Dealing with Darwin
Managing Innovation
in a Commoditizing Marketplace
Geoffrey Moore
Managing Director
Dealing with Darwin
• Darwin @ Work
• Global low-cost competition resulting in commoditization
• Leads to natural selection and survival of the fittest
• Darwin’s Mandate
• Innovate to become sustainably differentiated, or
• Accept erosion in margins and revenues
• The Challenge
• We continue to embrace failed models of innovation
• We need to think about innovation in a new way
• The Goal of This Talk
• Reframe the innovation agenda in a way that works
• Special focus on enterprises with established track records
2
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Four New Ideas About Innovation
•
•
•
•
3
Return on Innovation
Innovation Strategy
Funding Innovation
Perpetuating Innovation
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Return on Innovation
4
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
When Innovation Creates No Return
It’s A Vector Math Problem!
= 0
Bubble-up Innovation
Many Types
When each unit strives to be unique in its own way,
the net result is little overall differentiation.
Competitors find it easy to neutralize these efforts
5
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
What Darwin Demands
Innovate to Achieve Competitive Separation
*
Competitor 1
*
Competitor 2
*
Gain bargaining power
by getting separation
from your
competitive set
*
YOU
*
Competitor 3
Competitive Set
6
Failure to separate
means low to no returns
on innovation
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Focus on Your Core
•
Core:
• Processes that enable or reinforce your chosen vector of
competitive differentiation
•
Context:
• All other processes
This is not the same as your core competence
This is not the same as your core business
7
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Return on Innovation
Differentiation
Failed
Attempts
Neutralization
Productivity
Waste
Waste: Innovation projects that even when they succeed
fail to create sustainable competitive advantage
8
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Managing Return on Innovation
• Identify a vector of differentiation to define core
• Core is those processes that create the differentiation
• It is the source of your unmatchable competitive advantage
• Define all other work as context
• Necessary to your success, but not differentiating
• Apply neutralization and productivity strategies here
• Commit to “beyond class” outcomes
• A set of offers that direct competitors cannot or will not copy
• No “best in class” waste!
• Elsewhere actively promote “good enough” criteria
9
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Innovation Strategy
10
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Category Maturity Life Cycle
Landscape of Competitive Advantage Changes
Revenue Growth
Indefinitely elastic
middle
Growth
Market
Mature
Market
B
D
Declining
Market
A
Technology Adoption
Life Cycle
11
C
Fault
Line!
E
End of
Life
Time
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Building an Innovation Strategy
Play to the Forces Active in Your Marketplace
Customer
Intimacy Zone
Product
Leadership
Zone
Category
Renewal
Zone
Operational
Excellence Zone
12
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Innovation Comes in Many Forms
Each is a Potential Vector of Differentiation
Line Extension
Innovation
Design
Innovation
Marketing
Innovation
Platform
Innovation
Experiential
Innovation
Organic
Innovation
Product
Innovation
Structural
Innovation
Category Renewal
Harvest
& Exit
Disruptive
Innovation
13
Application
Innovation
Value Engineering
Innovation
Integration
Innovation
Process
Innovation
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Value Migration
Innovation
Innovating in Growth Markets
The Product Leadership Zone
Disruptive
Innovation
Create a new category, build the value chain to serve
it, and ride its adoption to success
* eBay
Application
Innovation
Take an established product or service into a new
market where it can tap unmet demand
* RIM
Product
Innovation
Take share in an established market with a new offer
that dramatically outperforms current market leaders
* AMD
Platform
Innovation
Stimulate and dominate next-generation growth
markets by collaborating with partners
* Google
14
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Innovating in Mature Markets
The Customer Intimacy Zone
Line Extension
Innovation
Gain market share by modifying an established brand
to appeal to an underserved market segment
* HP
Enhancement
Innovation
Gain margin share by creating greater perceived
value at the surface of an existing offer
* Motorola
Marketing
Innovation
Gain customer preference through differentiated
communication and delivery methods
* Apple
Experiential
Innovation
Gain customer preference through differentiating the
experience of the offer and its delivery
* World of Warcraft
15
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Innovating in Mature Markets
The Operational Excellence Zone
Value Engineering
Innovation
Take market share by being first to the next priceelasticity inflection point
* CDW
Integration
Innovation
Protect and extend market share by eliminating the
complexity of managing many disparate elements
* SAP
Process
Innovation
Win share or margins by productivity gains from
reengineering business practices
* Dell
Value Migration
Innovation
Win margins by migrating to a new and more highly
valued business model
* IBM
16
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Innovation Strategy
• Pick a small number of innovation vectors for core
• Ideally one
• If more, then fused into one
• Drive your performance beyond category norms
• Competitors either cannot or will not match it
• Their neutralization efforts fall flat
• Declare all other forms of innovation context
• Focus on neutralization where needed (includes table stakes)
• Everywhere else, focus on productivity
17
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Funding Innovation
18
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Where Are Your Resources Invested?
Current Core Becomes Context Over Time
Digital media
Mobile computing
Internet-enabled transactions
Visualization and simulation
Personal computing
Reporting and analytics
On-line transaction processing
Resources migrate to the bottom
19
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Resources Get Trapped in Context
Context
Core
Core
Context
Agile
Aged
Context delivers diminishing returns
Organizations become uncompetitive
20
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Free Trapped Resources to Fund
Innovation
Extract Resources from Context
to Repurpose for Core
“Coins in the Couch”
21
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
The Cycle of Innovation
Core
Context
Deploy
Differentiation
At Scale
Manage
Mission-critical
Processes
At Scale
Mission Critical
2. Deploy
3. Manage
Non-Mission-Critical
Invent
Differentiated
Offering
1. Invent
4. Offload
Fund next innovation
22
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Extract
Resources
To Repurpose
For Core
BCG Model for Funding Innovation
The Growth/Share Matrix
Hi Growth
Lo Growth
Hi Market Share
Lo Market Share
?
GreatFund
model
but . . .
next innovation
Must first fix two fatal flaws first
23
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Where Resources Get Trapped
Core
Context
Process creates
differentiation that
wins customers
All other
processes
Mission Critical
Process shortfall creates
serious and immediate risk
Major
Challenge
Non-Mission-Critical
All other processes
Differentiation
24
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Risk
Mission-Critical Context
How the Cycle Breaks Down
Clinging to Mission-Critical Context
But lack of
resources here
results in failure
to deploy!
Core
Context
Mission Critical
2. Deploy
Mission
critical
risk
3. Manage
Resources
get stuck
here
Non-Mission-Critical
Resources
still get
invested here
25
1. Invent
4. Onload
Offload
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Resources are
added here for
support
Freeing Resources Trapped in Context
The Six Levers Model
Core
26
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. Deconstruct the system into its component
subsystems and standardize interfaces for future cost
reductions.
4.
Optimize. Eliminate redundant steps, automate standard
sequences, streamline remaining operations, substitute lowercost components, or otherwise cost- and resource-reduce.
5.
Instrument. Characterize the remaining processes in terms
of the variability of key parameters and develop monitor-andcontrol systems to manage their performance.
6.
Outsource. Drive processes out of the enterprise entirely to
further reduce overhead, variabilize costs, and minimize future
investment. Incorporate vendor use of monitor-and-control
systems into Service Level Agreement.
Context
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Funding Innovation
•
There are always resources to reclaim
• Coins in the couch are everywhere
• The more mature and successful you have been, the more
coins there are
•
The key is to repurpose them for core
• Identify core before you go after context coin
• Mantra: Extract resources from context to repurpose for core
•
Failure to repurpose begins a downward spiral
• Savings are used to make the current quarter
• You start the next quarter at Square One and with fewer coins
27
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Perpetuating Innovation
28
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
The Problem with Outsourcing
We Are Losing Our Work Force Investment!
Core
Context
Mission
Critical
Enabling
Resources
Wanted
Here
Resources
Available
Here
People being released lack the skills
to fill the positions being opened
29
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Revitalizing the Work Force
Resource Recycling Zones
Deployment
B
Zone
Deployers
Use conventional methods to ramp
and manage mission-critical
processes at scale
II
III
C
Optimization
Zone
Use unconventional
methods to create and
incubate new core
Invention
Zone
Inventors
A
I
IV
Optimizers
Use the Six Levers to
extract resources from
context to repurpose
for core
Work circulates clockwise
People recycle counter-clockwise within zones
30
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Perpetuating Innovation
Handoff
Handoff
Optimization
Zone
Invention
Zone
Deployment
Zone
Executives focus on managing the hand-offs
31
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Growing Human Capital
•
Focus on building role expertise
• Make it an explicit goal of job assignments
• Maintain it through managed reassignments
•
Avoid overvaluing task expertise
• Buys you productivity in the short term
• Creates unproductive populations in the long term
•
Be cautious about asking people to change roles
• Most people are most productive staying in role
• Revitalization comes from changes in task content
32
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Recap: Four Ideas
•
Return on Innovation
• Performances competitors cannot or will not match
•
Innovation Strategy
• Focusing innovation to create escape velocity
•
Funding Innovation
• Extracting resources from context to repurpose for core
• Perpetuating Innovation
• Resource recycling: The perpetual innovation machine
33
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017
Thank You
[email protected]
34
Darwin and the Demon © 2004, TCG Advisors LLC
August 1, 2017