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It's enough of a danger for a business to base its internal operations on the edict, "We've always done it this way." When it comes to a company's approach to its products, this philosophy can lead directly to a state of stagnation. Strange though it seems, companies that are successful are the
most vulnerable to this problem. Technology trend expert and best-selling author Geoffrey Moore points out in his book Escape Velocity that a selection of today's Fortune 500 may fall prey to the
one-track approach. In this interview, he discusses the truth about innovation, the special traits of a breakaway leader and why no company is too big to achieve escape velocity.
Soundview: To propel an organization forward with escape velocity, you discuss the Hierarchy of Powers, something you describe as a framework of frameworks. What got my attention was that you said the hierarchy derives from taking an investor view of your company. Why do so many companies
fail to see their organization from an investor's standpoint?
Geoffrey Moore: I think what happens is when you get involved in running anything, the day-to-day responsibilities of what's going on is overwhelming. Whether it's the supplier in China that didn't do what it said it was going to do to an angry employee that's making
claims about harassment, there's so much to do right in the moment that it's very difficult to get outside of that. Maybe once each year people go to a strategy off-site meeting or something, but even then, it's very hard to integrate those perceptions [from the off-site] back into
the flow of things.
Soundview: You spoke about innovation and it's a term that so many companies overuse. Do you think there's a misplaced definition of what is innovation and what it means to a business?
Moore: Yes, and we talk about this a lot in the chapter called "Offer Power." There are really three outcomes of innovation and we tend to only talk about one, which is massively differentiation. This is the kind of innovation we love to celebrate when it comes to a
company like Apple. But a lot of innovation is centered around what we call neutralization. This means keeping up with the category, keeping up with your competitor. This allows your existing customer base to continually support you. The third outcome of innovation is productivity improvements.
These don't really affect your competitive footprint but certainly affect your return-on-investment capital.
The dialogue around innovation has been way too skewed toward differentiation, as if that were the only problem to solve and the answer to all problems, which just isn't true.
Soundview: In the chapter on company power, you argue that the difference maker in companies that achieve escape velocity is leadership. You also point out that people assume that every Fortune 500 company must automatically have great leadership. But that's not what you mean, is it? Tell
us about the rare type of breakaway leader.
Moore: The problem in a Fortune 500 company or any publicly held company is the enormous shareholder pressure on quarterly financial performance. Inevitably at some point in the history of that company and probably multiple times in a decade, the management team has to
bite the bullet and invest in a future where there's a J-curve. This is where you lose money before you gain money, and that J-curve when subtracted from current performance produces a downturn in revenue and a downturn in profit and therefore a highly punishing response from the public stock
market. A good manager incessantly worries about that problem and tries everything he or she can to avoid it because good managers are supposed to work with the status quo. But a leader has to periodically embrace that challenge, go to the markets, explain what he or she is doing but be willing to
take a big hit.
This was the year that we happened to watch Reed Hastings at Netflix take a spectacular hit. Perhaps some of that hit was the result of missed execution but some of it was simply because the average shareholder is holding a share of stock for less than a year. There's a real misalignment
between long-term company value and the current public stock market.
Soundview: Oddly enough, the length of time a stockholder keeps his or her share is about the same length of time that many public companies hold on to a CEO in the current economic climate.
Moore: [Laughs] I think you're seeing a move from leaders like Bill Gates and Warren Buffet to introduce some kind of taxation on short-term share trading so we can get the financial system back in alignment with other stakeholders, but it will probably
take a few years, to say the least.
Soundview: Some readers may wonder if the strategies you teach are adaptable at their own companies. You actually close the book telling a story about a company that broke from a substantial legacy to achieve escape velocity. Who was that organization?
Moore: You have to be a little older than some of my audience but if you think back to the early 1990s, IBM was the canonical high-tech company of the time. One couldn't imagine a company that was stronger than them. They went through a very rough patch and everyone was
encouraging their leadership to split the company up. We now know that Lou Gerstner came in and was able to refocus the company on a new core.
It had been a hardware-oriented company, and Gerstner refocused it on software but, more importantly, on services. The services at IBM has been the story of the last two decades. They were able to take those service capabilities then capture a lot of secular growth opportunities in the category
power arena, particularly around going the e-business route, around the Internet. They were able to take their relationships which had been lying fallow and not really being active in the hardware model and completely rejuvenate them in the services model.
It was the leader who made a bet. I can remember the first thing Gerstner said when someone asked him what his vision was for the company. He said, "We don't need a vision right now. We need to execute." The truth is that Gerstner had a vision but he wanted to make the point that IBM needed to
focus on its customers and focus on the service model.
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