Sustaining Innovation: What Keeps the Company Running
The Sustaining Innovation category describes a company's sustaining technologies. This refers to all products and services that are already successfully established on the market.
In order to create these products and services, various core activities are necessary: This usually includes the areas of production, logistics, sales and management. In the first quadrant - the performance zone - the actual value creation of the company takes place. This is where the sales are generated.
Next to it is the Productivity Zone (Quadrant II). Here you will find the necessary secondary business areas, such as administration or human resource management.
Both quadrants (I & II) usually focus their activities on the time horizon of a fiscal year and form the core of the active part of the company. Without these two areas, no organization generates revenue.
Disruptive innovation: What changes the business
The opposite areas, on the other hand, deal with disruptive rather than sustaining technologies. That is, they are already operating today with the products that will only change the end customer markets in the coming years.
Geoffrey Moore also distinguishes here between a productive and a supporting quadrant: The Transformation Zone (Quadrant IV) is already actively operating the business models of tomorrow. The Incubation Zone (Quadrant III) is responsible for providing precisely those disruptive products and services.
The time horizon of the third quadrant is long-term at three to five years. For this reason, research, development and strategy departments are primarily located in this business unit.
However, according to Geoffrey Moore, the fourth quadrant is much more important for successful business transformation: the Transformation Zone. Although these departments also work in a future-oriented manner (2-3 years), those employees develop and operate the organizational units and business models of tomorrow. For example, a financial company might start using digital financial advisors in sales (Quadrant IV). And this despite the fact that the majority of sales in the current fiscal year are generated with human advisors (Quadrant I).
The problem, however, is that very few companies can afford a fourth quadrant at all. And if they do, it is often hopelessly underfunded.
Management as a success factor for successful transformation
Microsoft, under the leadership of Satya Nadella, took a bold step here: Instead of continuing to feed its own cash cows - and focusing on Quadrants I & II - Nadella put all his eggs in one basket. He invested massively in the Transformation Zone. On the one hand, this was at the expense of the first two quadrants. On the other hand, the approach led to a massive backlash from the involved (and now disadvantaged) departments.
Management's task in such situations is to anticipate the internal reactions against shifting resources to the promising fourth quadrant. And to plan appropriate countermeasures.
Nadella has been pursuing this strategy since he took office at Microsoft: He involved middle management, controlling, production and sales in the transformation process. His idea: If management succeeds in communicating the meaningfulness of the transformation and making the potential of the change process clear to the employees affected, then the company's employees will also be convinced. Internal opponents become supporters and implementers of the transformation process.
For Microsoft, this strategy has paid off: The company is no longer seen by employees and analysts as a software company with an aging business model. Instead, Microsoft is now an innovative company that occupies a key position in the field of cloud technology - and thus the future. The company is in better shape than it has been for a long time. And this is also reflected in the share price, which has more than doubled since Satya Nadella took office (as of February 21, 2019).
Business Creation vs. Business Transformation - Apples vs. Pears!
Start-ups and companies established on the market face completely different tasks when it comes to mastering the challenges of digitization. While start-ups can plan their organization on a "greenfield" basis, established companies have to transfer existing workflows and processes to the present. In many cases, this is only possible with a great deal of entrepreneurial effort.
Microsoft offers a good example of a company that has put all its eggs in one basket on the path to transformation: the cloud. And with this decision, has successfully paved the way for a transformation of its organization.
(And when asked about the greatest entrepreneurial achievements of our time, you should probably keep Satya Nadella's name in mind in the future ...).