Geoffrey Moore: Reach Your Escape Velocity No.1
Let's welcome Geoff Moore back to Campus. Thank you. Thank you, Tom. Thank you. OK. Now, usually I try to preview this stuff before it's published so that you guys can help me make sure it's not as dumb as it would be but this time I actually must have missed the calendar. So this is actually now a book that is going to come out in September and Tom said the sixth book. The first three books were written in the '90s and they were all about that -- sometimes they call it the time of the great happiness. There was this unbelievable rush of technological enthusiasm and it seemed like no matter what you did, it was just magically successful. And in the last -- they've been written in the last decade where frankly, there's been a sort of maturation in the tech sector and the larger companies have become more of a part of my world than they were in the first decade. So this is a book which is written -- if you notice what the subtitle is, "Free Your Company's Future From The Pull Of The Past", and this is a book written to major -- companies that have had established franchises, they're very successful, they can afford to send their employees to places like Stanford for executive ed, but they're kind of stuck. Whatever it is that they're success activity it's kind of created enough inertia momentum that it's hard for anything else to get on board. and so this book is about how would you address that. Now, it's a whole -- it's a book and this is a short talk, so what I've decided to do in this talk is do two things. The first half of the talk, I would like you to think of yourself as either you're on the board of directors or you're the CEO of Microsoft, you're John Chambers, you're Steve Ballmer, you're Leo Apotheker, you're Carol Bartz, you're the head of a big company, and I kind of want you to look at it from kind of the top-down. And then half-way through, I'm going to switch to a chapter which is more oriented toward, I'm in the middle of a big company, what can I do to change things from the position I'm in as opposed to the very top? So let me kind of kick this up with an overview. This notion of the problem of we're stuck and it just -- I have to say it's virtually universal. People kind of get, look, we have a successful franchise but you can't stand still intact between technology and globalization. Things are really, really moving. Now, that's great news for opportunity but it's also for people that stand still, it's a threat. As our friends at Boarders, for example, discovered this year and numerous other companies. So everybody gets that they've got to engage growth. It's not like, hey, I've got an idea for you. They got it. What they don't like talking about which they universally acknowledge is there is massive internal resistance to moving resources away from established activities into new activities; massive. And so that's kind of like the innovative dilemma idea. You know, the corporate antibodies that kind of stuff. So we've talked about it for a long time, we haven't been very good about doing much about it. So year-in, year-out, the experience is, man, it's Windows again, it's Office again, it's routers and switches again, it's, you know, direct adver -- display advertising for Yahoo again, and it's like -- and even if something is young and as vibrant as Google, why did they -- why did Larry Page come back in? I think Google is beginning to feel like we need to -- when we're 10 years older, barely 10 years older, we need to escape from the pull of our past. So the problem is the new stuff, it's not that there's not new stuff, there's tons of new stuff but it doesn't ever reach materiality. Meaning, in never reaches like being 10 or 20% of the total company's revenue. It gets announced, it gets started and then somewhere along the line it dies from the vine. And so that's where we came with this notion. These are questions that basically our clients ask us. That's where the title came from. How can we achieve a escape velocity? How do we free ourselves from the pull of the past? So just to make clear, this is not a trivial problem nor is it trivial companies that have struggled with this problem. These are some of the very, very best companies that tech has ever put on the playing field. So the notion that you are smarter than this problem, that a Stanford student would not have this problem, even though -- because you are very smart, it's not true. You will have this problem.
So the question then becomes, what the heck is going on? And that's about the nicest language I will use tonight. So what's the mistake we keep making over and over again? So it turns out the way that the global management system works, and largely this is a management system that was developed in the United States, but it's become completely global. It's a performance-oriented management system. That's how people get compensated in large corporations. So performances -- and by the way, not a bad idea, right? I mean, performance is critical to success, right? And we're good at managing it, but here is the second sense, power fuels performance and performance consumes power. That is not visible in a large corporation. It's a little bit like this -- you know, when we have this carbon cap when it taxed carbon emissions? Because right now, if you pollute the air, it's free. And as long as it's free people will continue with the behavior. Well, consuming power in most compensation systems, in most corporations is free. And further more, creating power, say around a new strategy, is not compensated. So I get compensated for consuming power for my performance. I do not get compensated nor do am I held accountable except in the most kind of qualitative ways for generating power. So why would you be surprised that large organizations systematically consume their power? Now, the interesting thing is, in a mature industry you can do that for a long, long time. General Motors consumed its own power for 40 years. Eventually, it ran out of power. Eventually, the battery will go dead. But it takes a long, long time. And the performance metrics don't track against that. So we need to replenish power if we're going to go for the long-term. People get that conceptually, behaviorally, it's hard to integrate it into the corporate systems. And part of the problem is we don't have a very good vocabulary for talking about power, right? People recognize it when they see it. This is the Supreme Court justice about pornography, right? I can't define it but I know when I see it. Well, the same thing with power.
But the problem is if you can't define it, if you can't articulate it, how the heck are you going to hold anybody accountable to it? How are you going to make sure -- and by the way, when you lack power, it will show up in your stock price. Not in the earnings because performance creates earnings in the P of the PE ratio; the Price to Earnings ratio. It's the P that -- P is for power, right? And so if you have a lot of power, you will have a high PE ratio, you'll have a high multiple on your stock. When you consume power and don't replenish it, you'll see it going to one and even below one as you get into trouble. And so what happens in a world in which we don't consciously manage power, is we continue to put anxiety and pressure to perform, perform, perform, but every quarter it's a little harder to do than the last quarter. And then if you eke out that quarter you get to try again and the numbers keep going up and your power keeps going down, and so you become kind of neurotic. I mean, and there's kind of a sort of a collective neurosis around the end of the quarter and it becomes this incredible event which you must not sacrifice anything to. And when you're that desperate, you've already missed the quarter. You just question which quarter are you going to miss because you're so far behind the power curve, you've lost touch with the engine of your own company. The people kind of get this but they can't translate it into behavior. So this is what we call the performance trap. And many cultures are very proud about being a performance culture.
So it's a little bit provocative when we sort of put this out there but we're pretty confident in the case we're making. OK, so what would you do? And the answer is you need to manage power explicitly or directly. We have to find the mechanism to do that. What you discover is the performance activity begins when you start next year's annual budgeting process by handing out last year's budget and saying, you see the fourth quarter numbers, multiply them by four and start there. And that immediately starts a zero sum game about resource allocation which is why it's so hard to move resources inside the company because the person is looking at, I have a bigger number to make next year than I have last year, they froze my resources, at least in theory, the last thing I can contemplate is using my resources for something else. And so immediately -- so if you're going to get ahead of that problem as a management team, now you're the CEO and you're running your annual calendar, the quarter before you would start your budgeting strategy process, you start the power process. And by the way, in that -- if you don't have a specific resource allocation pressure or sword of Damocles hanging over your head, there's lots of stuff to do here. People have lots of ideas about the next category, the next things you want to get into, how we could be successful, there's lots of opportunities. The key idea is allocate resources to those initiatives before you allocate anything else. In the last book, we called this fund core before context. But that's not what happens at large corporations. Once the budget goes out you're funding context before core. So do it before, drive accountability for power into the operational plan. There are metrics of power. Sales velocity you know, share capture and target segments. There's a bunch of stuff that even market share itself, there's a bunch of stuff that demonstrates that you have accumulated more power but you have to create those metrics and put them in the comp plan. Today they're not in the comp plan. The comp plan is based on revenue and earnings generation in the current quarter and in the current fiscal year. It is a consumption-oriented comp plan, it is not a replenishment oriented comp plan. The fact that you got stock options is intended to incent you to want to replenish but is too indirect. It's just too indirect a metric to make it work. But you can do it. You can add power metrics to performance, you can earmark resources for power program usage only, and you can modify the comp program to hold people accountable to do it in ways that people will sign up for it. But to do it and kind of where this book comes in, is you kind of need a better vocabulary to talk about power.
