Ten States That Matter

We’re not talking politics here, people—we’re talking technology adoption.

In any major technology adoption life cycle there are two trajectories of development, the first led by a complex systems model, the second by a volume operations model. Each passes through a series of five states, and to each state there is a peculiar market dynamic that rewards some plays and penalizes others. It is absolutely critical, therefore, that you and your management team understand and align around the state you are in.

The Complex Systems Trajectory

Disruptive technologies start with no ecosystem and no whole products, and they end up being standard infrastructure that runs the world. To get from here to there they pass through five states:

1. This is a heavily services led business model where the systems integrator and the technology innovator team up, funded by early market visionaries, to build out the first implementations on a bespoke project basis. Think Google data centers or the Defense Department’s geolocation satellites.
2. This is a transition stage from project to product wherein specific use cases get “productized,” meaning there is a recipe and a set of pre-assembled ingredients that lets them be deployed repeatedly across multiple companies, typically in the same industry. Think Rackspace managed services for small businesses or Qualcomm’s Omnitracs for trucks.
3. Product. This is the state in which services are at a minimum and standardization is at a maximum in the complex systems model. It is still services led—there is irreducible complexity to deal with—but there are standard recipes and off-the-shelf offerings. Think Brocade Storage Area Networks or Google Maps.
4. Platform. As markets mature, if one product has achieved dominant market share, it converts to a platform, opening up its installed base to third parties to add a next generation of offerings on top of its standard interfaces. This is a highly attractive business model as it monetizes at both high margins and high volume with relatively little additional investment. Think Amazon Web Services or the geolocation API for the Web.
5. Infrastructure. As platforms mature, open source solutions and other commodity alternatives emerge, and eventually the functionality becomes absorbed into standard infrastructure, buried several levels below what has become the then current frontier of innovation and growth. This is a utility model. Think PSTN network carriers or smart phone location services.

Now, as this complex systems trajectory unfolds, typically over several decades, it creates fertile ground for a second wave of innovation to follow, organized around the volume operations business model.

The Volume Operations Trajectory

The volume operations model tracks behind that of complex systems, coming into its own about half way through. It does not introduce new technology. Rather, it capitalizes on commoditizing it at every stage. Here are the states it passes through:

1. When the complex systems model is rolling out those first-generation projects, there are inevitably standard components that are needed to complete the overall deliverable. These may be highly specialized to meet next-generation specs, so they are often high value and low volume. Think microprocessors or high-frequency amplifiers.
2. As projects evolve to solutions, part of the reduction in complexity and cost is achieved through standardized subsystems. These are elements that are not particularly stressed by the new technology, and so they can be supplied by volume operations enterprises serving many other markets as well. Think disk drives in data centers or digital displays for in-car navigation.
3. Product. Here the volume operations business model comes into its own. The technology is sufficiently supported and broadly enough deployed that one no longer needs a complex systems, services-led capability to avail oneself of it—provided one can settle for a one-size-fits-all approach. Think Gmail or TomToms.
4. Consumable. At this point, the razor blade supplants the razor. If the consumable is proprietary, this is the most lucrative stage in the trajectory. Think HP inkjet cartridges or iTunes songs.
5. Transaction. Here consumable product morphs into a consumable service, as people realize they do not need to own the thing itself in order to get the benefit they seek. This is the most cost-efficient way to distribute commodity value. Think texting instead of printing, or Pandora instead of iTunes.

The Point is . . .                                          

These are ten different states, each of which privileges a different value chain and go-to-market system. But any given company’s infrastructure is challenged to support more than one of each. To be sure, as companies get bigger, they can and do take on more than one. But the fundamental lesson we have learned (or rather not learned, since it was published in HBR in 2007 as “Strategy and the Stronger Hand,” is that no enterprise can sustain supporting a balanced commitment between complex systems and volume operations. IBM tried, so did HP, so did Nokia, so did Motorola, so did Cisco. 0 for 5, people. Time to get real.

Getting real does not mean amputating your weaker hand. It means play to your strengths, partner to your weaknesses, and be satisfied with (indeed, reward the hell out of) good enough when that is as good as it is going to get. Most of all, don’t over-focus on your weaknesses. They are not going to get better (trust me on this—I have more decades of experience with it than you can imagine). Instead, play offense with your strengths, doubling down where you are winning, and play defense everywhere else.

One other thing, people who are good at one trajectory are rarely good at the other—even when they think they are. A complex systems marketer is a completely different animal from a volume operations one. Ditto for sales, service, design, engineering, manufacturing, and supply chain. So if volume operations is your weaker hand, and you need someone to lead a volume ops trajectory, hire them out of a volume ops company, and don’t have them report in to a complex systems executive. Contain their operation, to be sure, but do not subordinate competence to incompetence.

Final point. Get clear about your stronger hand, and make sure everyone on your team is on the same page. Do not let anyone seek differentiated success with the weaker hand. Do not even let people aspire to excellence there. Save those motions for your stronger hand.

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win Book | Geoffrey Moore Twitter | Geoffrey Moore YouTube