Most companies are struggling with innovation. Management is occupied fully with meeting quarterly sales and profit targets. Innovation has to take a back seat, at best.
“Beside daily business, minor change is all we do here and we are doing it slow” might be common heard statement of any senior manager in most companies. This focus on “no nonsense” is de facto realistic, down to earth and accepting the realities in todays organizations. Most managers give you are blank stare or some shallow statements if asked about change, transformation and especially innovation. And they are right, they learned that their game is day to day operations. That’s what they are measured by at the end of the day.
There is a crisis of prioritization rampant in todays organizations. In case of conflict, innovation concerns will always loose out against established, daily business interests. Thereby companies get static, way to static to be able prosper in this age of accelerated change and digitalization.
Geoffrey Moore tackles this problem by separating management into zones – each with a clear priority: Zone Management.
A preliminary remark: This post will take on the form of a summary of Moores already concise latest book. This post is very compressed, but I think the taking the effort is rewarding to anyone with an interest in management.
A crisis of prioritization can be solved by reducing the interdependencies between all the different expected outcomes on a single manager. This can be done by separating business into 4 Zones. Moore uses an analogy to soccer in explaining his model:
The Playing field (that makes up a company)
- Zone 1: Performance – This is where the money is currently earned and where 80% of the attention is. Target: Effectiveness
- Zone 2: Productivity – All supporting services: HR, Finance, Logistics, IT etc. Target: Efficiency
- Zone 3: Incubation – New, promising business models which are loss makers or minor operations today. Target: Innovation
- Zone 4: Transformation – Programs to change especially Zone 1 and Zone 2 business models. Target: Change
Moore provides an overview of the targeted outcomes of each zone:
Management techniques need to vary per zone:
The Performance and Productivity Zones are well understood in most companies – there is no difference in Moore’s Model. This is the area of short term interest, termed “Horizon 1” in Moores previous work “Crossing the chasm”, see sources.
The Innovation Zone is a set of independent operating units (IOU), each led by an entrepreneurial manager. The company manages its portfolio of “start-up companies” not unlike a venture capitalist would. Each IOU has the potential to add new sources of revenue or drastically improve current business performance. Please note that an IOU should not be mistaken for a Research & Design Projects, as they are not about some technological breakthrough, but start at a later stage, seeking an optimal problem solution fit and to scale the solution. They require an Entrepreneur as a manger, not a researcher or scientific engineer.
The Transformation zone is usually empty, for years. It is only active, if the company needs to reinvent its core operations (Performance or Productivity zones). If active, a transformation zone stays active for about 2 years until the transformation is concluded. Transformations do not happen by itself, but are usually prepared by successful incubation of new business models, supported in some cases by Mergers & Acquisition activity.
At any time, there should be only one transformation ongoing in any company. This will be a complex transformation with numerous sub initiatives, but two separate transformations running according to two separate models with separate visions should never be tried, as the resulting conflict of priority will doom both transformations.
The rules of the game
Having mapped the playing field, here are the rules the board needs to follow:
- Each Zone is managed by different Managers. There is not a manager outside the board who manages two or more zones
- The board appoints managers to the different zones and makes them accountable for zone specific outcomes, i.e. outcomes which are under their direct control
- Each Zone gets clear and stable budget and resource commitment rules to ensure that zone managers have tools at their disposal to achieve committed success. Please note that stable rules are given, as budget and resources commitments themselves can never be stable
Each zone may play offense or defense, i.e. aims at creating new sources of revenue or profit or conserving and optimizing the existing ones.
The performance zone is a purely defensive zone. In this zone it’s all about living up to the sales and profit commitments of the existing matrix of (mostly regional) sales and product business lines.
Within the productivity zone companies tend to play defense, but might be forced to play offense in its operations in order to deliver new services or drastically higher efficiency for the company. To play offense the productivity zones employs systems (centrally funded processes that all units need to adapt to) and programs (e.g. business unit funded initiatives seeking effectiveness).
Within the incubation zone companies plays offense and aim at producing new lines of revenue or transforming existing ones. Transforming existing operations, for example to fend off a competitor aiming to disrupt existing zone revenue business, can be a defensive move. In other words: The nature of this zone is offense, but the results of incubated activities may be employed defensively.
Within the transformation zone a company plays either offense or defense, depending on the transformation at hand. Since only one transformation should be pursued at a company at any point of time, the transformation zone is playing either offense or defense at any point of time. It can’t do both at once.
Why is it important for a manager to know weather he is playing offense or defense? In one short phrase: Unity of purpose. By distinguishing offensive from defensive situations clearly to everyone, risks and rewards can be clearly communicated, investment and actions needed can be justified and finally a clear direction ans sense of purposes of the challenges ahead can be given. If offense and defense are jumbled together, it all create a glutinous mud with no momentum, no rallying cry for the organization, thereby not achieving anything.
Not unlike every management exercise, Management by zones is a team play. Having identified and segmented the four zones inside their organizations, a board need to size up the scale of the disruption they are facing.
If the disruption is small indeed, the CIO should be in the lead and drive various business initiatives together with the senior management inside CEO and CXO organization. The transformation zone will not be needed.
If the disruption is higher, but can be coped by changing the operating model while still keeping current customers and sources of revenue intact, CXO’s (COO; CSO; CPO etc.) need to get active. The transformation zone is active, as changing operating models is a major undertaking involving changing core systems. Please note that for changes this big, it is not enough to just improve productivity figures. Instead it must productivity must be redefined, i.e. measured on different things.
If the very existence of the company is threatened the CEO takes the helm and activates the transformation zone. Examples of these kind of transformations is Microsofts redefinition from a packed software to a cloud based business productivity provider or IBMs transformation from a hardware company to a service company.
A game should be picked and communicated throughout the organizations explicitly. Just one game at a time.
A model for the 21st century
Geoffrey Moores Zone Management approach is providing an excellent framework to solve the major problem of Digitalization: Organizational change management.
The model his applicable to any size of company and to any level of management inside a company. It is stated in a bold, black and white way thereby giving a framework to think about organization. But weather a company needs, for example, a own legal entity for every incubated activity or just separate rooms and teams is really a matter of perspective and size.
The Lean Start-up movement or egalitarian organizational models like Frederics Laloux “Teal” Model condemn traditional, authoritative hierarchies as the main barrier to change. The beauty of Moores work is to utilize todays dominant hierarchical model for what it does best: Revenue and productivity. For innovation and transformation the model provides enough space to prosper, by separating zones, responsibilities and priorities.
This is not to say, that traditional ways of management in the performance and productivity zone of a company should not and will not evolve over time. Continual delivery methods or Platform as a service models, as discussed in the previous post, provide an example of frameworks to change the current way of working between business and IT inside a revenue or productivity zone.
Moores contribution is to let a company choose its organizational model according to the zone they need to organize for. There is not one organizational model which fits for all four zones.