Book Report: Zone to Win

“Each zone has its own distinctive dynamics—one for revenue performance in the current year, one for productivity initiatives to foster and fuel that that performance, one for incubating future innovations, and one for taking such innovations to scale. Each zone follows its own local playbook… All four interoperate to enable an established business either to onboard a net new line of business while still maintaining its established franchises or to fend off a disruptive attack on one of these same franchises.” (Zone to Win)

Title: Zone to Win – Organizing to Compete in an Age of Disruption

Author: Geoffrey A. Moore

Publisher: Diversion Books

Publication Date: 2015

Origin/Intention: I’ve always found Geoffrey Moore’s books to be very clear, succinct situational instruction manuals; my intention for reading Zone to Win is to learn new strategies and discipline for portfolio management, whether to assist clients in my consulting practice or to apply directly in some future endeavour.

Summary: In Zone to Win, Moore addresses problems of organization and execution, “for organizing and managing established enterprises of any size in a time of category disruption” (p10).

In Moore’s words (p10), this organization and management…

“…is based on dividing up enterprise activity into four zones and managing each zone independently from the other three. In so doing it is designed to address two challenges. The first is to help management teams in established franchises manage the resource allocation challenges of onboarding a new line of business while maintaining commitments to the existing ones. This we call playing zone offense. The second is to help these same teams organize themselves to beat bak a disruptive innovator’s attack targeting one of their mature core businesses. We call this playing zone defense. Taken together they constitute zone management, a discipline intended to let enterprises compete at full strength when it comes to engaging with the disruptive innovations that are reshaping so much of our world.”

Managing each zone independently – with different objectives, strategies, and metrics – is crucial, because (p30)…

“Each zone has its own distinctive dynamics—one for revenue performance in the current year, one for productivity initiatives to foster and fuel that that performance, one for incubating future innovations, and one for taking such innovations to scale. Each zone follows its own local playbook… All four interoperate to enable an established business either to onboard a net new line of business while still maintaining its established franchises or to fend off a disruptive attack on one of these same franchises.”

Zone to Win serves as an incredibly practical guide to playing offense and defense in each of the four zones, and is an invaluable resource – even reference manual – for established enterprises.

If there are three recurring themes in Zone to Win they are:

• This stuff isn’t complicated, but that’s not the same as saying it isn’t hard; know your zone, know if you’re playing offense or defense, and get to work
• Solid execution takes commitment and discipline throughout the entire organization
• Above all, the CEO must be a strong leader in times of disruption

(I saw Geoffrey Moore in person on the speaking/promo tour for Zone to Win, and it was essentially this presentation)

My Take: I loved Zone to Win; it’s a succinct, practical guide that almost serves as a reference manual for situational business strategy and execution.

Like all of Moore’s books I’ve read so far, Zone to Win takes a straightforward, no-nonsense approach. The book has a very logical structure, introducing the concepts and importance of zone management before diving deeply into each zone; the zone chapters follow suit with clear, consistent sections that provide an overview of the zone, explore playing offense and defense, address faults and fixes, and conclude with some closing remarks.

It really couldn’t be simpler, which makes sense because, in Moore’s words (p32), “These ideas are not complicated. But they are powerful.”

And I think that might be one of the ‘issues’ people could have with Zone to Win: Moore makes it sound to damned straightforward and easy. Here’s the playbook, now use discipline. Done. That might turn some people off but, frankly, I think people tend to overcomplicate things.

Read This Book If: …You are, or aspire to be, a senior leader in business; or, if you’re involved with product or portfolio management.

Notes and Quotes

A Crisis of Prioritization

“At the core you must deliver on two conflicting objectives. On the one hand, you must maintain your established franchises for the life of their respective business models. At the same time, every decade or so you must get your company into one net new line of business that has exceptionally high revenue growth.”

• p13: “In markets where you want to be the disruptor, where you want to play offense, you must catch the next wave. At the same time, in those markets where your current franchise is the incumbent and is itself under a disruptive attack, you have to play defense in order to prevent the next wave from catching you. Either way, you are about to experience a crisis of prioritization, one that has stumped all but the very best of our top companies.”
• p14, in a section called Catching the Next Wave: “Rapid category growth is directly linked to disruptive innovation because it only occurs at the front end of a new adoption cycle… This results in a massive wave of net new spending, initiating a secular expansion with growth rates typically well north of 20 percent for a period of typically five to seven years. Such secular shifts in spending are one-time affairs. That means you either catch these waves when they crest or wait around for the next one.”
• p21: “So, first things first: When it comes to making a big bet on your next big thing, pick one. Not two, not three—one. This is the single most important job a CEO has. Choose one thing to be your enterprise’s next big thing, and then deliver on that future—to customers, to shareholders, to partners, to employees, and to your industry as a whole.”
• p22, when discussing Steve Jobs and Apple, makes the point that it’s better to whiff than to waffle
• p22: “This brings us to the heart of the crisis of prioritization: At the core you must deliver on two conflicting objectives. On the one hand, you must maintain your established franchises for the life of their respective business models, adjusting to declining revenue growth by optimizing for increasing earnings growth… At the same time, every decade or so you must get your company into one net new line of business that has exceptionally high revenue growth.”

“No established enterprise can reasonably expect to change its core business model, ever. All that stuff about how you have to learn to disrupt yourself—it’s baloney. It can’t be done.”

• p27, in a section called Coping with the Next Wave: “No established enterprise can reasonably expect to change its core business model, ever. All that stuff about how you have to learn to disrupt yourself—it’s baloney. 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.”
• p30, in a section called A New Playbook: “We call this playbook zone management. It is based on dividing enterprise management into four zones. Each zone has its own distinctive dynamics—one for revenue performance in the current year, one for productivity initiatives to foster and fuel that that performance, one for incubating future innovations, and one for taking such innovations to scale. Each zone follows its own local playbook… All four interoperate to enable an established business either to onboard a net new line of business while still maintaining its established franchises or to fend off a disruptive attack on one of these same franchises.”
• p30 continues… “There are no radical prescriptions in zone management. Rather, what is radical is, first, for executive management to explicitly distribute operations across the four zones and to seek different outcomes within each one, and second, for operational leaders to play within their assigned zones, following the playbook appropriate to each one and collaborating respectfully with other members of the enterprise who are executing different playbooks in other zones.”
• p32: “These ideas are not complicated. But they are powerful.”

The Four Zones

“Startups routinely outperform incumbents in disrupted markets. How come? Because they are not conflicted.”

• p34 reviews the three investment horizons (discussed in detail in Escape Velocity)
• p34: “Not every Horizon 3 or Horizon 2 initiative is expected to get to Horizon 1 and reach scale, but no material escalation in market valuation will occur until at least one does.”
• p35: “Horizon 1 businesses are under immediate pressure to reform, not so much from a direct competitor (although they are always present) as from a new categorical alternative that threatens their very existence. A company like Kodak finds itself fighting not Fuji so much as digital photography.”
• p36, on the real-world impact of internal prioritization conflicts: “There is a clear path to deflecting the current disruption and ultimately becoming a disruptor rather than a disruptee… At its core is a simple idea based on the observation that startups routinely outperform incumbents in disrupted markets. How come? Because they are not conflicted.”
• p38, introducing The Performance Zone: “This is the engine room for operating established franchises on proven business models. The focus is on material revenue performance derived from established businesses that are sustaining to the status quo.”
• p40, introducing The Productivity Zone: “The productivity zone is home to a host of enabling investments in shared services, all managed as cost centers… Simply put, any function in the corporation that does not have direct accountability for a material revenue number goes here. The focus is on applying sustaining innovation to productivity-enabling initiatives targeted primarily at the performance zone with the bulk of the ROI expected to fall into Horizon 1.”
• p41, introducing The Incubation Zone: “On the disruptive side of the ledger, the incubation zone plays enabling host to fast-growing offers in emerging categories and markets that are not yet producing a material amount of revenue. Its charter is a simple one: Position the enterprise to catch the next wave. This is the domain of Horizon 3.”
• p43, introducing The Transformation Zone: “The transformation zone is the place in an established enterprise where a disruptive business model goes to be scaled to material size… The challenge here is that both the category and the business itself are immature and subscale, so when you put the full power of the performance zone to work, the early results are not encouraging. Indeed, until you are clearly past the tipping point, virtually every force inside and outside your company will be working against you. Nonetheless, this is the course you have chosen, and you must not abandon it.”
• p45 continues about the challenges of the transformation zone: “There is no avoiding the nasty bit that ensues, and if the CEO loses control of the transformation narrative, odds are the initiative will get derailed long before the finish line.”
• p45, on zone management in general: “Even from this cursory review of the four zones, it should be clear that their individual goals, objectives, and methods are so diverse that any set of management methods creating success in one zone is likely to cause failure in the other three. That is why it is so important to keep them separate. At the same time, all four need to work in tandem to make the corporation go.”
• p46: “If the performance zone’s job is to make the top line, the productivity zone’s job is to help make the bottom line. The two should work hand in glove.”
• p46: “Because transformations are expensive, risky, and exhausting, in most years the transformation zone will be empty. This is actually a desirable state because it means that the enterprise can have another productive year creating attractive returns at relatively low risk.”
• p47, reminiscent of The Hard Thing About Hard Things: “When the transformation zone does become activated in service to a zone offense initiative, this puts the whole enterprise on red alert. The CEO is at the helm, hand directly on the tiller. This is the time for bold leadership, with prudent management just having to hold on for dear life.”
• p48-50 summarize a bunch of problems that commonly surface during transformations: Over-rotating to the performance zone; Coasting in the productivity zone; Mistaking the incubation zone for the transformation zone; Failing to implement a transformation zone; and Falling prey to denial when faced with a disruptive attack

The Performance Zone

“At the end of the day, you cannot have two number-one priorities, and here is where most established enterprises go astray. When it comes time to choose, they default to making the number. This is a mistake.“

• p54: “Management’s goal here is to maximize yields while not screwing things up.”
• p54, a major point missed by many a technology company: “Strategies on Main Street are relatively easy to frame, typically prioritizing either operational excellence or customer intimacy, with product leadership being a distant third. It is a world where, for many, good enough is good enough, so you had better either delight your customers or show up with the best price. In either case the main challenge is execution.”
• p54 introduces The Performance Matrix, “an organizational model optimized for managing a portfolio of established franchises across a single shared go-to-market fabric”
• p57, on playing offense in the performance zone: “The goal of zone offense is to add a net new row to the performance matrix… The fledgling business has to be scaled to material size within a finite window of opportunity—typically three years or less—no matter what! At the same time, the perennial charter of the performance zone is to make the annual number—no matter what! At the end of the day, you cannot have two number-one priorities, and here is where most established enterprises go astray. When it comes time to choose, they default to making the number. This is a mistake.“

“The first principle of zone defense is that you must never attempt to disrupt yourself. As an established enterprise, your number-one asset is the inertial momentum of your installed customer base.”

• p60, on playing defense in the performance zone: “The first principle of zone defense is that you must never attempt to disrupt yourself. As an established enterprise, your number-one asset is the inertial momentum of your installed customer base. Your number-two asset is an ecosystem of partners that makes its living adding value to your established offerings. These are amazing assets, the very things that the disruptor covets for itself, and you must never abandon them, never break faith with either constituency. So when consultants tell you that you have to disrupt yourself, tell them to get lost. Successful disruptors disrupt other companies’ businesses, not their own.”

The Productivity Zone

“What you must not do under any circumstances is undertake a reengineering initiative that, even when successful, does not move the needle when it comes to freeing up the scarce resources you need to redeploy.”

• p69: “The productivity zone is home to all enterprise resources that do not have direct accountability for revenue in any of the three horizons.”
• p69 goes on to tell us that the productivity zone is, “organized as a set of shared services provided by professionals who are experts in their particular disciplines” and includes a number of core corporate, market facing, and supply chain facing services.
• p70 continues: “The purpose of all these organizations is to enable the enterprise to operate as productively as possible. They do so by delivering on one or more of the following value propositions: 1. Regulatory compliance; 2. Improved efficiency (‘doing things right’); 3. Improved effectiveness (‘doing the right things’)”
• p70: “Most management teams understand that regulatory compliance warrants a separate track, but few recognize the importance of separating efficiency from effectiveness.”
• p74 introduces an informative section on Managing End of Life Programs
• p75, on EOL: “The goal is to free the company from the pull of the past, in this case specifically from the long tail of residual products that are robbing it of agility and focus.”
• p80, on playing offense: “Effectiveness in disruption trumps efficiency in established operations—but you try telling that to an operations executive! It is because of challenges like these that the CEO has to play such an active role in the transformation zone.”
• p81, on playing defense: “What you must not do under any circumstances is undertake a reengineering initiative that, even when successful, does not move the needle when it comes to freeing up the scarce resources you need to redeploy. This may end up saving a bucket full of money, but that only postpones the reckoning. You need to free up talent—that’s the only deliverable that really matters.”
• p82 introduces six levers that can be ‘pulled’ to play defense: 1. Centralize; 2. Standardize; 3. Modularize; 4. Optimize; 5. Instrument; 6. Outsource

The Incubation Zone

“In the incubation zone, you are not just funding R&D engineering—you’re funding entire companies.”

• p90, with a vitally important direction to avoid distraction and waste: “The key criteria an offering must meet to warrant Horizon 3 investment from a publicly held corporation are: It embodies a disruptive innovation that can drive a 10X improvement in a performance metric of great importance to the target market; It represents a business opportunity that has the potential to scale up to material size, the minimum threshold being 10 percent of total enterprise revenue at the time when it reaches scale; and, when successful at scale, it should represent a net new line of business for the enterprise, as opposed to an adjacency to an existing line of business.”

“The incubation zone represents precious real estate that should not be confused with experimentation with next-generation technologies and business models.”

• p91: “The incubation zone represents precious real estate that should not be confused with experimentation with next-generation technologies and business models. That sort of thing can be done in a Skunk Works or a lab, a domain where learning is the prime objective and fast failure is actually a form of success.”
• p92: “In the incubation zone, you are not just funding R&D engineering—you’re funding entire companies.”
• p96, on playing offense: “Productizing the technology, winning the first major lighthouse customer, and winning dominant share in your first target market segment are the key inflection points… The key to winning in the incubation zone is not to get distracted by anything else.”

“The key to winning in the incubation zone is not to get distracted by anything else.”

• p98 talks about what to do with independent operating units that don’t get accepted into the transformation zone, because you can’t just keep them kicking around forever: “When an IOU has not been selected for the transformation zone, it must embrace one of the following remaining alternative routes to exit: Assimilate into an existing line of business already established in the performance matrix; Postpone its deployment and keep its place in the incubation zone; Spin out the business with the help of external private capital; Sell the business to a company that can better capitalize on its opportunities; Shut the effort down.”
• p98, on the previous (we keep coming back to discipline): “The key point here is that space in the incubation zone is at a premium, and all startups have a sell-by date. The opportunity cost of not forcing these moves is to leave yourself saddled with a second-rate innovation portfolio to post up against an all-star lineup of competitors—not a promising position.”

The Transformation Zone

“It is not something to undertake lightly or frequently, but when it must be undertaken, it trumps all other priorities.“

• p105: “Initiatives here focus on responding to an emerging wave of secular growth arising out of category disruption. When the disrupted category is adjacent to the core business, established corporations can play offense. When it is their own category that is getting disrupted, they must play defense.”
• p105, reminiscent of The Horizon 2 Gap: “This gives rise to the Horizon 2 dilemma. To effectively engage with the new wave, the enterprise must reallocate substantial resources to endeavors that dramatically underdeliver on Horizon 1 performance metrics. Worse, they must extract the bulk of these resources from the existing performance matrix, putting even more pressure on Horizon 1.”
• p106: “Leading this kind of transformation is the defining element in the CEO role, the one that sets it apart from the COO role. It is not something to undertake lightly or frequently, but when it must be undertaken, it trumps all other priorities.”
• This bit from p106 reminds me of Horowitz description of a wartime CEO, in The Hard Thing About Hard Things: “The role of the CEO itself changes dramatically in a time of disruptive innovation.”
• p108…things do not work out well when this isn’t the case—so listen up! “The professional-services organization is charged to prioritize this row’s projects above all others, even though they are likely to be resource-intensive, unprofitable, and a bear to manage.”
• p113, on playing offense: “The great irony is that when everyone in the enterprise actually does row in the same direction, it is actually almost impossible not to succeed. Established enterprises have amazing throw-weight if they can coordinate it properly. The challenge is to ensure that compensation and management systems are appropriately modified to achieve precisely this kind of alignment.”
• p116, on playing defense: “In this context, your differentiating value proposition will be evolution, not revolution. In this context, the strategy for playing defense in the transformation zone is built around at three-step program: 1. Neutralize; 2. Optimize; 3. Differentiate.“
• p117, on neutralizing: “It’s a kludge, to be sure, but the goal is to get to good enough, fast enough any way you can.”
• p122, in the chapter’s concluding remarks: “When you undertake two transformations at the same time, it is impossible to succeed with either. There is no such thing as two top priorities. There can only be one. And when just one has the power to capsize your entire operation all by itself, it is folly to consider adding a second. You are not reducing risk—you are guaranteeing failure.“

Installing Zone Management

“We all need a plan, and frameworks like this one are intended to provide the foundations needed to make one.“

• p131, concluding a very succinct chapter: “The intent of this chapter has been to distill the playbook down to its most prescriptive form to produce a brutally clear plan. Such a plan is a precious thing in an every-changing world, a way to align the many in service to a single goal as well as a way to keep tabs on progress toward that goal. We all need a plan, and frameworks like this one are intended to provide the foundations needed to make one.”

Zoning to Win at Salesforce and Microsoft

“M&A can scale organic incubation, but it cannot substitute for it.“

• p141 has a neat example of Salesforce in the transformation zone
• p144…yep, gotta actually do the work: “At the end of the day, while I am proud that zone management frameworks are making a contribution to [Salesforce’s] current success, in actuality they are only vocabulary. Yes, they help sharpen the focus on what needs to get done and how, but they do not substitute for actually doing it. They do not substitute for team.”
• p151, on some failed Microsoft acquisitions: “You just can’t bolt an external entity onto an existing performance matrix without there being an inside entity to help hold it in place. M&A can scale organic incubation, but it cannot substitute for it.”