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Geoffrey Moore has presented a new framework for how to structure businesses in turbulent times. Where the central idea is to divide your operations in 4 zones with different metrics for execution. A powerful framework when preparing your business for the future.
Brutal Truths & Key Insights
The model build on a set of brutal truths and insights. The first is about the importance for a business to catch the next wave, or get caught. The second about the role of both disruptive and continuous innovation play in evolving your business. The third is about tough prioritization. Required as resource demand is increasing but supply is finite. The fourth about the need for dividing your operations into different execution zones. Each playing a different role with focus on different time horizons. Finally, businesses can only place one large transformation bet at a time. When aiming to grow a new business fast to represent at least 10% of company revenues.
The four zones differ on two points. The type of innovation involved, disruptive or sustaining. Combined with the type of business steering, for revenue performance or enabling investments.
Performance zone – 0-12 months
Operations in the performance zone are accountable for the business performance. A zone where revenue performance and continuous innovation rule. This zone deliver close to 100% of the revenues and more than 100% of the profits. The operating horizon is this fiscal year. With center of gravity around the sales team and development/fulfillment of offerings.
Each business in the performance zone represent at least 10% of company revenues. In both portfolio and market dimensions. With an expectation, all elements in the portfolio x market matrix need to perform.
The productivity zone is critical for driving company topline. With a shrinking resource frame.
Productivity zone – 0-12 months
The productivity zone operates with the same horizon. Thriving at the intersection of sustaining innovation and enabling investments. Investments allowing for productivity improvement through synergy across different elements in the matrix.
The primary purpose of the productivity zone is to serve the performance zone. Better than if the performance zone consolidated all productivity zone activities. The productivity zone is an investment zone. Where the performance zone defines how much we can afford to invest in productivity enablers.
The productivity zone defines how much incremental profit you can extract for a given top-line. Within a given investment frame.
Transformation zone – 12-36 months
The transformation zone represents a major change management undertaking. Operating at the intersection of disruptive innovation and revenue performance. The job to be done here is to maximize growth for the most promising business in the incubation zone. Creating business performance improvements by riding the market wave as it picks up in strength. Where you can leverage an incubation to revitalize an existing business to stay on the performance matrix. Or to grow an incubation to create a material new line of business in the performance matrix.
The nature of a transformation undertaking involve mobilizing the whole company. Around a new disruptive market wave. In time before the window of opportunity is gone. And the nature of the challenge only allows you to pick one transformation initiative at the time. Meaning both the choice of what to transform and the execution itself become big bets.
The transformation zone is where your growth prospects move into the performance zone. One at a time at a steep ramp-up curve.
Incubation zone – Beyond 36 months
The incubation zone is about disruptive innovations and enabling investments. A zone driven like a venture capital firm with a handful of ventures with potential to become a net new line of business. Operated with a given investment budget shared across the ventures. Each venture capitalized at pre-defined milestones. With the clear intent to transform the one with the biggest potential. With clear exit options for the ones not making it all the way through.
Given the difficulty to scale more than one incubation at the time, bets in this zone tend to be large. All fitting the frame of having the potential to drive at least 10% of company revenues within 5 years.
The incubation zone is the home for your intraprenuers. Dedicated to develop the digital disruptions used to ride the next major market opportunity wave.
Where is this framework applicable?
This four-zone framework is suitable when you face one or several of the following conundrums:
- Difficulty in prioritizing between milking current and investing in new business.
- Existing businesses in the performance zone struggle to stay above 10% of revenue
- Aspire to transform too many incubations at a time – aim for one at a time
- Struggle with focus on your #1 transformation priority – skip internal transformation competition.
- To many small initiatives in the incubation zone without a 10% potential – aim for bigger incubation initiatives.
- Existing business lines exposed to disruptions – Consider developing defense incubations.
Questions for you and your team
- Which operating zones do we have today – make a mapping on the four identified zones today.
- Which business mix issues do you see after a business mapping – expect to see a few structural issues already at this stage.
- Which market waves are about to pick up – defining striking windows.
- Which business lines are most exposed to disruptions – needing a defense strategy.
- In which areas can we leverage an offensive disruption strategy.