systemic
How far?
How fast?
How deep?
Challenge
Mixing Modes of Innovation Creates Waste
One Playbook per Project!
Return on Innovation
Differentiation
Failed
Attempts
Neutralization
Optimization
Waste
Sources of Waste:
• Differentiation projects that don’t achieve unmatchable results
• Neutralization projects that try to differentiate at the same time
• Optimization projects that don’t attack the critical costs
The Good News About Waste
• Waste is money that is in your budget today
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If you stop wasting it, there is no downside
• If you spend it on better things, there is upside
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What are you waiting for?
Execution Power
Getting to the Tipping Point
Execution Power Diagnostic
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Are we clear about the state of each of our lines of business and the
corresponding execution mode that should be emphasized?
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Do we have the right kinds of leaders in charge, given the execution
discipline that is required?
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Again, organizations tend to leave the same people in place for the life of a line of
business, which is often not good either for the business or the people.
Have we highlighted the lines of business that are in transition, either from
invention to deployment (the escape velocity transition) or from
deployment to optimization (the maturation transition)?
•
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Organizations tend to emphasize what they are best at, not necessarily what is required.
To a man with a hammer, everything looks like a nail.
These are the times of greatest risk to lose power, and it is critical that everyone pay close
attention until the transitions are complete.
With respect to the transition programs, do we have clear milestones and
metrics and visibility to ensure we know when they have reached their
tipping points?
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The answer here is almost certainly “not today,” as this is a novel idea. But it is essential
to install these disciplines if your enterprise is to achieve its highest ambitions.
The Arc of Execution
Complex Systems Enterprises
Playbooks
Deploy
Projects
Products
Invent
Optimize
From Projects to Playbooks
Scaling the Complex Systems Model
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Communication
• From rolodex relationships to referrals into target market
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Distribution
• From founder led to target market expert driven
• Adoption
• From technological possibilities to target use cases
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Whole Product
• From customer bespoke to partner friendly
• Monetization
• Solution-based, calibrated by amount of cost and risk relief
The Arc of Execution
Volume Operations Enterprises
Partners
Deploy
Products
Processes
Invent
Optimize
From Products to Partners
Scaling the Volume Operations Model
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Communication
• Pushed , personalized, and pulled
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Distribution
• Physical or virtual as convenient for consumer
• Adoption
• Viral word-of-mouth referencing
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Whole Product
• Self-organizing ecosystem pursuing its own gains
• Monetization
• Frictionless, far-reaching, and fair
Catalyzing Escape Velocity
The “Tipping Point” Role of Programs
Transition
for Scale

Tipping
Point
Invent
Deploy
Transition
For Yield

Tipping
Point
Optimize
Catalytic Programs
• Mini-TALCs
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Early adopters
Chasms
Beachheads and bowling alleys
Tornadoes
Main Streets
Different from business as usual
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Not best efforts
Not pay as you go
Not what you see is what you get
Committed to create persistent change in state
Measured and evaluated against that commitment
Four Modes of Execution
Invention
Deployment
Optimization
Transitions
Type of Leader
Visionary
Inventor
Pragmatic
Deployer
Conservative
Optimizer
Pragmatic
Orchestrator
Core Competence
Creativity
Competitiveness
Control
Collaboration
Core Attribute
Original
Tough-minded
Prepared
Empathetic
Decision Style
Intuition
Test-&-Adjust
Deliberation
Consensus
Organizational
Preference
Integrated
Teams
Line
Functions
Hierarchical
Organizations
Cross-Functional
Teams
Execution Mode
Staffing Leadership Roles
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Let category growth be the guide
• Adjust management dynamics to market dynamics
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Transition the offerings through the modes
• Follow the arc of execution
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Maintain the modes
• Most people excel at one mode—play to their strengths
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Adjust the mechanisms to the mode
• Organization, compensation, metrics
Transformation Initiatives
Playbook Headlines for Transforming
Vision, Strategy, & Execution
Transformation Zones
Category Power
Vision
Company Power
Market Power
Strategy
Offer Power
Execution
Execution Power
Transforming Vision
Playbook Headlines
• Category Power Review
• Category Maturity Landscape Overview
• Growth/Materiality Matrix Assessment
• Three Horizons Opportunity Scan
• Company Power Review
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Crown Jewels
Vector of Sustainable Differentiation
Relevant Mega-trends
Reference Competitor
• Market Power Review
• Market Segmentation
• Target Market Segments
Transforming Strategy
Playbook Headlines
• Company Power Review
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Crown Jewels
Vector of Sustainable Differentiation
Relevant Mega-trends
Reference Competitor
• Market Power Review
• Market Segmentation
• Target Market Segments
• Offer Power Review
• Differentiation Priorities
• Neutralization Priorities
• Productivity Optimization Priorities
Transforming Execution
Playbook Headlines
• Market Power Review
• Market Segmentation
• Target Market Segments
• Offer Power Review
• Differentiation Priorities
• Neutralization Priorities
• Productivity Optimization Priorities
•
Execution Power Review
• Arc of Execution Status Check
• Transition Program Assessment
• Leadership Staffing Review