A Crisis of Prioritization

In today's cutthroat business world, companies are split between those pioneering new technologies and those defending their turf. Think of it as being either the bold "disruptor" or the cautious "incumbent." Over the last decade, some companies like Apple, Salesforce, and Amazon have seen their stock skyrocket by over 1,000% on NASDAQ. Meanwhile, others like Oracle, Microsoft, and SAP saw more modest growth, with increases ranging from 70% to 229%. What sets these companies apart? It's not just about delivering superior performance; it's about riding the right waves. Apple, Salesforce, and Amazon were quick to jump on the digital music, marketing automation, and cloud computing trends, respectively. Investors rewarded them handsomely for it. On the flip side, even with strong management teams, companies like Honeywell, Atari, 3Com, Netscape, and Nokia missed out on catching these waves. They failed to prioritize effectively, and it cost them dearly.

To impress investors seeking growth, focus on riding the next big wave. But before diving in, decide how much of your resources should go into current products versus new ones. Managing different product lines simultaneously can trigger a "battle for resources," especially in crucial areas like sales and marketing. One solution might involve creating duplicate sales teams for new products, but this can lead to internal conflicts and hurt profits. Instead, concentrate on what your CEO believes will be the "next big thing." To tackle the prioritization challenge, focus on one innovation at a time while keeping your existing business running smoothly. Aim to introduce a major technological breakthrough every decade.

œFour Zones

In "zone management," you aim to introduce a new product line that brings in significant money. Your goal is to boost your total business income by 10% while setting the stage for further growth. Divide your resources and expected returns into "three investment horizons":

• "Horizon 1" “ This covers the upcoming financial year. In your operating plan, be aware that your internal product categories could pose a bigger threat to your new product line than outside competition.
• "Horizon 2" “ Years two to three are in focus here. Prepare for negative cash flows as you integrate your new product line into your operating plan.
• "Horizon 3" “ Looking ahead three to five years, this is where you invest in research and development, funded by the success of your new product line.

To be successful, think about your income separately from the investment that makes it happen. This helps you see four different zones clearly:

œThe Performance Zone

Your company's success hinges on its performance zone - the powerhouse driving your operations. You'll find your tried-and-true product lines that keep your business thriving. This zone typically generates a whopping 90% of your income and 100%  of your profit. To keep things running smoothly, you need a solid plan and clear accountability. Enter the "performance matrix." Think of it as your roadmap for managing the performance zone portfolio. Each row represents a different line of business, while each column stands for a unique marketing channel. Assign specific responsibilities to individuals for each row and column. They're in charge of crafting and executing the plan. Every row and column should contribute at least 10% to your business. To keep everyone on track, have these owners report quarterly. Set these meetings in stone on everyone's calendars - no exceptions. Discipline is key to success.

œThe Productivity Zone

In the heart of our operations lies the Productivity Zone, the hub where all essential services come together. Here, teams like marketing, engineering, HR, and finance work tirelessly to streamline operations and boost our company's efficiency. Each department operates as a "cost center," meaning they focus on managing expenses effectively. Our goal within the Productivity Zone is clear: innovate within activities that directly enhance our company's productivity and ensure a quick return on investment, all within Horizon 1. Every function within this zone is dedicated to meeting regulatory standards, improving efficiency, and maximizing effectiveness. Sometimes, certain product lines from the Performance Zone find their way into the Productivity Zone. This typically happens when they reach their "end of life" stage, meaning they've lost momentum and no longer generate enough income to sustain themselves.

Free your business from the shackles of the past. It's time to create room for fresh projects and boost your market agility. Whether you're playing offense or defense in the productivity game, your goal is to revamp operations. By pulling these six levers, you'll uncover talent and resources, allowing your team to focus on what truly matters moving forward.

1. œCentralize: Appoint one person in charge of a task, giving them full power and responsibility.
2. œStandardize: Make sure similar tasks are done the same way to cut down on differences.
3. œModularize: Split up how things are done into smaller parts, ignoring old ways of organizing.
4. œOptimize: Get rid of any extra or repetitive work and use machines to do tasks faster.
5. œInstrument: Once you've improved things, make sure they keep running smoothly.
6. œOutsource: Consider hiring another company to do the job, but keep an eye on how it's done.

Let's start with Lever 1 and work our way up to Lever 6. Your big challenge is kicking weak routines to the curb and making sure your teams stay sharp and on the ball.

œThe Incubation Zone

In the incubation zone, we nurture new product categories that are primed to ride the next big wave. Here, we understand that Horizon 3 ventures require patience as they take time to yield returns on investment (ROI).  External investors pour funds into these long-term ventures for several compelling reasons. 

• Firstly, we seek innovation projects capable of delivering a "10X improvement" in critical performance metrics. 
• Secondly, our chosen projects must have the potential to contribute at least 10% of our total business income once it œreaches scale. 
• Lastly, these ventures must not just enhance our existing performance but establish themselves as entirely new lines of business. 

In the incubation zone, each unit should work on its own, getting funding like a startup. Choose a manager for each "Independent Operating Unit" (IOU) and give them specific resources for things like making the product, selling it, and marketing. Treat each IOU like it's starting a new business, not just doing research. Make IOUs reach different funding goals, just like a new company getting investment. If an IOU can't get funding next time, shut it down fast. It might seem tough, but in today's fast-changing world, only the best should be in the game.

œThe Transformation Zone

The Transformation Zone serves as the hub for pioneering projects and product lines embodying cutting-edge technology, already causing significant disruptions in the market. The objective is to upscale these ventures to generate at least 10% of the current revenue. The Return on Investment (ROI) period for Transformation Zone endeavors falls within Horizon 2, spanning two to three years. These initiatives aim to cultivate emerging categories that propel the company onto a fresh trajectory, akin to how smartphones revolutionized Apple or the Prius reshaped Toyota's path. Operating on the offensive, the focus lies on integrating an Industry-Disrupting Operational Unit (IOU) into the performance matrix, positioning it as a novel line of business primed for scaling within Horizon 1.

When selecting candidates for business transformation, it's crucial to focus on the most promising ones. Choose just one standout candidate and empower the manager in charge of their area to take the lead in driving change. It's essential to prepare everyone involved, particularly those responsible for sales channels, to achieve "nonlinear growth" with this chosen candidate. Additionally, consider the possibility of mergers and acquisitions to expedite reaching the "tipping point." Once there, integrate the resources of the chosen product line into the performance zone seamlessly. Regular managers will then guide future directions to ensure sustained business success.

œInstalling Zone Management

Managing the four zones involves adapting your approach to meet their unique needs. To succeed, you must adjust your goals and methods to fit each zone's requirements.

In the zone of performance, it's smarter to balance management instead of always being the œbold leader. As CEO, it's crucial to stay aware but let your team run the show. The goal is to create a smoothly running machine that boosts sales to the max. To improve productivity, focus on pulling key people away from tasks that aren't central to the business. Then, use these talented folks where they can make the most impact. Look for ways to save costs here. In the incubation zone, keep a pool of potential new product lines ready to go. Depending on whether you want to make a move or defend against competition, you can choose which ones to develop further. Keep a few options simmering, each with the potential to catch onto the next big trend. Projects in the transformation zone can be risky, expensive, and time-consuming. It's okay not to have something going on in this zone every single year. Even if you only launch one successful transformation every decade, you're still doing world-class work.

Follow these 5 steps guide to install zone management in your company:

1. œZone Your Orgs: Divide your company into four distinct zones, ensuring each business unit is clearly assigned to one zone. This eliminates confusion and ensures each unit adheres to the rules and management style of its designated zone.
2. œLock in the Performance Matrix: Define and solidify the performance matrix, ensuring each aspect represents a significant portion of the company's income. Appoint responsible individuals to closely monitor the performance of each zone throughout the year.
3. œActivate the Productivity Zone: During annual planning, set precise budgets for each cost center within the productivity zone. Utilize six key strategies to enhance efficiency and effectiveness.
4. œFence off the Incubation Zone: The CEO and CFO determine funding for the incubation zone and appoint members to the venture board, which oversees planning and governance within this zone.
5. œDetermine the Status of the Transformation Zone and Proceed Accordingly: Commence annual planning with a strategic discussion, prioritizing Horizon 2 projects over longer-term initiatives. Leave the latter to the venture board within the incubation zone.

œZoning to Win at Salesforce and Microsoft

Salesforce, led by its CEO, quickly adopted the zone management strategy, which became a game-changer. Within just a year, they divided their operations into four zones. This move propelled their "Marketing Cloud" product line into a transformational phase, leading to significant growth. Alongside zone management, other key factors contributed to Salesforce's disruptive edge. Their "V2MOM management system" streamlined operations, while their culture of philanthropy promoted teamwork and collaboration across departments. This spirit of generosity positively influenced company dynamics. Many rival enterprise computing firms are taking notes from Salesforce's success story. Zone management offers a laser-focused approach to achieving goals, but it requires effective implementation and activation. Ultimately, a strong team remains the cornerstone of success in any endeavor.

Microsoft knows how to defend its turf. Qi Lu, head of the "Applications and Services Group," teamed up with the CEO to introduce zone management. Even though Microsoft wasn't seen as a big innovator, it beefed up its Office suite by adding Skype for calls and messages, and OneDrive for sharing files. Lu and his crew admitted they were lagging and drew up a plan to catch up. Now, Microsoft is better positioned to nurture new ideas like Bing, Sway, Delve, and Lockbox. With support from top brass for zone management, Microsoft is setting itself up for long-term success.