Dealing with Darwin

Dealing with Darwin


Focusing Innovation and Overcoming Inertia
in Established Enterprises

Geoffrey Moore

Managing Director

2

Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

The Set Up

•
Global competition is driving to survival
-
of
-
the
-
fittest outcomes

•
Established enterprises must innovate to continue to succeed

•
Many innovations fail, unable to overcome corporate inertia

•
High failure rates normally signal poor mental
models

•
We are not thinking about innovation
precisely

enough

•
We are not thinking about inertia
ecologically

enough

•
Dealing with Darwin

•
Seeks to provide a better vocabulary

•
Proposes a set of better practices

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Focusing Innovation



Innovation Types and

The Category Maturity Life Cycle

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Time

Revenue Growth

Technology Adoption

Life Cycle

Early

Main Street

Mature

Main Street

Declining

Main Street

Indefinitely elastic

middle period

End of

Life

A

Fault

Line!

E

D

C

B

Innovation’s Landscape

The Market Maturity Life Cycle

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Enhancement

Innovation

Process

Innovation

Experiential

Innovation

Integration

Innovation

Marketing

Innovation

Broad Universe of Innovation Types

Business Model

Innovation

Line Extension

Innovation

Value Engineering

Innovation

Harvest

& Exit

Renewal Innovation

Organic

Renewal

Structural

Renewal

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Four Innovation Zones

Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Enhancement

Innovation

Integration

Innovation

Experiential

Innovation

Process

Innovation

Marketing

Innovation

Business Model

Innovation

Line Extension

Innovation

Value Engineering

Innovation

Harvest

& Exit

Renewal Innovation

Product

Leadership

Zone

Operational

Excellence

Zone

Customer

Intimacy

Zone

Value

Renewal

Zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Disruptive

Innovation

Application

Innovation

Product

Innovation

Platform

Innovation

Innovation Types for Growth Markets

The Product Leadership Zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Governing Model

Technology Adoption Life Cycle


Pragmatists create the dynamics of high
-
tech market development

Innovators

Early

Adopters

Early Majority

Late Majority

Laggards



Techies:

Try it!

Pragmatists:

Stick with the herd!

Conservatives:

Hold on!

Skeptics:

No way!

Visionaries:

Get ahead of the herd!

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Market Development Model

Chasm

Early

Market

Innovation strategy changes at each stage

Bowling Alley

Tornado

Main Street

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovating for Growth Markets

Disruptive
Innovation

Application
Innovation

Product
Innovation

Platform
Innovation

•
Enterprise:

Voice over IP (Vonage)

•
Consumer:

Overnight package delivery (FedEx)

•
Enterprise:

Customer Behavior Measurement (Brickstream)

•
Consumer:

Short Message Service (Vodafone)

•
Enterprise:

Application Servers (BEA)

•
Consumer:

iPod (Apple)

•
Enterprise:

Relational databases (Oracle)

•
Consumer:

PlayStations (Sony)

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Fractalization in Mature Markets

PC

1

2

3

4

5

6

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Fractal Markets: The n
th

Device

The Example of Telephones

Security

System

PDA

Kitchen

Phone

Office

Phone

Bedroom

Phone

Car

Phone

Cordless

Phone

Broadband

Line

Cell

Phone

Intercom

Baby

cam

Email

Device

Game

Phone

Speaker

Phone

Fax

Emergency

Phone

WiFi

Phone

VOIP

Phone

Video

Phone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovation Types for Fractal Markets

PC

Process


Innovation

Integration
Innovation

Marketing
Innovation

Experiential
Innovation

Line Extension
Innovation

Customer intimacy

adds value at the surface

Operational excellence

extracts resources from the substrate

Value Engineering


Innovation

Enhancement
Innovation

Business Model
Innovation

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Experiential

Innovation

Marketing

Innovation

Innovation Types for Mature Markets

The Customer Intimacy Zone

Customer Intimacy Zone

Enhancement

Innovation

Line Extension

Innovation

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovation Types for Mature Markets

Experiential
Innovation

Line Extension
Innovation

Enhancement
Innovation

Marketing
Innovation

•
Enterprise:

Mainframes (IBM)

•
Consumer:

Laptops (Sony)

•
Enterprise:

Dedicated portals (Dell)

•
Consumer:

Dedicated storefronts (Apple)

•
Enterprise:

Executive dashboards (Cognos)

•
Consumer:

Mediated Internet (AOL)

•
Enterprise:

Servers (Sun)

•
Consumer:

Inkjet printers (HP)

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovation Types for Mature Markets

The Operational Excellence Zone

Process

Innovation

Integration

Innovation

Business Model

Innovation

Value Engineering

Innovation

Operational Excellence Zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovation Types for Mature Markets

Process


Innovation

Integration
Innovation

Value Engineering


Innovation

Business Model
Innovation

•
Enterprise:

Shotgun genomic sequencing (Celera)

•
Consumer:

On
-
line retail checkout (Amazon)

•
Enterprise:

Hosted applications (Salesforce.com)

•
Consumer:

Contextual advertising (Google)

•
Enterprise:

ERP suite (SAP)

•
Consumer:

Semiconductor chips (Intel)

•
Enterprise:

Storage ATA RAID (Nexsan)

•
Consumer:

PCs (eMachines)

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovation Types for Declining Markets

Leveraging Market Renewal

Harvest

& Exit

Renewal Innovation

Organic

Structural

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Innovating for Declining Markets

Organic

Renewal

Structural

Renewal

Harvest

& Exit

•
Enterprise:

From hardware to software and services (IBM)

•
Consumer:

From PCs to entertainment (Apple)

•
Enterprise:

BEA buying Weblogic; Documentum selling to EMC

•
Consumer:

Gateway buying eMachines; Visio selling to Microsoft

•
Enterprise:

Legacy enterprise applications (Computer Associates)

•
Consumer:

Long distance services (AT&T)

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Overcoming Inertia



Core and Context, Resource Recycling, and
Managed Diversity

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

7 S’s Create 3 Axes of Inertia

Strategy

Structure

Staff

Skills

Style

Systems

Shared

Values

1.
Strategy & Structure

•
Resources are appropriated by
product lines in power

•
Next generation of innovation gets
starved

2.
Skills & Staff

•
Competition calls for outsourcing and
divestiture of mature lines

•
People sabotage these efforts to
protect careers and livelihoods

3.
Systems & Style

•
Enterprises standardize on common
systems and leader’s preferred style

•
Blocks next wave of innovation that
requires different systems & style

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Overcoming Inertia in Strategy & Structure

The Core/Context Analysis Framework

Core

Process creates
differentiation that
wins customers

Context


All other
processes

Mission Critical

Process shortfall creates


serious and immediate risk

Enabling

All other processes

Warning:
It is easy to mistake
mission
-
critical

for
core

Reward

Risk

IV

III

II

I

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

The Flow of Innovation

Core

Context

Mission

Critical

Enabling

I.
Innovate in an incubation
zone until ready to launch

II.
Deploy innovation at scale for
maximum economic return

III.
Postpone commoditization,
then capitulate

IV.
Optimize and de
-
risk processes
to extract resources for reuse

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

The Flow of Innovation

Inhale/Exhale

2. Deploy

1. Develop

3. Manage

4. Offload

Core

Context

Mission Critical

Enabling

Extract

some resources

here

Extract

more

resources

here

Invest

some resources

here

Invest

more

resources

here

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Where Inertia in Structure Takes Over

The Black Hole of Mission
-
Critical Context

2. Deploy

1. Develop

3. Manage

4. Offload

Core

Context

Mission Critical

Enabling

Resources

get stuck

here

Resources are

added

here for

support

Innovation

gets

starved!

Competitive

advantage

Is lost!

4. Onload

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

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.

Reengineer processes to
eliminate

unneeded steps and to
enable substitution
of lower
-
cost subsystems for complex systems elements.
Install monitoring systems

to provide visibility and
control over remaining risk.

4.
Automate.

Encode remaining processes into software
where possible to improve quality and reliability and
reduce costs. Use commercial packages as available.

5.
Outsource.

Drive processes out of the enterprise
entirely to further reduce overhead, variabilize costs,
and minimize future investment. Incorporate
monitoring systems into Service Level Agreement

Core

Context

Complex Systems

Volume Operations

Managing Mission
-
Critical Context

“Ratcheting Out” Complexity

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Solving Problem #1 Creates Problem #2

Resources

Available

Here

Resources

Wanted

Here

Core

Context

Mission

Critical

Enabling

People being released lack the skills

to fill the positions being opened

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Reinstating the Social Contract


•
There is a social contract around work

•
Companies require the commitment of workers

•
Workers require the commitment of companies


•
Outsourcing destabilizes the contract

•
Companies cannot fund unproductive workers

•
Workers cannot collaborate on their own demise


•
Darwinian competition is forcing the issue

Neither the company nor the workers are
entitled

Both must learn to evolve

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Overcoming Inertia in Staff & Skills

Recycling People in the Age of Outsourcing

A

C

B

Work circulates clockwise

People recycle counter
-
clockwise

IV

III

II

I

Invention

Zone

Deployment

Zone

Optimization

Zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Three Roles, Not Two

Invention,
Deployment,

& Optimization

Invention

Zone

Deployment

Zone

Optimization

Zone

Process entrepreneurs
thinking outside the box
and working closely with
task teams

Optimize and de
-
risk
processes to extract
resources from context
to repurpose for core

Program managers
thinking inside the box
and working closely with
division management

Deploy core at scale on
time, on spec, and on
budget, managing
mission
-
critical risk

Product entrepreneurs
thinking outside the box
and working closely with
customers

Create new core, attract
flagship customers, and
shepherd the category
across the chasm

Mission

Staff & Skills

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

How Resources Recycle

Invention

Zone

Deployment

Zone

Optimization

Zone

Handoff

Handoff

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Solving Problem #2 Creates Problem #3

Invention

Zone

Deployment

Zone

Optimization

Zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Inertia in Systems and Style

•
Each zone has different goals & objectives

•
Different metrics needed

•
Systems tend toward a single metric

•
Each zone has a different style

•
Cultures form in each zone

•
Companies tend toward a single culture

•
As systems and styles converge on a zone

•
Values of the other two get marginalized

•
Over time company gets stuck in that zone

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Inertia in Systems

Different Metrics Fight for Mind Share

Invention

Zone

Deployment

Zone

Optimization

Zone

Sustainable

Differentiation

Market

Share

Profit

Margins

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Inertia in Systems

Different Metrics Fight for Mind Share

Invention

Zone

Deployment

Zone

Optimization

Zone

Vision

&

Collaboration

Execution

&

Competition

Organization

&

Control

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Overcoming Inertia in Systems & Style

Manage for Diversity & Focus on the Hand
-
offs

Invention

Zone

Deployment

Zone

Optimization

Zone

Handoff #2

Handoff #1

#1

#2

•
Executive sponsor of
Invention to Divisional GM

•
Innovation has successfully
crossed chasm

•
Divisional GM to Executive
Sponsor of Optimization

•
Processes in question are
acknowledged as context

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Recapping Key Ideas

•
Innovation and inertia are inextricably linked

•
Inertia is the legacy of successful innovation

•
The two must be managed as a single system

•
Innovation strategy requires focus

•
Each type has a “sweet spot” in the life of a category

•
No type is effective unless you radically outperform

•
Inertia strategy requires management of diversity

•
Specialized zones can maintain their local inertia

•
Geared exchanges of work allow continuous flow of innovation

•
Overall strategy requires ecological approach

•
Extract resources from context to repurpose for core

─
Funds the innovation

─
Deconstructs the inertial resistance

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Dealing with Darwin © 2005, TCG Advisors LLC

November 25, 2013

Thank You


gmoore@tcg
-
advisors.com