How Do You Measure Power?
Geoffrey Moore
Author, speaker, advisor, best known for Crossing the Chasm, Zone to Win and The Infinite Staircase. Board Member of nLight, WorkFusion, and Phaidra. Chairman Emeritus Chasm Group & Chasm Institute.
In a recent blog, I argued that management needs to be accountable not only for delivering current performance but also for investing in power initiatives that will fuel future performance.?Compensation systems that focus solely on the former too often result in a hollowing out of the enterprise, as we have seen with any number of iconic companies that have “performed” their way to the sidelines.?
But this begs a key question—how do you measure power??Specifically, what kind of metrics could supply a stable foundation for management accountability and executive compensation?
In my book Escape Velocity, when discussing managing for shareholder value, we introduced a framework called the Hierarchy of Powers.?The idea is that investors, who are buying a share of your enterprise’s future performance, value your company based on how much power they think it has relative to other investments they could be making.??In this context, we claimed there were five classes of power that got evaluated in the following order of priority:
The model has stood up well over the years, but there is still the question of how to ensure accountability for investing in power when so much of our attention (and compensation) is focused on creating the next quarter’s performance.?To that end, my colleague Philip Lay and I have been sorting through objective measures that signal material gains in power, ones that executive teams could readily track, and compensation programs could use to calibrate bonuses.
Here’s what we propose should be the top two metrics for each class of power:
Category Power.?The focus here is on portfolio valuation—how many categories does the enterprise participate in, and how is each category faring.?Meaningful changes in category power typically come through M&A, often supplementing organic innovation that is looking to scale quickly.?Top two metrics for each category assessed:
Company Power.?In high-growth categories, the focus is on bookings growth and competitive win rates.?In mature categories, it is on the stability of the installed base as well as bargaining power both with suppliers and with customers. ?The top two metrics are:
Market Power.?In emerging categories, dominating a target market segment, as opposed to merely participating in it, is critical to crossing the chasm and creating a sustainable franchise.?In mature categories, target market segment focus is key to creating above-market growth. ?The top two metrics are:
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Offer Power.?This metric and the next are closely aligned with delivering performance in the current fiscal year.?That said, they still signal successful investments in power.?The top two power metrics are:
Execution Power.??This really is the land of performance, but there is still power in reputation.?Top two metrics are:
Guidelines for Using the Metrics
Metrics are a device to ensure visibility and accountability, and nowhere is this more important than when dealing with something as abstract as power.?The key is to associate the right metrics with the right people, the ones who can have the most impact on the level of power in question.?This works out as follows:
For purposes of compensation, promotion, and overall alignment, these metrics align well with OKR objectives and can be used wherever OKRs are focused on increasing power.?Again, the goal is not to replace performance metrics but rather to complement them.
That’s what Philip and I think.?What do you think?