Geoffrey A. Moore is the author of five best-selling, highly influential business books: Crossing the Chasm, Inside the Tornado, The Gorilla Game (with co-authors Tom Kippola and Paul Johnson), Living on the Fault Line, and most recently Dealing with Darwin, each of which deals with a set of management or investor challenges posed by fast-changing, technology-enabled markets. He had made the understanding and effective exploitation of disruptive technologies the core of his life’s work. He has also is a frequent contributor to business periodicals and a speaker at industry conferences. Moore is a managing director with TCG Advisors, a consulting firm specializing in strategy and business transformation services, and is a venture partner with Mohr Davidow Ventures.
Note: I conducted this review a few years ago.
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Morris: So much has happened in high technology markets since Crossing the Chasm was first published (1991) and even since Living on the Fault Line was first published only three years ago. What has surprised you the most over that period of time?
Moore: The diminishing role of disruptive innovation and the increasing role of a host of types of sustaining innovation. For the past two decades, every time Moore’s Law would create a 10-to-100X improvement in price performance, a new infrastructure would emerge, displacing the prior infrastructure, first in the enterprise, then trickling down to the home. Today there is simply too much legacy to displace in the enterprise. As a result, established enterprise technology vendors are more deeply entrenched than in past eras, and disruptive companies are emerging in the consumer services space instead. This is leading to “trickle up” diffusion of innovation in the enterprise, but it is being experienced as evolution, not revolution, and we are not seeing the displacement of the established gorillas
Morris: For those who have not as yet read Chasm, what is the “Technology Adoption Life Cycle”?
Moore: When disruptive innovations are introduced into any community, the members of that community self-segregate to select one of five different adoption strategies that unfold in a characteristic sequence. First come the innovators of technology enthusiasts, then the early adopters or visionaries. Both these groups embrace the innovation ahead of the herd, one because they are interested in technology per se, the other for competitive advantage. The third group, the early majority or pragmatists, adopt when they see others adopting — they stick with the herd, and as such they create a “block voting” effect that causes the market either to stall (when they vote no) or to take off like a rocket (when they vote yes). The late adopters or conservatives cling to the older paradigm as long as they can but eventually convert to whatever the pragmatists chose. The laggards or skeptics try never to adopt. Overall this pattern has shaped the adoption of a host of technologies in societies around the world.
Morris: What have proven to be the most effective strategies “to open up the marketing decision making during this [crossing] period so that everyone on the management team can participate in the marketing process”?
Moore: This quote comes from Crossing the Chasm where the focus is on transitioning from the visionaries to the pragmatists. It requires a complete change in marketing strategy, and one of the keys to making that change is to get the entire company aligned. The function of my books is to create descriptions of the market dynamics involved that resonate not just with marketers but with engineers and operations people as well. If all these functions, which tend to see things from different perspectives, can agree upon a common model for understanding the challenge they are facing, then they can act in unison to overcome it.
Morris: Now let’s shift our attention to Inside the Tornado, another book I hold in high regard. Please explain your choice of the central metaphor, the tornado.
Moore: The tornado refers to the market impact of the pragmatists deciding en masse to adopt a new technology. Recall, they make this decision in reference to each other, something like teenagers at a high school dance deciding when it is time to get out on the dance floor. When the pragmatists do go, they go en masse, creating a huge spike in demand, sucking every product in the category off the shelf. That is where the tornado metaphor came from.
Morris: Also in Tornado, you suggest a number of strategies “for developing, leveraging, and surviving hypergrowth markets.” Which new hypergrowth markets do you see emerging?
Moore: Today we see most of the hypergrowth in communications infrastructure, as networks everywhere convert to Internet Protocol, and as wireless displaces wireline for many applications, and we see it on the Web, where digitized media is displacing analog media in video, songs, and news. By contrast, inside large enterprises, pragmatists are still digesting the last generation of technology investments, and outside of solutions to radically increased security needs, there are no tornados under way.
Morris: Given your response to the previous question, will the same strategies continue to be effective?
Moore: Yes, the principles for navigating a hypergrowth market remain in tact. The overriding objective is to capture as much market share as possible during the category’s Big Bang and then to consolidate that position once category growth levels off. To focus on anything else is to miss the wave.
Morris: In the revised edition of Living on the Fault Line, you seem to place much greater emphasis on core versus context when allocating resources to improve shareholder value. Why?
Moore: Core versus context is a distinction that has become increasingly important in our consulting work and has an even more prominent role in the latest book, Dealing with Darwin. The distinction is simple: something is core when it contributes to your competitive differentiation, your claim to fame, the reason that customers pick your offer and not your competitor’s. The more resources you can pour into core, the more differentiated your offer is, the more likely you win the sale, the more likely you earn an attractive price margin. Context, by contrast, is everything you do that your competitors do as well — it is critical to the success of your company, your customers demand it, or the government does, but it does not differentiate you.
Context is expensive because you cannot get a premium return for resources invested in it. The challenge of mature markets is that more and more of the total offer is context, not core. Moreover, often what used to be core has now become context, but resources are still being allocated as if it were core. This leads to companies having less and less impact in the marketplace, meaning their offers become more and more commoditized, leading to less attractive margins, leading to disaffected investors. Extracting resources from context to repurpose for core becomes the imperative, and that is the focus of Dealing with Darwin.
Morris: A related question. When you survey the dynamics of the high-tech markets today, do you believe that the emphasis on core should be even greater, about the same, or less than you suggested in 2002 when Fault Line was first published?
Moore: More and more. As competition becomes more global, the impact of commoditization increases, and it hits the higher-wage developed economies the hardest. If companies in these economies do not find compelling ways to differentiate their offers, they will not produce the earnings necessary to sustain the standard of living their workers are accustomed to. This is already painfully evident in Western Europe, and is showing up more and more in the U.S. The only way to counter this trend is to invest more resources in next-generation core.
Morris: The last four questions concern Dealing with Darwin. You seem to have a much more diversified readership in mind than you did when writing the previous books. Is that correct?
Moore: Yes, whereas the first four books were targeted primarily toward technology sector executives, this last book takes in a much broader sweep. The reasons for this are twofold. First, many other sectors of the economy have embraced technology so deeply, they are beginning to behave more and more like tech. This includes financial services, pharmaceuticals, retail, media, advertising, supply chain, and logistics. Second, because of the sheer mass it has accumulated over the past several decades, the technology sector is beginning to resemble more mature sectors of the economy. We are at a juncture, in other words, where each side of this equation has much to learn from the other.
Morris: In the first chapter, you suggest that each breakaway company “is totally aligned end to end around a single defining value proposition.” Why do most companies fail in their efforts to establish and then sustain that alignment?
Moore: Companies are managed as alliances of top executives, each with major spheres of responsibility. These executives all have strong ideas about where the company should focus, and often they pursue them without the alignment of their fellows. This leads to powerful initiatives being launched in different directions. As these play out, however, the contradictions among them begin to neutralize or blunt their effects, so the company does not garner the market success it needs and wants. Rather than leading the executive team to unite, however, this usually leads to them redoubling their efforts on their pet initiative, with a lot of finger-pointing and second-guessing going on in the background. To succeed the CEO must put a stop to this and lead the team to unite around a single vector of innovation.
Morris: In Leading Change, Jim O’Toole has much of value to say about what he characterizes as “the ideology of comfort and the tyranny of custom.” I agree with him that they are among the most formidable barriers to innovation initiatives. That said, please share your thoughts about how to manage inertia.
Moore: Inertia, comfort, and custom all reflect a company aligned around its proud past. As long as the innovation vector that produced its past success still has legs, this inertia is actually an asset. It helps the company execute more and more efficiently on what has been a winning strategy all along. When, however, the environment changes, when competitors have caught up to the old innovations, when they no longer yield the differentiation they once did, now the company must mutate its strategy. That is how you deal with Darwin. But mutations are risky, and the forces of inertia are strong, so most organizations stumble at this point.
The real question is, what do they do next? If they respond constructively to failure, if they diagnose the problem, reset their compass, and commit to change, very good things can happen. But for many it is easier to retreat, as Gary Hamel has pointed out, into DAN—denial, arrogance, and nostalgia. This initiates a downward spiral that becomes increasingly difficult to pull out of. The best chance then is right at the end, where sometimes a near-death experience creates the occasion and the will to change, typically under a new leader.
Morris: Final question. Darwin suggests that a process of natural selection determines which survive. Looking ahead, what do you think will determine which organizations survive?
Moore: I am a big believer in free will. I think management teams get confused because they do not fully appreciate the forces that are acting them, and that they need mental models that highlight those forces and the alternatives they have for dealing with them. That’s the focus on my work, along with that of many other business thinkers and writers. Given proper models, I believe executive teams can align in ways that will meet the challenges of economic natural selection.