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.

1. Dealing with Darwin
Innovating to Survive & Thrive
Geoffrey Moore
Managing Director
August 10, 2010

2. Agenda
• Focusing Innovation
• Funding Innovation
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3. Focusing Innovation
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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”
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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
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15. Funding Innovation
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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
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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
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18. Fund Innovation
by Freeing Trapped Resources
Extract Resources from Context
to Repurpose for Core
“Coins in the Couch”
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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
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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
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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
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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.
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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
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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
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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
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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
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