The 4 Zones Model: A Playbook for the Incubation Zone

Companies have no choice but to up their technology enabled innovation game

According to a recent McKinsey study, more than 60% of CEOs expect up to 50% of their earnings growth in the next 5 years to come from “technology-enabled” business innovations. A recent study of CIOs by IDC found that 57% expect to be defined in terms of delivering business innovation to increase revenue, margins and new products.

In order for companies to be competitively viable in this new era of digital disruption, they have to dramatically increase their ROI on their portfolio of technology innovations. As I’ve stated in earlier blogs, these digital disruptions are fundamentally changing the way companies engage with their employees, customers, supply chain partners and other key stakeholders.

Disruption Chart

Companies have been spending money on research and development at the fastest pace in 50 years. From last November to the end of March, U.S. companies funded R&D at an annual rate of $316 billion or about 1.8% of GDP which is the largest share ever for the private sector.

As such, it is disturbing to read that, according to a recent Deloitte study, the return on R&D investments by the 12 biggest biopharmaceutical companies fell from 10.5% in 2010 to 4.8% in 2013.

The Incubation Zone: The Three Innovation Playbooks Model

The 4 Zone Model I’ve developed (link to earlier blog is designed to enable CIOs and their senior leadership teams to maximize the business value of IT across their organizations. IT’s charter for the Incubation Zone in particular is to help the company identify, test and validate next generation product, service and business ideas and leverage technology-enabled innovation tools to develop them.

In our work with many companies across multiple industries, we have developed a set of three innovation playbooks to help them better organize and implement their portfolio of technology innovation investments as the chart below illustrates:
Three Innovation PlaybooksAt the core of this tool are three distinct innovation playbooks that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

  • Have we differentiated our offer enough to gain real competitive separation?
    • Have we created a truly unmatchable offer?
  • Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
    • Have we gotten to good enough fast enough?
  • Have we optimized our opportunities for gains in resource utilization and cost reduction?
    • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

Our work in this space has also shown us some of mistakes companies make with their approach to innovation which results in a very low ROI on their investments. Here are two rules of thumb to avoid:

  • Never tie differentiation and neutralization programs to the same release schedule
    • Differentiation has to go far
    • Neutralization has to go fast
    • Combining the two dumbs you down and slows you down
  • Best in class is appropriate for productivity innovations only
    • Too low a mark for differentiation (beyond class)
    • Too high a mark for neutralization (good enough)
    • Benchmarks are for productivity programs only

The Harsh Reality about the ROI on Technology Innovation Investments

As the chart below illustrates, the majority of innovation investments do not deliver the desired results or ROI. These less-than-optimal outcomes most often occur when differentiation projects are launched too soon or neutralization projects take too long.

Why many innovation efforts are wasted - graph
While there is no silver bullet that guarantees innovation success, when the three innovations playbook model and tools are successfully deployed ROIs have greatly increased in many technology investment portfolios.

In my next blog, I will take a deeper dive into the Transformation Zone and talk about how you can deploy our Three Horizons model to scale net new lines of business that produce material new revenues and profits.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at

The 4 Zones Model: A Playbook for the Productivity Zone

Reversing the IT Resource Allocation Imbalance Equation

red balls on a ramp

For decades, senior IT leaders have confronted the financial reality that every year 80% of their IT budgets are allocated to “running the business” while 20% are allocated to “changing the business.”

No one can argue how important it is for IT to make sure each company’s systems infrastructure and data is stable, secure and in compliance with industry standards and regulations. Unfortunately, just doing that job well severely limits the ability of CIOs and their senior leadership teams to maximize the business value of IT across their organizations.

The Trapped Value Audit

The new 4 Zones Model is designed to reverse that equation by creating individual playbooks for each zone and, in doing so, enable IT to exponentially increase its business value. The Productivity Zone Playbook is designed to optimize the costs of maintaining a company’s systems of record thereby freeing up resources to be redeployed against developing new systems of engagement.

A key tool to achieve this outcome is the Trapped Value Audit which enables cross-functional teams to systematically review all their systems of record and determine if they should be modernized, out-sourced or, if possible, eliminated. This audit is also designed the identify opportunities to significantly reduce or eliminate a company’s “technical debt.”

You can get started by asking some core questions:

  • Where is the trapped value in our company? E.g., maintaining systems of record
  • How can we identify and unlock that trapped value?
  • How can we redeploy that trapped value against critical new IT investment priorities? E.g., the development of new systems of engagement
  • Where is the new business value of IT going to come from?

The results of these efforts will enable senior IT leaders to redirect resources away from lower busine47ss value activities in the left hand column to higher value activities in the right hand column in the chart below.


Extending IT’s Business Value Beyond A Company’s Infrastructure Model

Unlike previous evolutions of enterprise IT, which were mainly focused on the need for a company to adjust its infrastructure model, the disruptive impact of social, mobile, analytics and the cloud extend to its operating and business models. As such, it is imperative for IT to realign its skills, capabilities and resources to better enable the performance of the company’s operating model and if necessary help shift its business model.

From my early discussions with CIOs, this process entails earning the trust and confidence of their internal business users and partners as well as creating cross-functional teams to align future IT investment priorities with critical business growth goals and deliverables.

The chart below highlights these three levels of disruption and identifies specific sources of trapped value that these cross-functional teams can pursue together.

infograph2 By optimizing the costs of maintaining the infrastructure value delivery system, IT is then well positioned to deliver net new value creation for the company and thereby extend its business value across all three areas of potential disruption.

End Of Life Programs – It Takes A Village To Make Them Work

To be perfectly clear, companies cannot operate without stable, secure and well-maintained systems of record. These SORs run core functions from CRM to ERP to Finance. They also must be able to quickly and seamlessly connect with systems of engagement in order to deliver a friction-free user experience. That said, the fact remains that there is a significant amount of trapped value in how most companies deploy resources to maintain them.

In taking on the challenge of reducing or eliminating that trapped value, CIOs must establish a set of protocols and repeatable processes to monitor and evaluate the business value each SOR delivers. I have drawn upon some ideas and perspectives from my brother, Geoffrey, to give you some suggested ways to increase your odds of success:

  • Establish a stand-alone end of life (EOL) shared service function whose sole purpose is to manage this process from start to finish. Note: this is not just IT but all effected stakeholders.
  • Transfer all the SOR’s costs/expenses to the EOL shared services function.
  • Develop an EOL roadmap and timetable for each SOR.
  • Don’t allow non-EOL priorities/deliverables to compete for the shared services time and resources.
  • Accrue any trapped value savings to be redirected to new IT investment priorities.

A First Step

The Productivity Zone playbook is the first step in helping CIOs maximize the business value of IT across their organizations. It incorporates a set of tools to help senior IT leadership teams find the right balance between protecting the value they’ve created with stable, secure, compliant systems of record and creating new business value with easily accessible, friction-free systems of engagement that deliver compelling and enduring user experiences.

In my next blog, I will take a deeper dive into the Performance Zone and talk about the importance of IT building strong collaborative relationships with their internal business partners and other key stakeholders.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at