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Published on January 9, 2009

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Dealing with DarwinFocusing Innovation and Overcoming Inertia in Established Enterprises : Dealing with DarwinFocusing Innovation and Overcoming Inertia in Established Enterprises Geoffrey Moore Managing Director The Set Up : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 The Set Up Global competition is driving to survival-of-the-fittest outcomes Established enterprises must innovate to continue to succeed Many innovations fail, unable to overcome corporate inertia High failure rates normally signal poor mental models We are not thinking about innovation precisely enough We are not thinking about inertia ecologically enough Dealing with Darwin Seeks to provide a better vocabulary Proposes a set of better practices Focusing Innovation Innovation Types andThe Category Maturity Life Cycle : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Focusing Innovation Innovation Types andThe Category Maturity Life Cycle Innovation’s LandscapeThe Market Maturity Life Cycle : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Time Revenue Growth Technology Adoption Life Cycle Early Main Street Mature Main Street Declining Main Street End of Life A D C B Innovation’s LandscapeThe Market Maturity Life Cycle Broad Universe of Innovation Types : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Disruptive Innovation Application Innovation Product Innovation Platform Innovation Enhancement Innovation Process Innovation Experiential Innovation Integration Innovation Marketing Innovation Broad Universe of Innovation Types Business Model Innovation Line Extension Innovation Value Engineering Innovation Harvest & Exit Four Innovation Zones : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Four Innovation Zones Product Leadership Zone Operational Excellence Zone Customer Intimacy Zone Value Renewal Zone Innovation Types for Growth MarketsThe Product Leadership Zone : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Disruptive Innovation Application Innovation Product Innovation Platform Innovation Innovation Types for Growth MarketsThe Product Leadership Zone Governing ModelTechnology Adoption Life Cycle : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Governing ModelTechnology Adoption Life Cycle Pragmatists create the dynamics of high-tech market development Market Development Model : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Market Development Model Chasm Innovation strategy changes at each stage Innovating for Growth Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovating for Growth Markets Disruptive Innovation Application Innovation Product Innovation Platform Innovation Enterprise: Voice over IP (Vonage) Consumer: Overnight package delivery (FedEx) Enterprise: Customer Behavior Measurement (Brickstream) Consumer: Short Message Service (Vodafone) Enterprise: Application Servers (BEA) Consumer: iPod (Apple) Enterprise: Relational databases (Oracle) Consumer: PlayStations (Sony) Fractalization in Mature Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Fractalization in Mature Markets PC 1 2 3 4 5 6 Fractal Markets: The nth DeviceThe Example of Telephones : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Fractal Markets: The nth DeviceThe Example of Telephones Security System PDA Kitchen Phone Office Phone Bedroom Phone Car Phone Cordless Phone Broadband Line Cell Phone Intercom Baby cam Email Device Game Phone Speaker Phone Fax Emergency Phone WiFi Phone VOIP Phone Video Phone Innovation Types for Fractal Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovation Types for Fractal Markets Process Innovation Integration Innovation Marketing Innovation Experiential Innovation Line Extension Innovation Customer intimacy adds value at the surface Operational excellence extracts resources from the substrate Value Engineering Innovation Enhancement Innovation Business Model Innovation Innovation Types for Mature MarketsThe Customer Intimacy Zone : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Experiential Innovation Marketing Innovation Innovation Types for Mature MarketsThe Customer Intimacy Zone Customer Intimacy Zone Enhancement Innovation Line Extension Innovation Innovation Types for Mature Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovation Types for Mature Markets Experiential Innovation Line Extension Innovation Enhancement Innovation Marketing Innovation Enterprise: Mainframes (IBM) Consumer: Laptops (Sony) Enterprise: Dedicated portals (Dell) Consumer: Dedicated storefronts (Apple) Enterprise: Executive dashboards (Cognos) Consumer: Mediated Internet (AOL) Enterprise: Servers (Sun) Consumer: Inkjet printers (HP) Innovation Types for Mature MarketsThe Operational Excellence Zone : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovation Types for Mature MarketsThe Operational Excellence Zone Process Innovation Integration Innovation Business Model Innovation Value Engineering Innovation Operational Excellence Zone Innovation Types for Mature Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovation Types for Mature Markets Process Innovation Integration Innovation Value Engineering Innovation Business Model Innovation Enterprise: Shotgun genomic sequencing (Celera) Consumer: On-line retail checkout (Amazon) Enterprise: Hosted applications (Salesforce.com) Consumer: Contextual advertising (Google) Enterprise: ERP suite (SAP) Consumer: Semiconductor chips (Intel) Enterprise: Storage ATA RAID (Nexsan) Consumer: PCs (eMachines) Innovation Types for Declining MarketsLeveraging Market Renewal : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovation Types for Declining MarketsLeveraging Market Renewal Harvest & Exit Innovating for Declining Markets : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Innovating for Declining Markets Organic Renewal Structural Renewal Harvest & Exit Enterprise: From hardware to software and services (IBM) Consumer: From PCs to entertainment (Apple) Enterprise: BEA buying Weblogic; Documentum selling to EMC Consumer: Gateway buying eMachines; Visio selling to Microsoft Enterprise: Legacy enterprise applications (Computer Associates) Consumer: Long distance services (AT&T) Overcoming Inertia Core and Context, Resource Recycling, and Managed Diversity : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Overcoming Inertia Core and Context, Resource Recycling, and Managed Diversity 7 S’s Create 3 Axes of Inertia : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 7 S’s Create 3 Axes of Inertia Strategy & Structure Resources are appropriated by product lines in power Next generation of innovation gets starved Skills & Staff Competition calls for outsourcing and divestiture of mature lines People sabotage these efforts to protect careers and livelihoods Systems & Style Enterprises standardize on common systems and leader’s preferred style Blocks next wave of innovation that requires different systems & style Overcoming Inertia in Strategy & StructureThe Core/Context Analysis Framework : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Overcoming Inertia in Strategy & StructureThe Core/Context Analysis Framework Core Process creates differentiation that wins customers Context All other processes Mission Critical Process shortfall creates serious and immediate risk Enabling All other processes Warning: It is easy to mistake mission-critical for core Reward Risk IV III II I The Flow of Innovation : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 The Flow of Innovation Core Context Mission Critical Enabling Innovate in an incubation zone until ready to launch Deploy innovation at scale for maximum economic return Postpone commoditization, then capitulate Optimize and de-risk processes to extract resources for reuse The Flow of InnovationInhale/Exhale : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 The Flow of InnovationInhale/Exhale Extract some resources here Extract more resources here Invest some resources here Invest more resources here Where Inertia in Structure Takes OverThe Black Hole of Mission-Critical Context : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Where Inertia in Structure Takes OverThe Black Hole of Mission-Critical Context 2. Deploy 1. Develop 3. Manage 4. Offload Core Context Mission Critical Enabling Resources get stuck here Resources are added here for support Innovation gets starved! Competitive advantage Is lost! 4. Onload Managing Mission-Critical Context“Ratcheting Out” Complexity : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Centralize. Bring operations under a single authority to reduce overhead costs and create a single decision-making authority to manage risk Standardize. Reduce the variety and variability of processes delivering similar outputs to further reduce costs and minimize risks. Modularize. Reengineer processes to eliminate unneeded steps and to enable substitution of lower-cost subsystems for complex systems elements. Install monitoring systems to provide visibility and control over remaining risk. Automate. Encode remaining processes into software where possible to improve quality and reliability and reduce costs. Use commercial packages as available. Outsource. Drive processes out of the enterprise entirely to further reduce overhead, variabilize costs, and minimize future investment. Incorporate monitoring systems into Service Level Agreement Core Context Complex Systems Volume Operations Managing Mission-Critical Context“Ratcheting Out” Complexity Solving Problem #1 Creates Problem #2 : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Solving Problem #1 Creates Problem #2 Resources Available Here Resources Wanted Here Core Context Mission Critical Enabling People being released lack the skills to fill the positions being opened Reinstating the Social Contract : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Reinstating the Social Contract There is a social contract around work Companies require the commitment of workers Workers require the commitment of companies Outsourcing destabilizes the contract Companies cannot fund unproductive workers Workers cannot collaborate on their own demise Darwinian competition is forcing the issue Neither the company nor the workers are entitled Both must learn to evolve Overcoming Inertia in Staff & SkillsRecycling People in the Age of Outsourcing : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Overcoming Inertia in Staff & SkillsRecycling People in the Age of Outsourcing Work circulates clockwise People recycle counter-clockwise IV III II I Three Roles, Not TwoInvention, Deployment, & Optimization : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Three Roles, Not TwoInvention, Deployment, & Optimization Invention Zone Deployment Zone Optimization Zone Process entrepreneurs thinking outside the box and working closely with task teams Optimize and de-risk processes to extract resources from context to repurpose for core Program managers thinking inside the box and working closely with division management Deploy core at scale on time, on spec, and on budget, managing mission-critical risk Product entrepreneurs thinking outside the box and working closely with customers Create new core, attract flagship customers, and shepherd the category across the chasm Mission Staff & Skills How Resources Recycle : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 How Resources Recycle Solving Problem #2 Creates Problem #3 : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Solving Problem #2 Creates Problem #3 Inertia in Systems and Style : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Inertia in Systems and Style Each zone has different goals & objectives Different metrics needed Systems tend toward a single metric Each zone has a different style Cultures form in each zone Companies tend toward a single culture As systems and styles converge on a zone Values of the other two get marginalized Over time company gets stuck in that zone Inertia in SystemsDifferent Metrics Fight for Mind Share : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Inertia in SystemsDifferent Metrics Fight for Mind Share Sustainable Differentiation MarketShare Profit Margins Inertia in SystemsDifferent Metrics Fight for Mind Share : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Inertia in SystemsDifferent Metrics Fight for Mind Share Vision & Collaboration Execution & Competition Organization & Control Overcoming Inertia in Systems & StyleManage for Diversity & Focus on the Hand-offs : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Overcoming Inertia in Systems & StyleManage for Diversity & Focus on the Hand-offs #1 #2 Executive sponsor of Invention to Divisional GM Innovation has successfully crossed chasm Divisional GM to Executive Sponsor of Optimization Processes in question are acknowledged as context Recapping Key Ideas : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Recapping Key Ideas Innovation and inertia are inextricably linked Inertia is the legacy of successful innovation The two must be managed as a single system Innovation strategy requires focus Each type has a “sweet spot” in the life of a category No type is effective unless you radically outperform Inertia strategy requires management of diversity Specialized zones can maintain their local inertia Geared exchanges of work allow continuous flow of innovation Overall strategy requires ecological approach Extract resources from context to repurpose for core Funds the innovation Deconstructs the inertial resistance Thank Yougmoore@tcg-advisors.com : Dealing with Darwin © 2005, TCG Advisors LLCJanuary 9, 2009 Thank Yougmoore@tcg-advisors.com

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