The fastest and most effective way to drive a transformational change is to implement the discipline of zone management. This entails segmenting the enterprise into four zones, each with its own resources, management systems, and key metrics:
- 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.
So, first things first: When it comes to making a big bet on your next big thing, pick one. Not two, not three - one.
If your company could catch a new wave just once in a decade, it would be world-class. IBM did. Digital Equipment Corporation did not. Microsoft did. Lotus and Novell did not. That said, as we already noted, Steve Jobs did it three times in one decade. What is the single most important lesson executive teams can learn from his performance? All of Apple's new lines of business were brought to scale one at a time! Steve was a challenging person to work with, but there was never any question as to what his priorities were. His core principle was: "We have one team working on one thing." He might whiff - the Lisa comes to mind here - but he would not waffle.
COMPANIES THAT MISSED THE NEXT WAVE
In this new world, you are not trying to differentiate for competitive advantage. You are trying to neutralize to catch up. You don't have the time to come up with something beyond compare. You need to get to good enough, fast enough. That is the job of the performance zone, sponsored by the transformation zone, with help from the incubation zone - an all-hands-on-deck endeavor that trumps every other priority for the foreseeable future.
All this, of course, takes time, talent, money, and management attention. Where are those resources going to come from? From out of the hide of the legacy operating model, that's where! And that is the job of the productivity zone. It must do whatever it can to optimize the current operations.
Internet Explorer's Interface - Version 1.0
A good case study for this is Microsoft's response to Netscape Navigator, the web browser that dramatically disrupted its Windows franchise back in the mid - 1990s. The company did not abandon Windows. Instead, it quickly cobbled together a browser of its own, Internet Explorer 1.0, which was, truth be told, a pretty bad product.
But when they were back in the game, and by the time it came to release 3.0, it was a very good product. More importantly, it came integrated with Windows at no extra charge.
The winning response to disruption [...] is as follows: Neutralize first - Optimize second - Differentiate third.
Microsoft Knows How to Play Defense. Let's see how they are making use of it.
Neutralize first. Right from the outset Satya (CEO) declared Microsoft's top priorities unequivocally: Mobile first, Cloud first! To paraphrase Marshal Foch, the World War I general, ''Apple and Google are crushing my center in mobile while Amazon and Google are driving me back in the cloud - situation excellent, I am attacking!''
Optimize second. This is the weakest link in Microsoft's defense. [...] its culture has always been about fierce competition for resources, the goal always being to keep whatever you have and get always more as you can. The company must learn how to extract resources from context to repurpose for core. The road ahead is clear - it just needs to have more cars on it.
Differentiate third. In contrast to its challenges with optimization, Microsoft's prospects for incubation have never been grater. Begin with Bing. Its core job is to be a search engine that competes with Google, and through rigorous neutralization and optimization it has achieved profitable sustainable business in so doing.
And that's just Bing. There are also Sway and Planner and Delve and Lockbox and Skype and Cortana. What makes these nascent offers much more strategic than their predecessors is that they are organically connected to the mobile first, cloud first mission.
The questions is: is your business one of them, and if so, do these models indeed shed light on your current situation? If the answer is yes, then at minimum you want to engage your management team with this vocabulary in order to have a common language for dealing with the raft of changes coming your way.