Geoffrey Moore on Zone Management: An interview by Bob Morris

MooreGeoffrey Moore is an author, speaker, and advisor who splits his consulting time between start-up companies in the Mohr Davidow portfolio and established high-tech enterprises, including most recently Salesforce, Microsoft, Intel, Box, Equinix, Aruba, and Cadence. His life’s work has focused on the market dynamics surrounding disruptive innovations. His first book, Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers, focuses on the challenges start-up companies face transitioning from early adopting to mainstream customers. It has sold more than a million copies, and its third edition has been revised so that its examples and case studies reference companies that come to prominence from the past decade. In Escape Velocity: Free Your Company’s Future from the Pull of the Past, he addresses the challenge large enterprises face when they seek to add a new line of business to their established portfolio. It has been the basis of much of his recent consulting. His latest book, Zone to Win: Organizing to Compete in an Age of Disruption, was published by Diversion Books (November 2015).

Geoff has a BA in American literature from Stanford University and a PhD in English literature from the University of Washington.

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Morris: Before discussing Zone to Win, a few general questions about developments since our last conversation. First, of all that has – and hasn’t — in the global marketplace in recent years, which development do you consider most significant? Why?

Moore: The increasing presence of cloud computing and mobile smart phones is driving the digitization of everything across both consumer and enterprise domains. It is hard to imagine any area of human activity which is not being reengineered under this influence, either at present or in the very near future.

Morris: Briefly, please explain the process by which the Age of Disruption developed.

Moore: The Age of Disruption is unfolding even as we speak. Cloud and mobile initiated the current wave of change, and they are being amplified by social networks, data science, and the coming Internet of Things. All five of these trends are converging to drive the digitization of everything mentioned above.

Morris: What are its defining characteristics?

Moore: A technology becomes truly disruptive when it drives the marginal cost of something that used to be scarce and expensive to approach zero. Thus, it used to be to deploy software at scale, you had to fund a data center, buy a set of servers, storage, and networking gear, build an in-house IT management capability, and buy an expensive stack of enabling software before you could even get started. Now you can get all that from Amazon or Microsoft on a pay-as-you-grow model.

Compared to the recent past, this makes deploying software virtually free. Smart mobile phones connect you with 1 billion users worldwide, basically for free—you don’t pay for the phone, you don’t pay for the Internet, you don’t pay for the wireless connectivity. Social networks let you add a new customer or a new agent, again for free.

Data science lets you apply algorithms in real time to optimize computerized responses—again, virtually for free. The Internet of Things enables dynamic system optimization, not to mention environmental data collection, on the same basis. None of these are literally free, of course, but by comparison they might as well be. So, if computing is free, if accessing each and every constituent in your business network is free, wouldn’t you reengineer the processes that are currently in place? If Uber can add a new car and a new driver to its network for free, if Airbnb can do the same for a new property and new property manager for free, wouldn’t that pose a challenge for their conventional competition?

Morris: What are the most common misconceptions about disruptive innovation?

Moore: The most common misunderstanding of disruptive innovations is to overestimate their impact in the short term and underestimate it in the long term. Another common misunderstanding is to associate disruptive with good. Joseph Schumpeter’s phrase “creative destruction” deserves equal emphasis on both words. The third most common misunderstanding is to miss the point about driving the marginal cost of a previously scarce and expensive good to near zero—that is the economic force that drives the disruption at the end of the day.

Morris: What are the major benefits and limitations of sustaining innovation?

Moore: Sustaining innovation is the lifeblood of any enterprise. It is the time when we capitalize upon, and recover from, all the disruptive change prior. Most of the operating profits in the world come from sustaining innovation. Much of the market capitalization gains, on the other hand, come from disruptive innovations. Another way to make this point is that sustaining innovations are the key to consistent performance, whereas disruptive innovations are the key to dramatic changes in power.

Morris: In your opinion, what is the single greatest business opportunity that is now emerging in the global marketplace?

Moore: The ability to analyze digital log data to trace digital actions and from those traces to develop algorithms that can predict future outcomes with greater accuracy. This is the domain of machine learning fed by Big Data. Everywhere it has shown up to date it has caught the competition flat-footed and sent them packing.

Morris: What are the most important dos and don’ts that business leaders should keep when pursuing this opportunity?

Moore: Don’t think you have to be the disrupter to win. A fast-following disruptee will do very well if you can bring your existing customers and ecosystem along with you. Try to learn as fast as you can from the wizards and then steal what you can appropriate from them and use it to modernize your existing business model (without disrupting it). For example, in San Francisco the cab companies are embracing a mobile app called Flywheel that lets passengers hail a cab, see it en route, and pay by phone—all key elements of the Uber success formula. But the cab companies still buy their own cars and employ their own drivers, so they are not Uber, and they are not disrupting their prior business model. What they are doing instead is stealing a page from Uber’s playbook to modernize their operating model. That is the key to staying relevant.

Morris: In your opinion, why are so many senior-level executives still committed to what Jim O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom”?

Moore: Well, it is hardly just senior-level executives—the human race as a whole has a tendency to seek comfort and rely on custom, and it hasn’t done too badly doing so. The danger is to cling to comfort and custom at a time when events demand breaking away from both. But it is also foolish to jump at every startling moment. Darwin selects primarily for prudent fast-following.

Morris: What is your opinion of the counsel that advises business leaders, “Don’t put all your eggs in one basket”?

Moore: When you are incubating new ideas, this is very good advice. But when you are seeking to transform your enterprise’s portfolio by scaling a fledgling business to material size—say ten percent of total enterprise revenue—then it is imperative that you make that the singular focus of everyone in the enterprise for the two to three year period it is likely to require to reach its tipping point. Expecting to do two such scaling efforts in parallel is simply folly, yet that is what the “eggs/basket” idea is often used to justify.

Morris: Now please shift your attention to Zone to Win. When and why did you decide to write it?

Moore: I had written a book called Escape Velocity: Free Your Company’s Future from the Pull of the Past, and Marc Benioff, CEO of Salesforce, asked me to assess his company in the context of those ideas. The Zone to Win frameworks grew out of that assessment and the team’s subsequent responses to it. They then got additional workouts with the executive team at Microsoft as well as those at Cadence, McAfee, AVG, Equinix, and VMware. Along the line it became clear there was a common playbook that needed to be captured. Zone to Win is that playbook.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Moore: The number one revelation was that the gating item to breakout growth is the Go-to-Market capability, not R&D innovation. The corollary was that any given GTM system can just barely accommodate one transformational initiative at any one time, and that no system can accommodate two in parallel. A third realization was that the majority of failed attempts to catch the next wave are directly traceable to the failure to prioritize one and only one initiative and to make scaling that business the number one priority for every executive in the company. Successes, of which there are far too few, are all based on doing just that.

Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Moore: I actually previewed every chapter on my LinkedIn Influencer blog, and based on feedback I got from that, I realized that there were actually two different uses for the Four Zones model—what we ended up calling Zone Offense and Zone Defense. Prior to that the book was going to be called Zone Offense, which mapped very well to what Marc and his team were doing at Salesforce, but missed the mark when it came to representing what Satya Nardella and his team were doing at Microsoft. One was being the visionary disruptor, the other the pragmatic disruptee. Both are performing exceptionally well under very stressful circumstances, both are leveraging the Four Zones model to do so, but the tactics are quite different.

Morris: By what process fid you formulate your concept of zone management?

Moore: If you ask why start-ups outperform established enterprises when it comes to catching the next wave, the answer is that they are not conflicted. Everyone is rowing in the same direction. That is never the case in a company that has a portfolio of businesses at different stages in their maturity. So the key to winning there has to be to “zone out” the conflicts—sort of like sending quarrelling children each to their own room. It turned out you needed four rooms—hence the Four Zones.

Morris: What is the single most dangerous peril to avoid when managing each of the four zones you discuss? First, the Performance Zone

Moore: The Performance Zone is where you “make the number.” It is populated by the people who make what you sell and sell what you make. Sellers are measured primarily by bookings, makers by revenues, with additional metrics as needed. The two come together in a performance matrixin which each cell is the joint responsibility of two individuals—one from product or services, the other from sales. The great peril here is to have an unwieldy matrix. One way this can happen is to have a matrix with too many rows or columns—so it is important to aggregate offers and channels so that every row and column represents at least ten percent of the total business. Another risk is to fail to identify a single accountable executive for each row and each column. A third way is to fail to secure “cell-level interlock,” meaning to secure for every cell the joint commitment of the relevant column owner and row owner to deliver the number in that cell.

Morris: Next, the Productivity Zone

Moore: The Productivity Zone is where all cost-center functions reside—anyone who is not directly accountable for a number goes here. The single biggest mistake in the Productivity Zone is to make it superior to rather than subordinate to the Performance Zone. This is what happens in aging companies that have lost their way—Finance, HR, and Legal rule the roost and the Performance Zone is managed to operating ratios. The second big mistake is to misunderstand the difference between systems and programs, thereby blending the two to the disservice of both. Systems are corporate funded mechanisms for increasing efficiency; programs are user funded mechanisms for increasing effectiveness. Programs should generally be charged back to users, systems should never be. Allocating corporate overhead to the operating units is simply a mistake.

Morris: Then, the Incubation Zone

Moore: The Incubation Zone is where all disruptive innovations get their initial development and exploration. It is completely outboard of both the Performance and the Productivity Zones, run more like a venture portfolio of start-ups with its own governance board and funding mechanisms. The single biggest mistake here is to create resource dependencies on either of the prior two zones. The second is to let incubation efforts languish instead of forcing exits.

Morris: Finally, the Transformation Zone

Moore: The Transformation Zone is where a disruptor takes an Incubation Zone business to scale it to material size (>10% of total enterprise revenue) and a disruptee takes a damaged business from the Performance Zone to resuscitate it. In both cases the CEO must intervene to overcome the gravitational pull and inertial momentum of the other three zones until a tipping point has been reached. The single biggest mistake here is to think an enterprise can undertake two transformational initiatives in parallel. The second biggest mistake is for the CEO to delegate responsibility for a transformational initiative.

Morris: When is it imperative to play zone defense?

Moore: That would be when a franchise business in your portfolio has suffered a direct hit from a disruptive innovation, one that cannot be repaired without significant relief from the metrics and operating ratios that govern the Performance Zone. To fix the business, to bring it back to health, you must assimilate enough of the disruptive innovation to modernize the operating model without jettisoning your business model. This typically requires new leaders and definitely requires new (if temporary) rules. The CEO is the only person who can dictate the correct terms in a timely manner and maintain the enterprise’s commitment to those terms for the duration of the rehabilitation effort.

Morris: When is it imperative to play zone offense?

Moore: The only way an established enterprise can dramatically increase its stock price is by adding a net new high-growth earnings engine to its existing portfolio. This is typically done by incubating a disruptive technology, getting it to a scale of perhaps 1 to 2 percent of total revenue while still in the Incubation Zone, then anointing it as a transformational initiative, doing one or more acquisitions to help it achieve material scale as fast as possible, clearly away every obstacle that crops up, and enlisting every member of the team to actively support the effort. When you succeed you can expect many hundreds of percent increases in market cap, a la Apple Amazon, and Salesforce. No amount of good management can hope to remotely approach this kind of return.

Morris: What seem to be the most common mistakes that business leaders make when basing decisions on the traditional management playbook?

Moore: The first is believing that transformational initiatives can be accomplished through normal channels and means. This cannot be done because there are too many conflicting interests that are competing to impede. The second is mistaking incubation for transformation and concluding that failure to achieve escape velocity is due to lack of innovation. It never is. It is always do to lack of leadership focus and, especially, fortitude.

Morris: To what extent does zone management pose unique leadership challenges? Please explain.

Moore: Other than in the Transformation Zone, zone management does not pose any unique challenges, and in the absence of a compelling disruption, enterprises should simply run their businesses via the other three zones. This is when good management wins the day. But once disruption must be directly embraced, whether as disruptor or disruptee, then transformation is mandatory, and that requires the CEO to suspend a set of normally cherished management principles for the duration of the effort. That poses all kinds of problems, but there is no help for it.

Morris: You cite two companies from which you learned valuable business lessons. What specifically did you learn from your association with Salesforce?

Moore: Salesforce is a disruptor, and the work we did together helped hone what we call zone offense.

Morris: From your association with Microsoft?

Moore: Microsoft is a disruptee, and the work we did together helped hone what we call zone defense.

Morris: For those who have not as yet read your brilliant book, you recommend a five-step process by which to install zone management. Which of these steps seems to be the most difficult to complete? Why?

Moore: The single hardest step to install is the one that secures enterprise-wide commitment to making the success of the transformational initiative the number one priority for every executive and every organization in the company. This is so far from normal operating procedure that many teams simply cannot get there. But if you don’t do this, transformations lose steam before they reach their tipping point, and they simply do not succeed. The cost is hard to overstate, for not only have you spent most of discretionary resource with nothing to show for it, you have exposed your weakness to everyone in the marketplace, and lost a tempo to the next generation of competitors to boot.

Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in Zone to Win, which do you think will be of greatest value to leaders in small companies? Please explain.

Moore: Zone to Win applies to any company that is “doing open heart surgery” on its Performance Zone, whether that is to add a net new business to the portfolio or to repair an existing business that has suffered a devastating disruption. It does not apply to start-ups or small enterprises that are in one business only. For these companies Crossing the Chasm and Inside the Tornado are the relevant texts.

Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Moore: Hey, I’m just glad I got through our list! Thanks for all the time and effort you have put into this.

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Geoff cordially invites you to check out the resources at these websites:

Zone to Win website link

Geoff’s LinkedIn link

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