2. The Impact of Disruptive Innovation
When the Marginal Cost Approaches Zero
2
Data Science
Social Networks
Cloud Computing
Smart Phones
Internet of Things
The marginal cost of computing
The marginal cost of automating a personal transaction
The marginal cost of adding a resource to a sharing economy
The marginal cost of dynamic decision-making
The marginal cost of systemic optimization
Which wave will have the biggest impact in your world?
3. Burroughs – Sperry Univac – Honeywell – Control Data
MSA – McCormick & Dodge – Cullinet – Cincom – ADR
DEC – Data General – Wang – Prime – Tandem
Daisy – Calma – Valid – Apollo – Silicon Graphics – Sun
Atari – Osborne – Commodore – Casio – Palm – Sega
WordPerfect – Lotus – Ashton Tate – Borland
Informix – Ingres – Sybase – BEA– Seibel – PeopleSoft
Nortel – Lucent – 3Com – Banyan – Novell
Quest – America West – Nynex – Bell South
Netscape – MySpace – Inktomi – Ask Jeeves – Yahoo!
Blackberry – Motorola – Nokia – Sony
Leaders Who Missed Their Next Wave
4. Three Investment Horizons
Where the Problem Lies
4
Horizon 1
ROI in 0 to 12 mos
Horizon 2
ROI in 12 to 36 mos
Horizon 3
ROI in 36 to 72 mos
Current
Categories
Meet
Performance
Commitments
Break-Out
Categories
On-board next
generation for
future growth
Future Category
Options
Develop options
for future
growth
Do well here
Do well here too
Sticking point
5. Disruptive Innovation Model
It’s Not a Funnel. It’s an Hourglass!
5
Horizon 3
Horizon 2
Horizon 1
Sustaining
Innovations
Disruptive
Innovations
6. 6
6
Engaging with Disruption
What Are You Looking to Change?
Cloud
Social
Data Science
Internet of Things
Mobile
Infrastructure
Model
Operating
Model
Bus
Model
7. 7
Technical Operations
Redefine Price/Performance
Efficiency!
Business Operations
Redefine Productivity
Effectiveness!
Business Innovation
Redefine Market Norms
Competitive Advantage!
7
Infrastructure
Model
Operating
Model
Bus
Model
CIO sponsored
CXO sponsored
CEO sponsored
Engaging with Disruption
Three Different Games to Play—Choose One!
The higher up in the model,
the greater the disruption to absorb
8. The Four Zones
Organizing to Compete in an Age of Disruption
Disruptive
Innovations
Sustaining
Innovations
Incubation
Zone
Transformation
Zone
Performance
Zone
Productivity
Zone
Revenue
Performance
Enabling
Investments Horizon
3
Horizon
2
Horizon
1
Horizon
1
8
9. The Four Zones
Each Zone Has a Unique Funding Charter
9
• Performance Zone
• Deliver material bookings, revenues, and contribution margins
in Horizon 1
• Productivity Zone
• Deliver programs and systems for compliance, efficiency, and
effectiveness in Horizon 1
• Incubation Zone
• Deliver viable business options to catch new technology waves
in Horizon 3
• Transformation Zone
• Scale a disruptive option to material revenue (greater than 10%
of total enterprise revenue) in Horizon 2
10. Performance Zone: Horizon 1
Getting the Performance Matrix Right
10
TOTAL
TOTAL
TOTAL
TOTAL
TOTAL
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
RowOwners
SourcesofRevenue(BUs)
Column Owners
Channels of Bookings (Sales)
Rows & Columns interlock at the
cell level for joint accountability
Every row and column has a
unique owner
Operating cadence:
• Weekly commits (milestones)
• Monthly status reports
• Quarterly business reviews
No row or column subtotal can be
less than 10% of total
Key Metrics: Revenue, contribution margin, churn/renewals, growth rate
11. Productivity Zone: Horizon 1
The Architecture of Programs & Systems
• Programs
• Customized services
• User funded
• Optimized for effectiveness
• Programs adapt to users’ needs
• Systems
• Standard infrastructure
• Centrally funded
• Optimized for efficiency
• Users adapt to system’s rules
11
Systems Interface
Systems and programs are mutually incompatible
Manage them separately—do not blend
Programs
Systems
12. Incubation Zone: Horizon 3
Venture-Style Independent Operating Units
12
All functions report into GM
(No shared resources with
Performance Matrix)
Each IOU run by a dedicated
General Manager
Funding & reviews outboard of the
Annual Operating Plan
Venture-Based Metrics
• Seed: Technology POC
• Series A: MVP + first customers
• Series B: Win beachhead market
• Series C: Exit to scale
Incubation Fund
CEO + Board
IOU
#1
IOU
#2
IOU
#3 IOU
#4
Finance
Human
Resources
Administration
1. Transition to Transformation Zone
2. Transition to Performance Zone
3. Spin out
4. Get bought
5. Shut down
FIVE
EXIT
PATHS
13. Transformation Zone: Horizon 2
Transformational Initiatives
13
*
H2 TI
H3 IOU
*H3 IOU
*
H3 IOU
*
H3 IOU*
Incubation Set
Insert a new row into the
Performance Matrix
TOTAL
TOTAL
TOTAL
TOTAL
TOTAL
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
H1
CEO sponsored
Everyone on board
No retreat
Only one at a time
14. Prioritizing the Four Zones
“At Half Time” (No Transformation in Play)
Disruptive
Innovations
Sustaining
Innovations
Incubation
Zone
Transformation
Zone
Performance
Zone
Productivity
Zone
Revenue
Performance
Enabling
Investments
3
4 1
2
14
Harvest your rewards, build up your reserves
15. 1
Prioritizing the Four Zones
Zone Offense
Disruptive
Innovations
Sustaining
Innovations
Transformation
Zone
Performance
Zone
Productivity
Zone
Revenue
Performance
Enabling
Investments
4
2
3
15
Enlist everyone in scaling the new business
Subordinate incubation to transformation
Incubation
Zone
16. Zone Defense
When You are the Disruptee, not the Disruptor
• Anchor business under direct attack
• Disruptive innovation undercuts the core business model
• Maintaining the status quo no longer a viable option
• Cannot fix the business in the Performance Zone
• Wrong metrics, wrong compensation, wrong leaders
• Must move the business into the Transformation Zone
• Transformational goals
• Modernize the operating model
• Neutralize the disruptive innovation
• Operational objectives
• Get the business back into a healthy state
• Put it back in the Performance Zone
16
17. Prioritizing the Four Zones
Playing Defense
Disruptive
Innovations
Sustaining
Innovations
Incubation
Zone
Transformation
Zone
Performance
Zone
Productivity
Zone
Revenue
Performance
Enabling
Investments
2 4
17
Enlist everyone in stabilizing the current business
Subordinate productivity to transformation
1 3
18. Modernizing Your Model
Each Game Plays Out in a Different Zone
Disruptive
Innovations
Sustaining
Innovations
Incubation
Zone
Transformation
Zone
Performance
Zone
Productivity
Zone
Revenue
Performance
Enabling
Investments
18