InEscape Velocity Geoffrey A. Moore, author of the marketing masterwork Crossingthe Chasm, teaches twenty-first century enterprises how to overcome thepull of the past and reorient their organizations to meet a new era ofcompetition. The world’s leading high-tech business strategist, Moore connectsthe dots between bold strategies and effective execution, with an action planthat elucidates the link between senior executives and every other branch of acompany. For readers of Larry Bossidy’s Execution,Clay Christensen’s Innovator’s Solution, and Gary Vaynerchuck’sCrush It!, and for anyone aiming for the pinnacle of business success, EscapeVelocity is an irreplaceable roadmap to the top.
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Escape VelocityFree Your Company's Future from the Pull of the Past
By Geoffrey A. Moore
HarperBusinessCopyright © 2011 Geoffrey A. Moore
All right reserved.
Chapter OneEscape Velocity and the Hierarchy of Powers
To free your company's future from the pull of the past,
to escape the gravitational field of your prior year's operating
plan, and to complete the round trip by returning
with next year's operating plan, you need to apply a force
that is greater than the inertial momentum of current
operations. No experienced executive is likely to underestimate
the amount of force required. It is, as we like to say in Silicon
Newton taught us several centuries ago in his first law of
motion, the one that covers inertia, that an object at rest tends
to stay at rest and an object in motion tends to continue in the
direction in which it is currently moving. The same goes for
When organizations begin their strategic planning effort
by circulating last year's operating plan, they reinforce the
inertial properties of the resources as currently allocated.
This is not a good outcome, but to be frank, there is no help
for it. You cannot really zero-base the budget every year,
not in an enterprise of any size. So you have to assume this
inertial force will be introduced into the process at some
What you can do, however, is get yourself and your
colleagues out in front of it. Specifically, you can take the time
to develop and bring to the table an outside-in, market-centric
perspective that is so compelling and so well informed that it
can counterbalance the inside-out company-centric orientation
of last year's operating plan. This will help correct for
the one huge, glaring flaw in that planthe fact that it's all
It is not about the world or the market or your customers
or your partners or even your competitors. It is exclusively
and solely about you and your revenue and earnings targets
and your desired return on equity and your management
objectives, and your operating metrics and your internal
disposition of resources, and perhaps most influentially, about
your comp plan. But step back and take stock. The world is
more powerful than you. The market is more powerful than
you. Your customers are more powerful than you. And the
sum of all your partners and competitorsthe ecosystemis
more powerful than you. And just to put the cap on it, nobody
really cares about you except you. So given the enormous
challenge of counterbalancing the inertial momentum of last
year's plan, what do you say we tap into some of these external
sources of power to give your company a boost?
To do this you must conduct a series of dialogues before
opening resource-allocation discussions. In them you
profile trends and opportunities that can create new sources of
wealth for your customers and your company and can stake
out the positions of power you want to occupy. This is not a
new idea. What is new is the mechanism by which we
propose to do it.
Most strategy dialogues end up with executives talking at
cross-purposes becauseand this is one of the dirty secrets
of enterprise managementnobody knows exactly what is
meant by vision and strategy, and no two people ever quite
agree on which topics belong where. That is why, when you
ask members of an executive team to describe and explain
the corporate strategy, you so frequently get wildly different
answers. We just don't have a good business discipline for
converging on issues this abstract. And that does not bode
well for setting a clear trajectory to achieve escape velocity.
This book intends to change that. Leveraging a model we
call the Hierarchy of Powers, it will provide a map that will
engage you and your colleagues in the various domains of
power in a systematic and structured way, ensuring that the
right questions get the right kind of answers at the right time
and in the right sequence.
THE HIERARCHY OF POWERS
The Hierarchy of Powers is a framework of frameworks. It
sizes up all economic competitions in relation to five types of
economic power, organized in descending order from most
general to most specific, as follows:
1. Category power
2. Company power
3. Market power
4. Offer power
5. Execution power
This hierarchy derives from taking an investor view of
your company. The first decision investors make is what
categories to invest in. Once they have determined that, then
they choose specific companies. Once they hold stock in a
company, they dig into the dynamics of the markets it serves,
the competitiveness of its offers, and its track record for
executing to the forecasts it provides. That covers the hierarchy
top to bottom and explains why it is in the order it is.
Within this framework, think of each type of power as
being made up of a set of vectors, arrows of force, each arrow
headed in its own direction. Taken together, combining both
within and across the various levels in the model, these
vectors can align with one another to reinforce the sum total
of power, or they can cancel each other out to reduce power
to near zero. Thus you can be in a hot category and fail to
execute, producing a near-zero result. Similarly, you can
execute like crazy in a dying category and have an equally
disappointing outcome. But when you get the powers aligned,
when each is reinforcing the others, then the magic they call
synergy appears, and very good things can happen indeed.
In this chapter we are going to summarize the forces
incorporated at each level of the Hierarchy of Powers frame work
and call out the management issues that get addressed
at that level. This will provide a road map for the rest of the
book. Each of the subsequent five chapters will drill down
into the dynamics of one of the five levels of power and
present specific models to address the issues that pertain to that
level, illustrating how they apply to particular situations and
concluding with an extended case example to pull everything
together. A concluding chapter will recap this material and
describe how it can be integrated into an annual planning
process that, yes, does include circulating last year's operating
plan, but in the proper place and at the proper time.
For the rest of this introductory chapter, just sit back and
get the lay of the land. As you read along, take some time to
register how each type of power influences economic performance
and think about the impact it might be having on your
Category power is a function of the demand for a given
class of products or services relative to all other classes.
Categories in high demand, like smart phones, storage systems,
and cloud computing, are more successful than their peers
in securing customer budgets to fund them. Thus they grow
faster and typically enjoy better profit margins. So participating
in a powerful category is a very good thing indeed.
Conversely, participating in a low-power category, such as
desktop computers, wire-line phone services, or e-mail, is an
exercise in playing on the margins. It can be quite profitable,
but you definitely have to watch your step.
Being able to enter new categories and exit old ones is
fundamental to freeing your company's future from the pull of
the pastbut it is not easy. Moreover, the challenges of
maintaining a balanced portfolio of categories increase with the
continued success of any franchise. Companies under $1
billion in revenue and under fifteen years or so in age typically
have monolithic portfolios, made up of many products but all
in the same category. It might be storage, or security software,
or mobile devices, or enterprise resource planning (ERP).
But at some later stage, typically through mergers and
acquisitions, the corporation transforms into something more like
a holding company, in which multiple heterogeneous categories
combine to leverage a unified supply chain and a global
sales and services footprint. This is when the fun starts.
Each category in a portfolio has its own unique dynamics.
At the same time, however, the enterprise as a whole is held
to a single report card for its collective performance, most
visibly represented by its quarterly earnings. As an agent
of the investors, the management team is responsible for
maintaining a portfolio that maximizes quarterly returns
over time. In this context, last year's plan inevitably favors
the current portfolio, even when its quality may be deteriorating.
And because it is a rare organization indeed that can
decide to kill anything and an even rarer one that can actually
succeed in doing so, deterioration is not an uncommon
state of affairs.
To escape this gravitational field, you need to both
objectively assess your current portfolio and identify credible
category alternatives that are extremely compelling. This
exercise usually goes by the name of portfolio management and
is a standard part of an enterprise planning process. The core
questions upon which it builds include:
Investors will pay a premium for revenue in these categories, so you want to
maximize their share of your overall portfolio.
Investors discount this revenue, and so you want to minimize its share.
Different strategies assign different weights to these three
elements, so you want to make sure your weighting is
consistent with your strategy.
Executives often express envy about other
businesses that are in higher growth categories than
they are, but the truth is, getting your company into
the right categories is your responsibility as an executive.
Portfolio management questions are typically asked and
answered once a year, with the expectation of staying the
course in most years. Nevertheless, as experienced investors
will tell you, category performance is the number one
predictor of company performance. No business can outperform
its category over time. So being in the right categories at the
right times is crucial to long-term success.
At the time of this writing, for example, Apple is enjoying
exceptional financial returns, in part because it participates
in a number of high-growth categoriessmart phones,
digital music distribution, and touch-screen tablets, to name
three (all of which owe much of their fantastic growth to
Apple's extraordinary innovations in each). At the same
time, Dell is struggling economically and, not coincidentally,
participates in none of these categories. As a result,
it is in the process of repositioning itself as more of an
enterprise company, competing against IBM and HP. On the
other hand, a decade ago the shoe was on the other foot.
Dell was the darling of the tech sector, right at the heart of
a vibrant PC category, and Apple was a marginalized and
fading star. That's how category power works. As the Beach
Boys used to sing, "Catch a wave and you're sittin' on top of
But this raises a larger, darker question. What do you do when
you know you do not have the right mix of categories, when you
know you are missing out on a hot opportunity, when you know
you are clinging too long to a dying vine? Recall that litany of
gone but not forgotten enterprises from the previous chapter?
Those were not good companiesthey were great companies.
So we must not underestimate the potential impact of being
unable to reallocate resources to enter and exit categories at
And why would we be unable to? Because we are unable
to negotiate our collective release from the pull of the past
and the tyranny of last year's operating plan. That plan
institutionalizes the current set of categories, granting each one
its allotment of resources, resources sufficiently in demand
to be jealously guarded. Thus we institutionalize a mentality
of scarcity, one that has no word of welcome for a newcomer.
So when we dig into category power, we will spend only a
little time on how to determine what categories we should be
in, and a whole lot of time on how to counteract the forces
that are keeping us from actually getting there.
Within a given category, company power reflects the status
and prospects of a specific vendor relative to its competitive
set, power typically signaled by that company's market
share. Note that the same enterprise can have different levels
of company power in different categories, so total company
power is based on the sum of the positions it has in the total
set of categories that make up its revenues, multiplied by the
power those categories have in their own right, as well as by
whatever synergy there may be among them. This is the
calculus of investor valuation, and as you may well appreciate,
there is plenty of room for multiple points of view.
Excerpted from Escape Velocity by Geoffrey A. Moore Copyright © 2011 by Geoffrey A. Moore. Excerpted by permission of HarperBusiness. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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“A pragmatic framework to help mature enterprises escape the pull of their pasts and embrace the new reality of work.”