The Performance Zone in the Zone to Win Model for SMBs

Our first post in this series examined the relevance of the Zone to Win Model (Z2W) to the SMB market (< $1B). The second post in the Z2W series chronicles an experience Geoffrey Moore and I had working with an enterprise software company that went through an intentional process of deciding to embrace Z2W.

This post is about our experiences in defining and managing the Performance Zone (PerfZ).

The primary purpose of the Performance Zone is to make your numbers (revenue, retention and profitability targets) for your in-market offerings over the next 12-18 months.

This zone is driven by a competition-based culture that is clearly focused on delivering differentiated offerings relative to a small set of reference competitors, regardless of where they are in the technology adoption life cycle.

The Performance Matrix

A critical early step in moving to Z2W is the rationalization of your key business assets into appropriate zones. For the PerfZ, this involves rationalizing key in-market offers, “Go to Market” (“GTM”) models and their associated business processes and personnel into the Performance Matrix. The Performance Matrix is a construct where the

• rows represent the major offers (produce at least 10% of the business revenue for the current year); 
• columns represent the GTM distribution channels and pathways used to bring your offers to market, each of which represent at least 10% of the revenue for the business;
• the specific row x column cells in the grid represent the interlock and mutual accountabilities between the respective row and column owners. The row and column interlocks provide critical visibility, accountability and coordination points across the organization and have proven critical to business success.

The Performance Matrix is an important structure as it provides focus and drives shared alignment around key business objectives such as growth, profitability and market share.

Performance Matrix Rows (Source of Revenue Offers)

Based on our experience to date, we expect to see between 2 to 6 rows in a Performance Matrix. We have also found it helpful to put some sub-structure under rows to more holistically and granularity represent the offer. For each row, this might include (depending on the size and complexity of the offers):

• LOB: a business entity used to define and manage a group of related product suites and products. 
• Product Suites: an integrated collection of products that are named and priced.
• Products: an individually named and priced offer that is available for purchase either stand-alone and/or as part of one or more product suites.

Performance Matrix Columns (Go to Market)

Based on our experience to date, we expect to see between 2 to 6 columns in a Performance Matrix. Just as with rows, we have also found it helpful to put some sub-structure under columns to more holistically and granularity represent the GTM models. For each column, this might include:

• Regions: Geographies tend to be the top-organizing element in most organizations. For global businesses, this tends to follow a North America, EU, Latin America, APAC, RoW structure. For North America-only businesses, this tends to follow a territory coverage model such as East Coast, Mid-West and West Coast.
• Segments: Industries or market segments served such as Retail, Financial Services, Manufacturing, Healthcare, Telecoms and associated market size segments (Large, Mid, Small) tend to be used as a second GTM organizing dimension.
• Route: A third GTM model organizing construct is the route to market. This varies widely, but may include a Direct Sales Model, a System Integrator Model, a Technology/Alliance Partner Model and an OEM model.   

You may alter the hierarchy of regions x segments x route based on your particular GTM strategy and structure.

Business Functions and Personnel in the Performance Zone 

Another PerfZ consideration has to do with which business functions and personnel will reside in the zone. There are some obvious business functions and associated personnel that belong in the PerfZ, these include:

• Sales, pre-sales, sales operations staff and channel partnership staff, who are responsible for delivering the GTM models belong in their respective columns of the PerfZ. The Chief Revenue Officer (CRO) or VP of Sales is the leader over all the column owners and typically is the overall PerfZ leader. In addition, many organizations have created a PerfZ Leadership team under the PerfZ leader that includes the Chief Product Officer (see below), select senior product management leaders and select GTM leaders. A Productivity Zone representative is also typically part of the PerfZ Leadership team.  
• Product management, product-specific development, and professional services staff who implement field solutions belong in their respective rows of the PerfZ. Z2W places much authority and responsibility on row owners as “mini GMs”, complete with P&L responsibility and accountability. The Chief Product Officer (CPO) is the leader over all of the product manager row owners.

We have found it somewhat common that the product management function needs to be revamped and reinvigorated when moving to Z2W in terms of structure, processes, metrics and automation.

There are a variety of other business functions which we have seen handled differently across organizations, and may be placed in either the Performance Zone or the Productivity Zone.

• Marketing: For organizations that make the distinction between corporate marketing and product marketing, our experience has been that product-specific marketing is often placed in the PerfZ and corporate level marketing is placed in the Productivity Zone (more on this in the next blog). However, organizations that view all of marketing as a shared common service, place it in the Productivity Zone. This also allows marketing to more easily and effectively serve the Transformation and Incubation Zones.
• Development: The most common model we've seen here is that product-specific development staff are placed in the respective rows of the PerfZ closely tied to their product management counter-parts. Corporate development ─ that is, those staff who are building out factored out common services used across the entire product line (think single-sign on, common UI/UX components, common data models and persistence, etc.) ─ are placed in the Productivity Zone. On some occasions, we've seen all of development (corporate and product-specific) placed in the Productivity Zone. The advantage of including all of Development in the PerfZ is that it is directly aligned with the revenue producing resources of the company. A concern of including Development in the PerfZ is the potential lack of focus on building out common software capabilities that span the product portfolio and a lack of accountability in serving the Transformation and Incubation Zones.
• Professional Services: Since most professional services organizations are directly responsible for all revenue generation and are tightly tied to the pre-sales and sales process, they tend to reside in the PerfZ as part of offer definition (i.e., the row structure) with separate professional service managers. The columns account for the services revenue generated as part of offer sales. However, this may depend on whether you are trying to maximize revenue from professional services or grow your external partner ecosystem, ceding revenue to outside organizations in exchange for their references.
• CSM: Customer success management is a hallmark of every success SaaS company. However, how your organization positions CSM internally and to the customer often dictates its placement in Z2W. For those businesses that see CSM as primarily about helping customers achieve their business goals through informed and optimal use of the product, as well as valuable product insights driven by product analytics and customer interactions, the CSM function may belong in either the PerfZ or the Productivity Zone. However, for those businesses that see the CSM function as primarily about upselling, cross-selling and retention management, the CSM function is typically placed in the PerfZ.

Managing the Performance Zone

We have introduced many tools to manage the PerfZ and highlight some of the best practices here.

• SLAs/Performance Contracts: We have seen SLAs or performance contracts used effectively both within the PerfZ and between the PerfZ and the other zones. Such SLAs explicitly state expectations across zones in terms of responsibilities and accountabilities so vital to effective Z2W execution. An example of an SLA between product management in the PerfZ and corporate engineering in the Productivity Zone is the timeframe within which product management will have clearly defined Epics and User Stories in the Sprint backlog sufficient to drive product development as part of the Sprint planning process.
• Metrics: For the PerfZ, typically metrics include new and committed monthly recurring revenue, ongoing cash flow, CAC, LTV and Churn as documented by BVP here.
• Reporting and Reviews: Most organizations have real-time dashboard reporting on key metrics and other KPIs; weekly commits, monthly metric/issue reviews with the PerfZ leaders and quarterly business reviews with the executive team.
• Incubation within the PerfZ: Some confusion has arisen in certain companies around what offers belong in the PerfZ versus the Incubation Zone. We have found that linear extensions of exiting PerfZ offers (i.e., serving a new market with an existing offer; adding a new feature to an existing offer) are best placed within the PerfZ early on. Unless the proposed offer is truly about catching the next wave (see prior blog link), it belongs in the PerfZ.
• Timing: Our experience is that it takes 3-9 months to get the PerfZ in place and roughly a year to get the model understood and working effectively.

In summary, the Performance Zone has a unique competition culture about it. Every person in this zone is focused on making their numbers, and this means typically beating out a small set of reference competitors on deals.

Companies need to find the right balance between “making the numbers” and investing in the future to meet future numbers, address competitive threats and customer needs.

For companies that historically have a collaboration culture, the Performance Zone can create some challenges, as it requires the company to think and behave differently to succeed. This is a key reason why we suggest the use of organizational design and cultural specialists as part of your Z2W transition team. 

__________________________________________________________________________

Subscribe to the INSTEP Mailing List

INSTEP Site | INSTEP LinkedIn | INSTEP Twitter | Brian Nejmeh Twitter