Zone to Win: Organizing to Compete in an Age of Disruption

by Geoffrey Moore

Brief Notes:

Distinguish between disruptions to:

• infrastructure model e.g. smartphone for real estate
• operating model e.g. smartphone for airlines
• business model e.g. smartphones for advertising

Three horizons:

• horizon 1 - fiscal year (perf/prod zones)
• horizon 2 - 2-3 years (trans zone)
• horizon 3 - 5+ years (incubation zone)

Four zones

• performance, productivity, incubation, transformation
• 2x2 matrix
  • disruptive innovation (trans/incub) vs. sustaining innovation (perf/prod)
  • enabling investments (incub/prod) vs. revenue performance (perf/trans)
• can’t manage different zones in same way
• apply zone framework fractally at top level of business, then within units and segments, throughout the whole

Performance Zone

• manage with performance matrix
  • business lines/units down side
  • channels across the top
  • each cell co-owned/managed by business owner/channel owner
  • totals for channels and business lines owned by each owner
  • no row or column <10% of total revenue
• transformation is defined as adding new row and scaling to >10% of revenue
• making numbers for existing rows 2d priority to making new row >10%

Productivity Zone

• three main parts: core corporate (fin, hr, etc.), market facing, supply-chain
• three functions: compliance, efficiency (systems), effectiveness (programs)
• special: end-of-life hospice for managing divesting/discontinuing rows of the perf matrix
• funding comes from internal, perf zone customers to create competition between prod zone services and outsourced solutions

Incubation Zone

• incubating whole new businesses, not just innovating around the edges (innovate in incubation zone within each line, when applied fractally down through org)
• NOT skunkworks or labs where failing fast is a success, these businesses shouldn’t fail
• candidates: should have potential for 10x improvement for customers, 10% of total revenue, whole new line of business
• purpose: scale to 1-2% of total revenues within 5 years, to be big enough for transformation (scaling into perf matrix)
• structure: individual operating units (each IOU with general business manager), incubation fund/board (ceo, 4-5 others) to manage VC-style funding/oversight, special scale-appropriate supports (finance, hr, admin), potentially special (related) branding to support new lines but insulate main brand from failures
• funding is VC-style: milestone-based rather than calendar based. incubation zone is funded as a whole in annual corp planning, then i-zone board directs individual investments in IOUs
• need to queue/close/sell businesses when not selected for single transformation zone slot

Transformation Zone

• ONE at a time... two or more is certain failure
• scaling new business is drain on existing perf zone resources, must be top priority to accomplish as fast as possible
• second priority is hitting all the usual perf zone numbers for existing lines
• transformation as offense: new businesses at 1-2% of rev scale to 10% or more, do annual planning process in perf matrix, then add new line, then renegotiate all the cells to give support to scaling the new line
• transformation as defense: mine the incubation zone for things to bolt onto existing lines to neutralize, optimize against and differentiate from (in that order!) challenges from outside

Implementation

• start with socializing the new framework/language
• apply at time of annual planning process:

1. zone your orgs - each function funded out of only one zone, once funded managers deploy funds as they see fit
2. lock in the perf zone - sort rows and columns, establish clear owners, goals
3. activate the productivity zone - specify programs and systems improvements, which perf zones to serve (who will fund)
4. fence off the incubation zone - fund the zone as a whole annually, establish the board, clean up as needed, board funds milestones and monitors
5. determine the status of transformation zone and proceed accordingly (offense, defense, inactive/dormant/unchallenged)