“Zone to Win”, critical elements of innovation strategy
“What makes modern business different? Simply put, speed plus disruption.” This is how the book Zone to Win begins, which has made me think and much about how companies should organize themselves. Many things have changed in the last 100 years, but the organisational charts that we see in many companies today are a carbon copy of those of their namesakes at the beginning of the last century.
Geoffrey Moore’s reflection is very powerful. All companies are threatened with such a wave of innovation and irruption and sooner or later they will not catch that wave that will leave them out of place. And according to Geoffrey the main problem is organisational: the organisational structure of companies (sales, marketing, finance) does not make it easy to prepare for the future because all areas have to attend to the present and when someone thinks about the future it is very difficult for them to manage to drag the rest of the organisation there.
Because “adding a new line of business to an existing portfolio creates a crisis of prioritization” and how resources should be allocated to respond to the present while building the future, understanding, moreover, that our teams or our methods serve the present but it is not so clear that they serve the future. Not to mention what it costs to invest when revenues start to decline due to the natural wear and tear of a mature business.
If we talk about the business future, there are two types of futures to consider: the one we build ourselves, where we are the ones who first ride that wave, and the one we build ourselves where others ride it.
Disruption can come on multiple possible fronts and many are salvageable with cunning, investment and agility. But there is one exception: the emergence of a new business model (tell that to Kodak). ‘No established enterprise can reasonably expect to change its core business model, ever. It can’t be done.
There is simply too much inertial momentum tied up in your internal systems, your customer relationships, your company culture, your supply chain processes, your ecosystem of partners and your investors’ expectations.
But what can we do to ensure that the next wave does not catch us off guard? Two things: First, have your operating model as modernized as possible (this will save us time); Second, explore the future with the goal of destroying ourselves (it will always be better if someone else does it before us).
Easy for you to say. But how to do it? Here’s the interesting thing.
Let’s structure our organization in 4 big areas: Performance, Productivity, Incubation and Transformation.
Four areas where the time horizon of each is different, as well as their objectives. Horizon 1 speaks of the current fiscal year, horizon 2 points to two or three years ahead, and horizon 3 speaks of a scenario of three and five years ahead, periods which, in more dynamic sectors, could be one quarter (horizon 1), one year (horizon 2), and two years (horizon 3). In any case, what matters is that each area of the company works on different objectives and time horizons.
Let’s talk about each area of the organization:
The area that carries the weight of the organization (at least its production) and whose objective is: Make the number! Being its main challenge the execution and being evaluated according to financial or economic ratios.
Ideally this area – the most important in the company – is organized in a matrix where its rows are the different service or business lines and the columns are the multiple commercial channels or markets in which we are.
Rows and columns have a single owner who is responsible for the results of each cell in their row or column. The rows are concerned with delivering the product or service on time, while the columns are concerned with developing and expanding the business. The objectives are defined according to the plan quarterly, those responsible for rows and columns meet monthly to evaluate the degree of progress and compliance of each cell. Each cell has two owners (responsible for row and column), their concern should be the gross margin without the need to assume expenses that have to come from other areas of the organization (overhead …).
The area that provides service to the entire organization but always looking to find efficiencies or spaces for improvement. Its motto is: Make it all work.
Here we would include areas such as finance, legal, purchasing, marketing… as well as programs that have a start and end date. The areas are financed from the corporate budget, while the programs are assumed from the budget of those areas that see value and return to their financing.
The area that seeks – to position the company for the next wave – and explores new opportunities that can create a future for our company, seeking not only to identify them but also to commercialize them in order to validate the opportunity and to concretize the value proposal as well as to materialize the delivery. The incubation area should act as a venture and timidly incubate those opportunities that may have a path and extend such financing as the opportunity manages to demonstrate some traction.
Transformation or a dormant area that must be able to turn a validated opportunity into a whole new line of business and where it is the same CEO who goes down into the sand and leaves the operation of the business to give the necessary push to that opportunity that can totally transform the company. The motto here is catch the next wave. For this, the company must start using all its marketing to give visibility to the new value proposal or business line, it must intensify the sale in first industries or verticals, it must give good conditions to facilitate the traction on a larger scale looking for growth and not so much profitability. In turn, the CEO should review the system of compensation and incentives to cause the other areas and marketing channels to begin to push the new line of business seeking to bring its activity to 10% of total business. Once this has been achieved, the new business unit should be transferred to the Performance area to give it even greater scalability, growth and profitability.
Interesting, isn’t it?
For me, the most fascinating thing is having an incubation area that explores and experiments and passes the baton to the CEO himself to give strength to a validated idea until it is transferred to the performance area once it has taken shape.
And I also think it is brilliant to have multiple areas working with such different objectives, methods and horizons so different that governing them with the same criteria can only lead to failure.
“All the real work is done within each of the four areas, but the annual planning, resource allocation and quarterly business reviews will be managed in all four, keeping each different from the other three”. Where in advance it will be necessary to decide on the level of resources that the incubation area can have to explore and create future
Think about it 😉