Zone to Win with AI

Whether you are catching up, keeping up, getting ahead, and fending off an existential threat,

Get in the zone!

By Geoffrey Moore

Author – The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

We’re entering the second half of CY 2024, and everyone wants to know—What are we doing with AI?  The board wants to know, the sales team wants to know, the customers want to know, the analysts want to know.  Heck, you want to know.  So, how do you decide?

Start with a clear-eyed assessment of where your company stands relative to its peers in your industry.  Are you behind?  Are you on par but need to keep up?  Are you out ahead or have a chance to be so?  Or, in a darker vein, is AI opening your entire industry up to disruption, putting you and your peers under existential threat?  The good news is that there are playbooks for dealing with each of these situations.  The caveat is that they are all different.  You need to execute them, if not linearly, then at least separately.  And that’s where zone management can be a big help.

Catching Up

Industries in catch-up mode with respect to implementing AI might include retail (supply chain management, contact center productivity), higher education (admissions, alumni relations), and public sector (regulatory compliance services).  The wolf is not at the door, but with AI moving as fast as it is, time is not your friend, so you need to get cracking.  This is a job for the Productivity Zone.

Every organization in this zone—finance, HR, marketing, purchasing, customer success, security, you name it—is a candidate for implementing some kind of AI on a low-risk, get-acquainted basis.  None of these applications will be so dramatic as to disrupt normal services, but each will give your AI team hands-on experience with the latest available technology, and most should deliver enough ROI to pay for themselves.  Even when they don’t, they will contribute to the “Win or Learn” kitty, and that is what catching up is all about. 

The key here is to move fast and on every front.  That means every organization in this zone has to participate every quarter.  Conduct AI progress reviews to hold each org leader accountable for net new wins or learnings every quarter.  The goal is to catch up within a year, and it is important enough to tie performance to discretionary compensation to ensure both prioritization and inspection.

Keeping Up

Industries ina keep-up model with respect to implementing AI might include insurance (underwriting, claims), management consulting (tax, audit), and public sector (tax collection).  All these areas represent customer-facing processes that are currently served by humans loaded down with routine work that can be done better, faster, and cheaper by AI applications.  This is a job for the Performance Zone. 

The goal here is to use AI to increase the competitiveness of your established lines of business, either through materially differentiating your products or dramatically reengineering your processes to lower costs, speed response times, and improve quality.  The current generation of AI technology, because it is so remarkably approachable, is ready-made to take on this work.  Your job is to make sure you use it to target those opportunities where there is the most trapped value to release.  These will likely be a bit more gnarly than the others, but when you are mining for gold, you have to go where the gold is.

Generating such higher returns does not come without taking risk.  Good as it is, AI is still a work in progress, so you will likely be taking a human-in-the-loop approach for the foreseeable future.  The good news is your workforce is expert in your business, so you have the guard rails you need already in place.  The challenge is that we humans are comfortable in our established routines, and you need everyone to break out of the old ways to free your company’s future from the pull of the past.  This is more of a change management problem than an AI issue, so you should have no qualms about holding the leaders of this zone accountable.

Getting Ahead

Industries with a lot of built-in trapped value represent opportunities for first-movers to get ahead of their peers by radically reengineering the way business gets done.  Examples might include residential real estate (title insurance, buyer agent compensation), health care (value-based care, home care), and public sector (social services).  In each case, traditional bureaucracies are at odds with where the industry needs to go next, and implementing AI applications can be highly disruptive.  This is a job for the Incubation Zone.

Venture-backed start-ups are normally the fastest movers here, but they take a long time to scale.  Established enterprises have the customers, the ecosystems, and the balance sheets to get to the finish line first if they can get out of their own way.  That’s what the Incubation Zone is designed to do.  As described at length in Zone to Win, it emulates the VC operating model without attempting to replicate its financial model.  The goal is to win early market marquee customers and cross the chasm, all without any help (or hindrance) from the core business.  You have all the resources you need to do this, but it requires muscles you haven’t used in a long time, so funneling one or more acquisitions into the Incubation Zone is often a good tactic.

The key challenge will come when you reach enough scale to bring the new line of business into the Performance Zone.  In the best of circumstances, you can leverage the more forward-thinking elements in your partner ecosystem and customer base to create a soft landing, running both the old and new lines side by side, as Netflix did for some time with its DVD and streaming businesses.  Sooner or later, however, you will have to rip off the Band-Aid and make the transition to the new path, again as Netflix did.

Fending Off an Existential Threat

At present, the existential threat posed by Generative AI and its successors is still hard to predict, but two industries that have already sensed it are media entertainment (content creation, acting) and publishing (copyright, fair use).  What should their playbook be?

This is a job for the Transformation Zone.  The playbook requires all four zones to fly in formation to get through a very rough patch.  The Productivity Zone goes into action first, launching legal actions against the invaders and pursuing lobbying efforts to get protective legislation.  This is not a long-term solution, but it does buy some much needed time.

Meanwhile, the Incubation Zone is charged with catching up to the new wave as fast as possible.  The goal here is not to out-innovate the innovators.  That is what Yahoo tried to do to fend off Google, and Nokia to fend off Apple.  The attackers are too good at what they do, and you are playing their game.  Instead, take a lesson from how Microsoft has played catch-up throughout its storied history, beginning catching WordPerfect with Word, Lotus 123 with Excel, Aldus Persuasion with PowerPoint, and moving on to the Mac GUI with Windows, Novell with Windows NT, and Netscape Navigator with Internet Explorer.  Most recently, they executed the catch-up-fast playbook to head off Amazon Web Services with Azure.  The key to their success is to get to “good enough, fast enough,” not to out-perform the disrupter but to keep their own existing customer base on their side, again buying time to innovate further once it is clear they are in the game to stay.

One thing you do not want to do as an established enterprise is to merge with a successful disrupter.  The Time Warner AOL merger provides a cautionary lesson here.  The cultures are too different, and the necessary level of mutual trust just isn’t there, so instead of running in parallel, they work at cross purposes, and the result is a tangled mess. 

On the Performance Zone side, you have to keep pedaling (and peddling) the legacy line of businesses.  Absent private equity, they are your only source of capital, and they are still providing value.  But you have to realize that their profit margins are under direct attack and can only be defended through rear-guard actions.  That is, your legacy profit pool is the current site of trapped value, and draining it is what is funding the next wave of innovation.  You don’t like it, and your investors hate it, but that’s the hand you have to play.

And that brings us to the Transformation Zone proper.  You are going through a transition, the intermediate stages of which are ugly, making everyone cranky, and causing rampant second-guessing of every move you make.  This is where the CEO must lead with clarity, transparency, and conviction, rallying the troops, reaching out to the customer base, providing an investable narrative to the stakeholders, and reassuring the partner ecosystem.  Moreover, every senior executive must unequivocally support the chosen path or else be asked to leave.  When you are under existential threat, there can be no fooling around.

Summing Up

The AI tsunami is upon us, and we can expect wave after wave of disruption for the rest of this decade and the next one as well.  Clearly, it offers a wealth of opportunity, but as with all waves, catching it depends on getting your timing right and finding the right angle of attack.  The four playbooks outlined above have been tested over many decades within the high sector as it dealt with the disruptive impact of the microprocessor, the Internet, cloud computing, SaaS applications, smartphones, and social media.  You may not be as familiar with them as you would like, but the risk of waiting on the sidelines exceeds the risk of taking the plunge, so I can only encourage you to grab your nose plugs and jump in.

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

Follow Geoff on LinkedIn | Geoffrey Moore Main Mailing List | Infinite Staircase Mailing List

________________________________________________________________

Geoffrey Moore | Infinite Staircase Site | Geoffrey Moore Twitter | Infinite Staircase Twitter | Facebook | YouTube