Geoffrey Moore, author of Crossing the Chasm, was in Toronto today giving a talk about his new book, Zone to Win. It details a framework for how established enterprises can compete amongst the threat of disruptive innovations. In it, he details 4 “zones” of work:

  • The Performance Zone, where the key metric is to make the number. It consists of the sales organizations accountable for bookings and the product and service organizations accountable for revenue—and no one else.

  • The Productivity Zone, where success means delivering efficient systems and effective programs while ensuring all operations are regulatory compliant. Virtually everyone who is not directly accountable for a booking or revenue number works here.

  • The Incubation Zone, where the objective is to make, market, and sell products and services that are highly disruptive to the status quo. These efforts are deliberately kept sequestered from the prior two zones to speed cycle time, embrace innovation, and take risk. Success here consists of creating viable businesses in net new uncorrelated categories that can be scaled to material size.

  • The Transformation Zone, where success equates either to driving an incubated business to material scale or fending off a direct attack on a core business model. In either case an initiative in this zone takes priority over all activities in the other three zones, and they must make whatever adjustments necessary to accommodate it.

The first 3 are fairly well understood. “Performance” and “Productivity” are relevant to sustaining innovation - either extracting maximum value from a market, or for enabling functions. The Incubation zone efforts are the lab-type efforts that exist in almost every enterprise.

So, to say that big companies can’t innovate isn’t really true. Most big companies work well in Zone 1 and 2. They also invest in Zone 3, to address the disruptive forces themselves.

In his presentation, he highlighted cases from 56 companies that were once market leaders, all had innovation labs, but never were able to counter the disruptive forces working against them.

The main reason, in all those organizations, was the lack of a “transformation” zone type effort. In this zone, companies move into war time mode to ensure that the successful incubated projects are actualized into the rest of the company. Most companies fail at this - even successful incubated projects either struggle to integrate with the rest of the organization / product line. In this zone, everyone in the organization needs to be focused on making this transformation successful, which can sometimes mean sacrificing short term revenue targets for revenue growth potential.

A few examples are Apple’s focus on the iPod (when the Mac was making it the most money), and Microsoft’s recent shift to cloud computing (so dramatic that there’s no longer a Windows division in the company).