ZONE TO WIN

Organizing to compete in an age of disruption

Geoffrey A. Moore
Chap.1 A crisis of Prioritization
In a high velocity market you can’t stay still, you have to be a growth company!

 Modern business is different due to: speed + disruption

 2 imperatives for established organizations:
 Play offense - catch the next wave ( this is why a Business
Development department is needed)
 Play defense - prevent the next wave from catching you in your
current franchise
Ex.: Nasdaq has increased 148% in value over ten years; during this time Oracle
increased 229%; EMC 92%, Microsoft 88% however Apple increased 2378%;
Amazon 1197%, Salesforce 1320%
Apple and Salesforce - increases had much to do with their performance in their
established mature franchises in personal computers, CRM and e-commerce
Investors were rewarding Apple for catching three new category waves:
 Digital music
 Smartphones
 Tablets
 Salesforce for catching two (cloud platform as a service and cloud marketing
automation)
 Catching the next wave is all that really matters
Leaders that missed the next wave – 56 companies
These companies didn’t have the worst management teams, these were the best!

Source: https://www.slideshare.net/rstrad1/zone-to-win-organizing-to-
compete-in-the-age-of-disruption
A crisis of prioritization
 Adding a new line of business creates a crisis of prioritization:
 how much of the resources should go to established lines vs. emerging
new one?
 “how much value should you assign to achieving additional gains from
your established lines of business versus new gains from your emerging
new one?”
 “how much are you willing to challenge the entrenched interests that
demand and reward short term returns versus how much you are willing to
risk on a bet that requires immediate sacrifices in hopes of achieving
exceptional long term gains?”
 At the core of this crisis of prioritization is a battle for resources in the go-
to-market functions: sales, marketing, professional services, and partner
development
 To add a new line of business to the portfolio -> the entreprise has to
stretch its go to market capacity dramatically to meet the needs of both its
established businesses and its next generation initiatives
Developing the market for an emerging category is:
challenging + risky

 Prospective customers have no budget for the new products, there are
to new -> you have to persuade the business executives to take the risk

 It requires new relationships that your sales people are not likely to
have (there are with the other side of the customer house, the side that
is perfectly happy with the status quo, the one that had budget already
allocated for your offers and the one that is not likely to be very happy
about you engaging elsewhere in their company)

 Sales team is much better suited to selling more of the old stuff via their
established relationships

 The standard way to solve these problems -> overlay a sales force that
does specialize in this sort of market development and is able to focus
solely on the new initiatives (the business development team)
Chap. 2 The four zones
 You can be on either end of this exchange playing offense as
a disruptor or playing defense as a disruptee-> the reward for
a successful defense is simply stock price preservation; the
reward for a successful offense is stock price escalation
 The ultimate goal is to get on offense sooner or later ->
adding a new line of business to your overall portfolio, one
that has revenues greater than 10% of total entreprise
revenues and is growing at a faster rate

Horizon I – from Horizon I come tangible returns

Horizon 3 - is focused on creating a portfolio of strategic
options;efforts here tend to be wide ranging and exploratory
Horizon 2 –translating one or more of those options into high
performing Horizon I asset
Not every horizon 3 or horizon 2 initiatives are expected to get
on Horizon 1 and reach scale
The four zone are different in
terms of:

1) Investment horizon
2) Performance metrics
3) Operating cadence
4) Each zone has its own
playbook

 All four zones should be

operated in harmony!

Source: https://www.slideshare.net/rstrad1/zone-to-win-organizing-to-
compete-in-the-age-of-disruption
Why do incumbents need to separate the
sustaining innovation efforts from the
disruptive ones?

 A few facts about disrupted markets:

 In disrupted markets startups outperform incumbents
 All enemies are outside already existing incumbents and
direct competition (ex. Kodak finds itself fighting not Fuji, but
digital photography – a new and unfamiliar game)
 Incumbents enterprises pulled in multiple directions: own
economic interests, shareholders interests, partners
ecosystem -> torn by these forces their innovation efforts
Source: https://www.slideshare.net/ifbi/startup-glossary-exec-io
lack focus and prioritization, as a result they fall short
 Sustaining innovation –gusted in Horizon 1, home for Def.
established franchise and operating model; Sustaining innovation – focuses on
- the revenue performance obligation is
extension and improvements to already
to make the number existing innovations inside the incumbent
 Disruptive innovation (enabling investments) – finds its home organizations
in Horizon 3; Failure in horizon 3 is a virtue! Disruptive innovation – new business
models and operating models
Zone management

Source: https://www.slideshare.net/rstrad1/zone-to-win-organizing-to-compete-in-the-age-of-disruption
Zone management
• Performance zone - revenue engine -> primary focus of the senior operating team, emphasis is on operating
management
• Follows objectives, budgets, attention to execution metrics, performance metrics
• Focus -venue engine
• This helps to make the top line
• People – who deliver goods on time, on spec and on budget
• Productivity zone – earning engine, targets efficiency to be gained by improving operations in the performance zone
• Home for shared services, managed as cost centers: marketing, technical support,
manufacturing, supply chain, customer service, HR, IT, legal, finance, administration
• Focus on applying sustaining innovation – productivity enabling initiatives
• Types of Initiatives: programs and systems for ensuring regulatory compliance, efficient
operations, effective competitive performance, efficient operations, effective competitive
performance
• this helps the bottom line
• Incubation zone - has a number of things cooking at any given point in time
• This is a zone were you play offense
• Position the enterprise to catch the new wave
• In the event of disruptive attack on your core lines of business it is also a contingency pool
for playing defense
• Transformation zone - are expensive, risky, and exhausting-> you need only to succeed in one transformative
initiative per decade to be world class (transformation takes about three years)
• The place where a disruptive business model goes to be scaled to a new business line; one
that brings 10% or more to the enterprise current revenue
Chap.3 The performance zone

Source:
https://www.slideshare.net/rstrad1/zone-to-
win-organizing-to-compete-in-the-age-of-
disruption
 Playing offense
• The focus of zone offense is to catch a next generation
technology wave and riding it to add a new earnings engine
to your enterprise portfolio and a whopping increase in
market valuation
• The goal is to add a net new row to the performance matrix
• The effort is driven out from transformation zone, but heavy
lifting has to be done by the perfroamnce matrix
• the fledgling has to be scaled to material size within a finite
window of opportunity – 3 years or less no matter what!
• The performance zone has to make the number no matter
what!
• The transformation must be put first because:
• Catching a wave of disruptive innovation – is a time critical
undertaking
• Transformation is a temporary undertaken, which if
successful will restore an underperforming performance zone
to superior returns in future years
Playing defense
• When consultants tell you that you have to
disrupt yourself tell them to get lost!
• Successful disruptors disrupt other companies
not their own
1) Focus your R&D innovation on neutralization
not differentiation
• Co-opt some portion of the disruptive
innovation and integrated into your
establishing offering
• The result does not have to be best in class, it
has to be good enough
2) appropriate whatever incubation zone assets
you have in the works that pertain to the new
technology and put them directly in service to
the established business under attack
EX. Microsoft response to Nescape Navigator ->
the web browser that dramatically disrupted its
windows franchise back in the mid 1990s
 Chap.4 The productivity zone (PZ)
 Is home to all enterprise resources that do not have direct accountability for revenue in any
of the three horizons
 Goal: enable enterprise operate as productively as possible
 Functions:
 Core corporate – finance, accounting, legal, investor relations, administration, IT, HR,
 Market facing: marketing, communications, lead generation, customer servivce, customer
support, etc
 Supply chain facing: manufacturing, purchasing, transportation and logistics,
 The productivity zone delivers:
1) regulatory compliance
2) improved efficiency (doing things right)
3) improved effectiveness (doing the right things)
 effectiveness is the province of systems
 efficiency – is the province of programs
It is critical to keep these two practice areas separate and distinct
 Programs - provide the fuel
 Programs are services that deliver specific outcomes
to targeted groups of users at specified points in
time, with priority given to the performance zone.
 Budget for these programs is still managed by service
providing function, but actual program spending
needs to be authorized by the cell in the performance
matrix to which it will be allocated as a controllable
indirect expense and not simple incurred at the
discretion of the organization providing the service
 With programs the intent is to set up a market
dynamic in place of a bureaucratic one
Systems - provide ongoing operational infrastructure.
Corporate funded systems include the annual budgeting
process, order processing, communications
infrastructure, identity management, financial reporting.
 have to be standard, stable and persistent.
 are truly shared services, and they should be
understood as public utilities where everyone abides
Source: https://www.slideshare.net/rstrad1/zone-to-win-
by the same set of rules in order to ensure an
organizing-to-compete-in-the-age-of-disruption
efficient platform for the enterprise as a whole
 centrally funded
 Playing offense
• Creating a new line of business and scaling to
material size -> reassure pressure and all of its
relief come from PZ
• Programs-> as a source of relief
• Business development -> game changing
acquisitions within the window of opportunity
• HR – covers hiring needs
• Legal – make contracts with unfamiliar terms
• Marketing – new audience to address, new
narratives to invent, new ecosystem to enlist
Playing defense
• In defense zone you are not trying to differentiate
for compet. advantage, you are trying to neutralize
to catch up
• You need to obtain good enough, fast enough
• PZ – has to optimize the current operations ->
extract resources from workflows; do more with a
lot less
• Six Levers model- free up talents
Chap. 5 Incubation zone (IZ) – options for the future

• Home to horizon 3 investments – the ones that are not expected to reach material size for several years,
considerably longer
• Not a place for experimentation with next generation technology and business models
• It represents a business opportunity that has the potential to scale to material size, the minimum threshold
being 10% of total enterprise
• revenue at the time when it reaches scale -> this has to be achieved through a combination of nonlinear
growth and acquisitions
• staging area for substantial business, a base camp within which one can scale to 100$M or more in revenues
• Business in the incubation zone are still too small to manage as rows in the performance matrix – their
granularity acting like grit in the gears of the bigger machine
• They are too large to manage as programs or projects (I don’t agree with this statement)
• They need to have specialized sales, marketing and professional services to compete against startups on
their marketing facing side, and they need customized supply chain services to design, build, and operate
their next generation disruptive offers
• Here are not funded R&D engineering, you’re funding entire companies!
Critical elements for Incubation Zone:

• Each entity in the incubation zone operates as an Independent Operating Unit (IOU) with its own GM,
product delivery, sales + marketing; act like a start UP COMPANY -> there are more IOUs who fight for
funding
• IOU are funded outboard of the annual planning calendar, based on milestone target dates that are not
expected to align with the fiscal year
• The overall size of the venture fund is adjusted annually during the corporate planning process
• The “venture board” determines what areas of innovations warrant investment, which business plans get
funded, which IOUs get follow on funding, what performance rewards go to which general managers (the
board is composed of: CEOs, head of incubation zone, head of products, head of engineering, and other
executives who have strong aptitudes for strategy and innovation management)
• IOU is supported by a small team of liaisons to the various shared services in the productivity zone
• Each IOU – is subject to a venture funding discipline that requires meeting specific milestones:
• Initial seed round: validate the technology
• Series A round: build an MVP (minimum viable product) and validate the market
• Series B round: target a beachhead market, build a viable whole product solution, and win a
dominant share of new sales within the segment
• Series C round: scale into adjacent markets in preparation for an exit into the transformation zone
Offense in IZ
• Comparable to running a venture backed start up
• Steps in evaluation: I milestone -> productizing the technology -> work with customers who are technology
enthusiasts and actively support the beta effort
• II milestone - >Winning the first major lighthouse customer -> work with a few visionary business leaders who are
willing to take a big risk to steal a march on their competition
• III milestone -> Winning the dominant share in your first target market – pragmatist process owners who are in a
jam and are willing to embrace your disruptive innovation if it can provide a way out
• To achieve I milestone -> needs technical talent, some of which should come from in-house -> otherwise it is a
dream that does not connect back to the enterprise; additional expertise should come from outside
• To achieve II milestone -> supplement the technical team with a professional services capability that can design and
deliver the lighthouse customer project
• The leader has to be able to conceptualize the customer’s challenge, master the principle of disruptive innovation,
build a bridge between the two -> “sell yourself into trouble, work your way out” -> it is not for the faint of heart
• Lighthouse customer wins -> put your fledgling on the map, but is not a line of business -> that takes winning a
dominant share of a target market segment, a cohort of customers who have collectively commited to the new
technology , which remediates some broken market specific operating process that is putting them all in jeopardy
• Crossing the chasm -> providing the whole product that solves the compelling reason to buy for a single cohort of
customers sharing a common pain
• Critical ingredient -> domain expertise in the target segment’s business process challenges (in part born from
business experience working in that segment)
Defense in IZ

• Means neutralizing the disruption by modernizing the established franchise operating model as quickly as
possible any technology from IOU that can help needs to be available immediately
• It can be done this way:
• The venture board reviews the current portfolio of IOU technology with the performance matrix
leaders under attack, and together they target the relevant ones
• The GMs of the IOUs are brought into the process to determine the efficacy and feasibility of
integrating their next generation capabilities with the more mature set of offers
• IOU team must make it their number one priority, regardless of the consequences to their own
incubating business
Chap.6 The transformation zone

 In this zone an enterprise can free its future from the pull of the past

 The goal is to undertake a transformational initiative to put the enterprise on a

new trajectory, one significantly different from the current one

 Horizon 2 dilemma – to effectively engage with the new wave, the enterprise
must relocate substantial resources to endeavors that dramatically under deliver
on Horizon 1 performance metrics

 Sustaining initiatives demand good management; disruptive ones

extraordinary leadership
Playing offense:
 Goal - is to leverage nonlinear growth from a category
disruptions to create a new business line
 It is needed a dramatic relocation of resources
 BD has to shepherded the M&A process with CEO approval
 Challenges:
 Scarce domain expertise – knowledge critical to winning sales
in the new category is concentrated in IOU sales team and
absent in the global sales force -> it is needed an overlay sales
force model
 Misaligned compensation –sales compensation is awarded for
bookings productivity. Selling in Horizon 2 is inherently less
productive than selling in Horizon 1 because first one must
engage senior executives at the target customer to create
budget and then with the function managers to win the right
to consume it
 Account management resistance – sales cycle with the
traditional customer can be disrupted by the new offer,
causing delays and even outright losses
 The CEO has to make the transformational initiative the first
topic on the agenda at every staff meeting
Playing Defense

 The strategy for playing defense: Neutralize, Optimize, Differentiate

 Neutralize first – the goal is to blunt the disruptor's attack
 co-opt their most visible and attractive features and bolting them on to your current offerings, change
the operating model to accommodate these changes (goal is to be good enough, fast enough)
EX. in order to blunt Uber San Francisco cabs started to use a Flywheel a mobile app that lets you
summon one of their cabs, track your ride and pay by phone _> (they can’t rate the driver, haven’t
changed the business model -> they just modernize their offerings)
 Optimize second – reduce prices and in the same time maintain a viable operating margin (use the
expertise from the productivity zone)
 Differentiate third – reaffirm you legacy value proposition even as you revolutionize the way you fulfill
it!
• Ex. IBM – Lou Gerstner
• When he took the helm the mainframe model was not dead, but it was clearly dying
• IBM legacy value proposition -> deliver enterprise productivity through information systemes -> this
was not changed but he changed the IBM business model -> rotated from hardware to software and
services -> that gave IBM two very successful decades
Chap. 7 Installing Zone Management
Steps to be taking during the annual planning process:
1) Zone your orgs – every organization as well as every major initiative needs to be funded out of one – and only one
– zone.
• - that choice of zone defines the contract between the entity and the enterprise in terms of one of four paradigms:
performance, productivity, incubation, transformation (acest paragraf nu este clar)
2) Lock in the performance matrix – it is important to clarify and formalize the structure of the performance matrix
right from the start
- each of the rows represent a major source of bookings and revenues greater than 10% of the total
- each of the columns represents a sales channel accountable for greater than 10%
- Each row and column has a unique owner
- the sum of all the row subtotals is taken care by the head of product
- the sum of all column subtotals to the head of sales
- grand total is owned by CEO and CFO
- from these target matrix leaders determine the resources they will need to meet them in terms of head count,
direct operating expenses, and controllable indirect expenses in the form of supporting programs
3) Activate the productivity zone – the goal is to do more with less, by leveraging technology, experience and
innovation.
4) Fence off the incubation zone –funding IOU is a process which follows a venture cadence based on milestones, not
calendars. During the planning process it should be established: the size of the incubation zone fund and the
composition of the venture board that will have governance over it
5) Determine the status of the transformation zone and proceed accordingly – annual planning processes
strategy should focus on Horizon 2 and the assembled executive team is precisely the group that needs to have
them;

 Establish the status of the transformation zone for the coming year as:
 either inactive (no disruption to be engaged with at present)
 proactive (playing offense to catch the next wave)
 or reactive (playing defense to prevent the next wave from catching you)
 It is imperative to declare one and only one; depending on which state is declared the planning process
unfolds very differently)
Microsoft – plays zone defense

• The trouble Microsoft finds itself in

• Performance Zone – performance matrix has been driven by 3 core business engines: the Windows
Operating System, Office suite, serve suite of back office applications and system software
• Windows – has been disrupted by: mobile, collaborative computing, cloud
• Mobile - the rise of smartphones led by Apple and Google-> two new operating systems: IOS and
Android -> dominate the mobile landscape
• Collaborative computing - Office is under direct attack by Google Apps -> google gives away its
competing software for free, monetized through advertising and data mining
• Personal computing is under attack due to collaborative computing -> instead on focusing on
individuals producing documents to be presented in finished form, it has focused on teams developing
plans, designs, intellectual property -> a trend of a collaborative work style
• Collaborative computing is well suited to both education and small business applications
• On-premise servers -> a workhorse row in the performance matrix -> anchored Microsoft position in
enterprise computing
• -> are under attack because of the Amazon with cloud computing
• -> Amazon brings a new business model (subscription services displacing
licensed products), a new operating model self service displacing installation
and maintenance) and a new infrastructure model (computer farms displacing
uniquely configured computer clusters)
• Incubation zone - Microsoft has never been much of an incubator
• - market triumphs are based on fast follower strategy that overtakes an early
market leader (Ex. windows took over the GUI market from Macintosh; NT
from Novell, word from WordPerfect, Excel from Lotus, Internet explores from
Netscape)
• M&A can scale organic incubation, but it cannot substitute for it
• Transformation zone - Microsoft has never had a successful transformation zone intiative (neither has IBM,
HP, Dell or Intel -> they didn’t need to, now they need)
How Microsoft plays defense
Play defense implies a 3 point plan: Neutralize first, optimize second, differentiate third
1) Neutralize first: - they declared two top priorities: Mobile first, cloud first
Microsoft launched Azure -> clients would like to work with a more entreprise oriented provider that they
already know, one that is familiar with their complexities of their systems, regulatory and security
concerns
On the mobile front –no realistic prospect of taking material market share on this part; however Office can
now be downloaded for free on IOS and Android for professionals who use Office on their desktops but
need access to it on their mobile devices
Mircrosoft has launched: OneNote for user interactions; Sway for content creation. Delve for discover
engines
2) Optimize – weakest link in Microsoft defense -> because has never been required to optimize in the past;
the legacy of achieving productivity through systems is inappropriate for a time when flexibility and agility is
required
3) Differentiate – new products that are connected to the mobile first: Bing for searching engine, Sway and
Delve
Things that brought down 56 companies:

 Deeply entrenched legacy franchises unable or unwilling to

embrace the new realities
 No viable alternatives for customers
 tired partner ecosystem due to draconian price negotiations and
now fighting over the scraps
 unsympathetic investors who demand continuously improving
performance
 an organizational culture that is rife with entitlement, politics and
cynicism that made the best players to leave