Geoffrey Moore: Using Innovation to Thrive and Strive

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Geoffrey Moore, Managing Director, TCG Advisors; Venture Partner, Mohr Davidow Ventures presented at the Premier Business Leadership Series 2010 - http://www.sas.com/theserieshk.

The challenges in the current economy are to invest in innovation projects that pay back in the short term and pay off in the long term – and to fund these projects by extracting resources from existing operations. Drawing on his experience as a venture capitalist as well as research for his recent book Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution, Geoffrey Moore will describe how organisations large and small can determine their own fates at a time when many of their competitors are bemoaning theirs.

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Geoffrey Moore: Using Innovation to Thrive and Strive

  1. 1. Dealing with Darwin Innovating to Survive & Thrive Geoffrey Moore Managing Director August 10, 2010
  2. 2. Agenda • Focusing Innovation • Funding Innovation 2 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  3. 3. Focusing Innovation 3 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  4. 4. Three Returns on Innovation • Differentiation • Your offers are distinctly preferable to the competition, and customers seek them out and pay a premium for them • Neutralization • Your offers are competitive with others in your category and category, you win sales based on execution and price • Optimization • Your offers cost less to produce than they used to, giving you the ti th option of lowering price or i fl i i increasing margins i i 4 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  5. 5. Innovating for Differentiation Focus on Competitive Separation Amplify a specific vector of innovation * * Gain bargaining power Competitor 1 by getting separation * YOU from your * Competitor 2 competitive set * Competitor 3 Failure to separate Competitive Set C ii S means low to no relief on profit margins 5 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  6. 6. Core vs. Context • Core: • Processes that enable and amplify your chosen vector of competitive separation. • Context: • All other processes. • C Context is determined by what you choose to make core. • Differentiation • It is not sufficient just to be different—everyone is • Your differentiation has to be “unmatchable” unmatchable • And the customer has to really want it 6 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  7. 7. Declaring Your Core Where Can You Be “Unmatchable”? e e Ca ou e U atc ab e Product Disruptive p Solution Product Platform Leadership Technology Specialization Engineering Ecosystem Zone Genentech Accenture BMW Google Customer Power Brand Product Marketing Quality of Intimacy Line Design D i Programs P Experience E i Extension Zone Mattel Apple Amazon Cirque du Soleil Operational Business Value System Process Excellence Engineering E i i Integration I t ti Optimization O ti i ti Model Innovation Zone WalMart SAP Toyota Salesforce.com 7 Dealing with Darwin © 2009, TCG Advisors LLC August 11, 2010
  8. 8. How NOT to Manage Innovation Remember Your Vector Math Class! = 0 Bubble-up I B bbl Innovation ti When organizations innovate “bottoms up,” competitive separation i small, titi ti is ll and differentiation is easily matched: Lots of activity, not much to show for it. 8 Dealing with Darwin © 2009, TCG Advisors LLC August 11, 2010
  9. 9. Focusing Innovation for Separation • You will innovate in many different areas • This is necessary to keep up with market evolution • It is not about differentiation • You will not achieve competitive separation in many areas • You must focus intensely to achieve “unmatchability” unmatchability • Even then there is no guarantee • You must be highly directive in declaring your core • Investment must be very assymetrical • Gi i everyone th i f i share i a l i strategy Giving their fair h is losing t t 9 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  10. 10. Innovating for Neutralization Focus on Meeting the Market’s New Norm Market s Regain market viability * Competitor 1 by getting back into the competitive set * Competitor 2 * Rejoining is i i R j i i i mission- * Competitor 3 critical as failure to do so means exclusion from future purchase * YOU decisions Competitive Set C ii S 10 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  11. 11. Differentiation vs. Neutralization • Differentiation creates competitive separation • This is how you create superior profit margins • It requires major investments to be “unmatchable” • Neutralization overcomes competitive disadvantage • This is how you stay in the game • It requires modest investments to be “good enough” • Anything spent in between is waste! • Customers appreciate the extras but will not pay you for them • B i b t in class i a sucker’s b t Being best i l is k ’ bet 11 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  12. 12. Innovating for Optimization Focus on Productivity YOU Competition drives commoditization * Competitor 1 Productivity gains are * Competitor 2 critical to keep pace * * Competitor 3 Optimizing is mission- critical because failure Competitive Set means no profits to Price reinvest Deflation 12 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  13. 13. Where to Optimize • Do not optimize when you are trying to be unmatchable • This is your core • You save elsewhere in order to overspend here • Do optimize when you are neutralizing—but carefully • You must achieve “good enough” status good enough • You do not need to do more than that • Optimize intensely everywhere else • Context work which does not affect competitive outcomes • Thi is where you can “ This i h “save t invest” to i t” 13 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  14. 14. Return on Innovation Differentiation Neutralization CORE CONTEXT Competitive Failed Attempts Optimization CONTEXT Not Competitive Waste Sources of Waste: • Differentiation projects that don’t go far enough • Neutralization projects that go beyond good enough • Unaligned innovation efforts that cancel each other out 14 Dealing with Darwin © 2009, TCG Advisors LLC August 11, 2010
  15. 15. Funding Innovation 15 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  16. 16. Where Are Your Resources Invested? Current Core Becomes Context Over Time Electric Cars Entertainment Systems Navigation Systems Hybrid Engines Power Steering, Brakes, Windows Steering Brakes Automatic Transmissions Combustion Engines Resources get trapped at the bottom 16 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  17. 17. Resources Get Trapped in Context Context Core Core C Context C t t Agile g Aged g Context delivers diminishing returns Organizations become uncompetitive 17 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  18. 18. Fund Innovation by Freeing Trapped Resources Extract Resources from Context to Repurpose for Core “Coins in the Couch” 18 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  19. 19. Where Are Your Resources Deployed? Core Context Success increases Success does not your competitive affect competitive differentiation differentiation Mission Critical Failure is material to your current performance 7 65 SK RIS Non-Mission-Critical Failure is not material 3 25 REWARD 19 Dealing with Darwin © 2006, TCG Advisors LLC 2005, August 11, 2010
  20. 20. The Cycle of Innovation: What You Would Like to Have Happen Core Context Deploy D l Differentiation Manage At Scale Mission-critical Processes At Scale Mission Critical 2. 2 Deploy 3. Manage 3 M Non-Mission-Critical Extract Resources Invent 1. 1 Invent 4. 4 Offload To Repurpose Differentiated For Core Offering Fund next innovation 20 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  21. 21. What Actually Happens: Challenge #1 The Mission Critical Context Resource Trap Mission-Critical But lack of Core Context resources here Resources results in failure get stuck to deploy! here Mission- Mission Critical critical risk 2. Deploy 3. Manage Non-Mission-Critical Resources R Resources are still get 1. Invent 4. Onload Offload added here for invested here support 21 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  22. 22. Freeing Resources Trapped in Context The Six Levers Model 1. Centralize. Bring operations under a single authority to reduce overhead costs and create a single decision making decision-making authority to manage risk 2. Standardize. Reduce the variety and variability of processes delivering similar outputs to further reduce costs and minimize Core Context risks. i k 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 lower- cost components, or otherwise cost- and resource-reduce. 5. Instrument. Characterize the remaining processes in terms of the variability of key parameters and develop monitor-and- control systems to manage their performance. 6. 6 Outsource. Drive O tso rce Dri e processes o t of the enterprise entirel to out entirely further reduce overhead, variabilize costs, and minimize future investment. Incorporate vendor use of monitor-and-control systems into Service Level Agreement. 22 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  23. 23. What Actually Happnes: Challenge #2 The Human Resources Recycling Trap Core Context Mission Critical Enabling Resources Resources Wanted Available Here Here People being released lack the skills to t fill the positions being opened th iti b i d 23 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  24. 24. Freeing Resources Trapped in Context Resource Recycling Zones Deployers Use conventional methods to ramp and manage mission-critical processes at scale Deployment B Zone Inventors Use unconventional methods to create and Optimizatio incubate new core Invention n Zone Zone II III C A Optimizers I IV on Use the Six Levers to extract resources from context to repurpose for core Orchestrators Manage transitions and facilitate hand-offs between the zones 24 Dealing with Darwin © 2006, TCG Advisors LLC 2005, August 11, 2010
  25. 25. Perpetuating Innovation Change Change Gears G Gears G Deployment Zone Optimiz ention one Zon Zo Inve ne zation Innovation flows as fast as your slowest gear I ti fl f t l t 25 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  26. 26. Recap • Focusing Innovation • “Unmatchable” differentiation • “Good enough” neutralization • “Save to invest” optimization • Funding Innovation • Extract resources from context to invest in core • Use the Six Levers—in sequence • Recycle resources—let people use their strengths y p p g 26 Dealing with Darwin © 2006, TCG Advisors LLC August 11, 2010
  27. 27. 27 Dealing with Darwin © 2010, TCG Advisors LLC August 11, 2010

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