Frameworks provide a guide for making critical decisions. Our frameworks include:.
From Geoffrey Moore's book Escape Velocity: Free Your Company's Future from the Pull of the Past.
The Hierarchy of Powers is a Framework of Frameworks. This hierarchy derives from taking an investor view of your company. The first decision investors make is what categories to invest in. Once they have determined that, then they choose specific companies. Oce they hold stock in a company, they dig into the dynamics of the markets it serves, the competitiveness of its offers, and its track record for executing to the forecasts it provides. That covers the hierarchy top to bottom and explains why it is in the order it is. It sizes up all economic competitions in relation to five types of economic power, organized in descending power from most general to most specific, as follows:
Category power is a function of the demand for a given class of products or services relative to all other classes. Categories in high demand, like smart phones,storage systems, and cloud computing, are more successful than their peers in securing customer budgets to fund them. Thus they grow faster and typically enjoy better profit margins. So participating in a powerful category is a very good thing. Core questions to answer for category power include:
Within a given category, company power reflects the status and prospects of a specific vendor relative to its competive set, power typically siignaled by that company's market share. Note that the same enterprise can have different levels of company power in different categories, so total company power is based on the sum of the positions it has in the total set of categories that make up its revenues, multiplied by the power those categories hae in their own right, as well as by whatever snergy there may be among them. This is the calculus of investor valuation, and as you may well appreciate, there is plenty of room for multiple points of view.
We refer to current advantages that can be leveraged as our crown jewels. These are the unique assets and capabilities under your direct control that have the potential to confer on your company substantial and sustainable competitive advantage in the primary categories in which you participate or intend to participate. When it comes to managing or acquiring crown jewels that will truly support sustainable company power, there are a host of questions that must be addressed, including the following:
Market power is company power within the confines of a single market segmet. Market segments are defined as sets of customers who share a common and unique set of needs and who reference each other, directly or indirectly, when making their purchase decisions. Market power is measured by word-of-mouth reputation within this community of reference and is confirmed by market share specific to that segment.
When pursuing a strategy of market-segment focus, there are any number of qustions that challenge executives:
Offer power is a function of the demand for a given product or service relative to its reference competitors. In mature categories the reference base is simply the competitive set that makes up the category. In emerging categories it also extends to status quo alternatives that are not in the same category but compete for the same budget. For executives facing challenges of how to allocate resources in creating a differentiated offer, the questions that most need answering are:
Execution power is the ability to outperform your competitive set under conditions that favor no vendor in particular. For he most part, it is focused on your existing book of business and thus is more about securing the present than freeing your future. For this reason, execution is often set in opposition to strategy, much the way that practice is set opposite theory or the real world is set opposite an imagined one.The issues and questions that arise when ennterprises focus on execution power include:
Customers are visionaries under the influence of technology enthusiasts. Each new deal is greeted with enthusiasm. Product is still immature. Whole product has to be built from scratch for each customer, including a significant amount of “special work” unique to that customer’s requirements.
Early market commitments now absorb all discretionary resources such that you cannot offer any more “specials” to visionaries. Pragmatists, however, do not see the references nor the evidence of a whole product that would make you a safe buy. Sales cycles are extended, and most that do close are for pilot projects.
Product is endorsed by pragmatist customers within the confines of one or more niche markets. Sales cycles within these confines are predictable with good margins. Outside these confines, there are only opportunistic sales, often at significant discount.
The mainstream marketplace has taken off. Virtually any vendor who can supply this category of product can sell it. A fierce market share war has developed, and price discounting is vicious. A market leader has emerged, establishing the de facto standards, and this company gets much better margins than the competition.
The hyper-growth era is over. Market growth slows down as the market saturates. To expand further some competitors are now modifying their “standard offerings” to appeal to niche markets. Other competitors compete on price alone. The market leader still gets a margin premium but is under pressure to reduce price.
The product is either so pervasive that it is no longer being adopted for the first time, or is being replaced by a newer technology.