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Stanford Entrepreneurship corner, Geoffrey Moore: Reach Your Escape Velocity No.5

Geoffrey Moore: Reach Your Escape Velocity No.5

So the game here is catch up fast and assimilate the innovation. It's a game of speed. It's how fast can you do it. How fast can you become good enough. I'm going to skip over this slide, more separate. I better go to the third one. So the third one is productivity. Productivity is when the category gets more efficient and now you're too expensive. And you've got to get yourself back in gear here and we have a bunch of stuff -- this is actually a place where large companies have a ton of money tied up in the pull of the past that you can free up. There's the whole long tail problem they have. That's 10% of the revenue of this chart. It probably consumes 30% of the resources. It's an amazing -- the long tail wags the dog in large companies. So if you just crop off the tail and with some discipline you could centralize and standardize that will change it. Then there's the middle part -- now this is real business but it's real business done in very sloppy ways. And by the way, the reason it's sloppy, big companies buy other big companies or they buy middle-sized companies and they merge them. How effective is a process do you think that starts in one company goes to the other company and goes back to the first company? Do you think there might be a little waste in there somewhere? It's crazy. I mean, the amount of craziness that happens inside the world's best companies. When you work inside these companies you should go, how is it possible that we're winning? Gosh, the other people must be like really bad because everywhere you look it's just like there's just massive waste and it drives you crazy except you can't seem to do anything about it. Again, that's the re-engineering button. Modularize, optimize, just pick the low-hanging fruit, go after it and then finally, just outsource it. You can take and say, look, we're just not going to do this anymore. We are not going to manufacture -- by the way, that little iPad, iPhone whatever you got, it says designed in Cupertino. It doesn't say it's manufactured in Cupertino because it's not. It doesn't say supported in Cupertino because it's not. And so you start figuring out what are the things I don't have to do and those things I need to stick -- keep visibility but need to outsource it. That turns out to be, as you can imagine, that is an enormous amount of work to do. But there's lots and lots of resources available and inside your own organization as your product line managing, you don't have to do this for the world. You just have to do it for your team. Your team does stupid stuff all the time and they hate it. So it's not like there isn't low-hanging to go after. So here is getting to the sort of the money slide in the path punch I've telegraphed. Three different tracks, each one value creating. If you said I don't do one of these columns, you've made a mistake, you must do all three. But notice that we're playing to three very different goal lines. With differentiation it really is unmatchable and it is how far can I separate. Because if I'm too close to the herd, the problem is they catch up -- like remember when AMD had the first Quad Core, it just kicked ass and Intel sales went down for two quarters. Oops, then they came back with their Quad Core now they're back inside the yellow circle. So it's really important if you're going to spend -- take the risk and spend the money to get outside, get way the hell outside. It's very dangerous to be just outside the yellow circle -- yellow circle is being like in an amoeba, it'll go like that. Then neutralize, OK. You've got to get comparable not better than, just good enough but you've got to do it fast. Amazingly fast. That's the one everybody misses. People don't pay enough -- they don't pay enough time on the speed thing and they don't frame the project to be fast except the ones that are brilliant. This is what Microsoft does better than any company in the world by about an order of magnitude and maybe not so much anymore as they used to. But this is the thing, this is why Microsoft could routinely let anybody innovate anything and say I'm going to take it away from you. I'm going to take it away. I'm going to be good enough very quickly and then eventually I'm going to assimilate it either Windows or Office. One of the two. All life will be part of either Windows or Office.

So when you mix mode to create waste and one of the most obvious ones and this is -- you see where the key metric for productivity is you want to be best in class, and you do. On productivity metrics the goal is to be best in class and you benchmark yourself against other companies and that's exactly what you should do. But what happens if you try to be best in class as the goal for neutralized project? Well, you spend way too much. Best in class is a lot more than good enough. Good enough is all we need and worse, not only do you spend too much, you spend too much time. Every quarter that you do not neutralize that threat is a quarter it gets to build up more momentum against you. This is just dumber than dirt but it is the standard operating procedure in company after company after company. And then best in class is not good for differentiation because you've got to be on class. Best in class is the kind of the biggest midget in the yellow circle. So, yeah, yeah, I'm the best in class! Yeah, but I don't get the charge anymore money because -- so it's really important to separate with that thing. OK, so this leads to a concept we call one playbook per project. Now, the way you fund things in the world probably you have one budget that has to be split among those three things. All I'm asking you to do is don't tie the differentiation train to the neutralization train or either of them to the optimization train. Have three trains manage them separately. You manage it one for speed, one for distance and one for fuel. That's the game you're playing. Now, just to close on this thing, in addition to the three good things that can happen when you spend money on innovation, two bad things can happen. One is you fail. And some amount of failure has got to be built the system but the one that drives you crazy is when you waste. And basically, wasting is just doing the opposite of all the things we've been advocating. So how do you waste? You do a differentiation project but you don't really get outside the yellow circle or you get just outside, you wasted that entire budget. Because as soon as the yellow circle catches you up, all that power you're going to have, you don't have that power. So you spent you power budget but you didn't get power. Neutralization, you didn't do fast, you went too far, it went beyond good enough and you also took too much time. The competitor was like just dancing in the aisles thinking, wow, we got another free quarter from those bozos, amazing. I mean, you've got to -- no matter. I have to be careful. It's public. As you said, it's public Internet, OK. I didn't -- Not you, you're not a bozo, sir. You're a client. Very different, OK. Or optimization -- optimization projects that don't really go after the sacred cows. So you optimize everything except sales and engineering. So you just beat the -- out of the people that are in the cafeteria but if it's an engineer or sales person, oh, wow, I can't touch those two. Well, 85% of your head count it's 100% of the things that are making the difference, so it's like crazy enough to optimize important things. Now, this is my favorite slide to show the clients what they kind of have done the mea culpa and doing the flagellation and the, oh, God, we're terrible. You said, OK, here is the thing that you've got to realize and you as the product line manager have to realize. That wasted money, it's in your budget. That's your money. It's all -- you don't have to go ask people for more money. You own that money, right? If you stop wasting it nobody is going to come to you and complain. You're not going to get a letter saying he stopped wasting that money. What's the matter with you? And if you spend it on better things there is an upside so what the heck are you waiting for? And that's kind of a call to action as an offer manager which is there is no excuse for you not to act now because you don't have to go get more money. You have the money already, you're just wasting it. So, yes, you have to go through extraction thing and, yes, you've got to make sure it's repurposed. And by the way, if you just extract the money, you just optimize and don't innovate, I mean, you don't differentiate or neutralize, you won't get to keep the money. The CFO will take that money and say thank you very much. Give me some more next quarter. So you've got to take that money and immediately put it into neutralize or differentiate. So this is the kind of stuff where we've got frameworks around you know, the neutralization, the differentiation, productivity frameworks, the waste framework and the net differentiation idea. That's a chapter in the book, it's a chapter written for people who have offer power in their purview, they're product line manager kind of person. And it's intended to create a vocabulary and a set of models to have a better conversation and think about your management opportunities from a power point of view not just the performance point of view. And so that's one chapter in this thing and as I said, there's these five core chapters in the middle of this thing and with that, I think I'll once again sort of throw it back open to questions, so. Just a little... No, we're over time. We're a little overtime. So can you stick around and just -- I will stick -- OK, so thank you very much, OK, good.


Geoffrey Moore: Reach Your Escape Velocity No.5 Geoffrey Moore: Reach Your Escape Velocity No.5 Geoffrey Moore: Reach Your Escape Velocity No.5

So the game here is catch up fast and assimilate the innovation. It's a game of speed. It's how fast can you do it. How fast can you become good enough. I'm going to skip over this slide, more separate. I better go to the third one. So the third one is productivity. Productivity is when the category gets more efficient and now you're too expensive. And you've got to get yourself back in gear here and we have a bunch of stuff -- this is actually a place where large companies have a ton of money tied up in the pull of the past that you can free up. There's the whole long tail problem they have. That's 10% of the revenue of this chart. It probably consumes 30% of the resources. It's an amazing -- the long tail wags the dog in large companies. So if you just crop off the tail and with some discipline you could centralize and standardize that will change it. Then there's the middle part -- now this is real business but it's real business done in very sloppy ways. And by the way, the reason it's sloppy, big companies buy other big companies or they buy middle-sized companies and they merge them. How effective is a process do you think that starts in one company goes to the other company and goes back to the first company? Do you think there might be a little waste in there somewhere? It's crazy. I mean, the amount of craziness that happens inside the world's best companies. When you work inside these companies you should go, how is it possible that we're winning? Gosh, the other people must be like really bad because everywhere you look it's just like there's just massive waste and it drives you crazy except you can't seem to do anything about it. Again, that's the re-engineering button. Modularize, optimize, just pick the low-hanging fruit, go after it and then finally, just outsource it. You can take and say, look, we're just not going to do this anymore. We are not going to manufacture -- by the way, that little iPad, iPhone whatever you got, it says designed in Cupertino. It doesn't say it's manufactured in Cupertino because it's not. It doesn't say supported in Cupertino because it's not. And so you start figuring out what are the things I don't have to do and those things I need to stick -- keep visibility but need to outsource it. That turns out to be, as you can imagine, that is an enormous amount of work to do. But there's lots and lots of resources available and inside your own organization as your product line managing, you don't have to do this for the world. You just have to do it for your team. Your team does stupid stuff all the time and they hate it. So it's not like there isn't low-hanging to go after. So here is getting to the sort of the money slide in the path punch I've telegraphed. Three different tracks, each one value creating. If you said I don't do one of these columns, you've made a mistake, you must do all three. But notice that we're playing to three very different goal lines. With differentiation it really is unmatchable and it is how far can I separate. Because if I'm too close to the herd, the problem is they catch up -- like remember when AMD had the first Quad Core, it just kicked ass and Intel sales went down for two quarters. Oops, then they came back with their Quad Core now they're back inside the yellow circle. So it's really important if you're going to spend -- take the risk and spend the money to get outside, get way the hell outside. It's very dangerous to be just outside the yellow circle -- yellow circle is being like in an amoeba, it'll go like that. Then neutralize, OK. You've got to get comparable not better than, just good enough but you've got to do it fast. Amazingly fast. That's the one everybody misses. People don't pay enough -- they don't pay enough time on the speed thing and they don't frame the project to be fast except the ones that are brilliant. This is what Microsoft does better than any company in the world by about an order of magnitude and maybe not so much anymore as they used to. But this is the thing, this is why Microsoft could routinely let anybody innovate anything and say I'm going to take it away from you. I'm going to take it away. I'm going to be good enough very quickly and then eventually I'm going to assimilate it either Windows or Office. One of the two. All life will be part of either Windows or Office.

So when you mix mode to create waste and one of the most obvious ones and this is -- you see where the key metric for productivity is you want to be best in class, and you do. On productivity metrics the goal is to be best in class and you benchmark yourself against other companies and that's exactly what you should do. But what happens if you try to be best in class as the goal for neutralized project? Well, you spend way too much. Best in class is a lot more than good enough. Good enough is all we need and worse, not only do you spend too much, you spend too much time. Every quarter that you do not neutralize that threat is a quarter it gets to build up more momentum against you. This is just dumber than dirt but it is the standard operating procedure in company after company after company. And then best in class is not good for differentiation because you've got to be on class. Best in class is the kind of the biggest midget in the yellow circle. So, yeah, yeah, I'm the best in class! Yeah, but I don't get the charge anymore money because -- so it's really important to separate with that thing. OK, so this leads to a concept we call one playbook per project. Now, the way you fund things in the world probably you have one budget that has to be split among those three things. All I'm asking you to do is don't tie the differentiation train to the neutralization train or either of them to the optimization train. Have three trains manage them separately. You manage it one for speed, one for distance and one for fuel. That's the game you're playing. Now, just to close on this thing, in addition to the three good things that can happen when you spend money on innovation, two bad things can happen. One is you fail. And some amount of failure has got to be built the system but the one that drives you crazy is when you waste. And basically, wasting is just doing the opposite of all the things we've been advocating. So how do you waste? You do a differentiation project but you don't really get outside the yellow circle or you get just outside, you wasted that entire budget. Because as soon as the yellow circle catches you up, all that power you're going to have, you don't have that power. So you spent you power budget but you didn't get power. Neutralization, you didn't do fast, you went too far, it went beyond good enough and you also took too much time. The competitor was like just dancing in the aisles thinking, wow, we got another free quarter from those bozos, amazing. I mean, you've got to -- no matter. I have to be careful. It's public. As you said, it's public Internet, OK. I didn't -- Not you, you're not a bozo, sir. You're a client. Very different, OK. Or optimization -- optimization projects that don't really go after the sacred cows. So you optimize everything except sales and engineering. So you just beat the -- out of the people that are in the cafeteria but if it's an engineer or sales person, oh, wow, I can't touch those two. Well, 85% of your head count it's 100% of the things that are making the difference, so it's like crazy enough to optimize important things. Now, this is my favorite slide to show the clients what they kind of have done the mea culpa and doing the flagellation and the, oh, God, we're terrible. You said, OK, here is the thing that you've got to realize and you as the product line manager have to realize. That wasted money, it's in your budget. That's your money. It's all -- you don't have to go ask people for more money. You own that money, right? If you stop wasting it nobody is going to come to you and complain. You're not going to get a letter saying he stopped wasting that money. What's the matter with you? And if you spend it on better things there is an upside so what the heck are you waiting for? And that's kind of a call to action as an offer manager which is there is no excuse for you not to act now because you don't have to go get more money. You have the money already, you're just wasting it. So, yes, you have to go through extraction thing and, yes, you've got to make sure it's repurposed. And by the way, if you just extract the money, you just optimize and don't innovate, I mean, you don't differentiate or neutralize, you won't get to keep the money. The CFO will take that money and say thank you very much. Give me some more next quarter. So you've got to take that money and immediately put it into neutralize or differentiate. So this is the kind of stuff where we've got frameworks around you know, the neutralization, the differentiation, productivity frameworks, the waste framework and the net differentiation idea. That's a chapter in the book, it's a chapter written for people who have offer power in their purview, they're product line manager kind of person. And it's intended to create a vocabulary and a set of models to have a better conversation and think about your management opportunities from a power point of view not just the performance point of view. And so that's one chapter in this thing and as I said, there's these five core chapters in the middle of this thing and with that, I think I'll once again sort of throw it back open to questions, so. Just a little... No, we're over time. We're a little overtime. So can you stick around and just -- I will stick -- OK, so thank you very much, OK, good.