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
3
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
Focusing Innovation
Innovation Types and
The Category Maturity Life Cycle
4
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
5
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
6
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
7
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
8
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!
9
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
10
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)
11
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
13
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
14
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
15
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)
16
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
17
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)
18
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
Innovation Types for Declining Markets
Leveraging Market Renewal
Harvest
& Exit
Renewal Innovation
Organic
Structural
19
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)
20
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
Overcoming Inertia
Core and Context, Resource Recycling, and
Managed Diversity
21
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
22
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
23
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
24
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
25
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
26
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
27
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
28
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
29
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
30
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
31
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
How Resources Recycle
Invention
Zone
Deployment
Zone
Optimization
Zone
Handoff
Handoff
32
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
Solving Problem #2 Creates Problem #3
Invention
Zone
Deployment
Zone
Optimization
Zone
33
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
34
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
35
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
36
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
37
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
38
Dealing with Darwin © 2005, TCG Advisors LLC
November 25, 2013
Thank You
gmoore@tcg
-
advisors.com
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