Zone Management and the Web of Favors

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Geoffrey Moore

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At a time when digital transformation has become a virtual mandate, executive teams inevitably find themselves struggling with organizational inertia. Given the strength of the imperative to change, why, they wonder, is it so hard for our enterprise to change course? Look no further than the web of favors.

Consider how things get done in an enterprise of any size. Strategic decisions are made by the executive team, who then organize and fund middle managers to carry them out. Middle managers receiving these assignments cast about for ways to get them done. Inevitably they turn to one another for help. And help they get. But in return, they incur an unspoken debt. I helped you this time. You will, of course, help me next time.

Over time, the field of middle management becomes crisscrossed by a system of IOUs, a credit economy that underlies how things get done. This is goodness. Good, that is, until you want to transform. To do that, you must radically redistribute resources to drive strategic change, and that, in turn, will leave some other groups holding the bag. These others still have their obligations to fulfill, but they no longer have the wherewithal they had in the past to get things done. So, they turn to their colleagues, the same ones whom you have directed to drive the next big thing, and they ask for help. Their colleagues resist-we have to focus on driving the next big thing-but then, they are reminded of the many debts they owe, and they realize, despite what executive management says, they are obligated to repay. So, they agree to see what they can do, and that results in some resources migrating out of the strategic pool and into the sustaining pool, just to help out. One IOU here, another there, and pretty soon enough resources get redirected to diffuse the transformational initiative.

The key takeaway here is that the web of favors is elastic. It bends to any strategic initiative, but it does not hold the new shape. Over time it reverts to its old ways, not maliciously, actually out of a sense of duty, but nonetheless, revert it does, and so it is that “enterprises of great pith and moment, with this regard, their currents turn awry, and lose the name of action.”

Now what? Well, zone management is actually intended to take on this exact challenge. So, let us see how it would proceed.

First of all, zone management calls for segregating three persistent zones of activity in any enterprise:

• The Performance Zone, where you sell what you make and make what you sell, thereby delivering your value to the world and executing your mission,
• The Productivity Zone, where you manage all the cost-center functions necessary to maintain an enterprise at scale, and
• The Incubation Zone, where you explore future opportunities outboard of the obligations of the Performance Zone and the rules and policies of the Productivity Zone.

Each of these zones has a unique charter, a unique set of metrics, and a unique culture that will not serve well in either of the other two zones. That is why all three should be managed at arm’s length from one another. From the point of view of managing the web of favors, each zone has its own local web that is tightly bound, as well as some extended reach into the other zones. Segmenting the enterprise into three sections reduces the amount of IOU traffic across zones, thereby helping to maintain resource allocation discipline during normal times. It also keeps each zone from requesting favors from other zones that it is not entitled to have.

As long as the enterprise plan of record calls for innovation, but not transformation, these three zones can interoperate effectively to deliver the desired results. These webs, you will recall, are elastic, and as long as you are not trying to fundamentally alter their shape, they can adapt to varying circumstances. Indeed, this is how you get things done year in and year out. But when you want to genuinely transform, that is when you must activate the Transformation Zone.

The Transformation Zone is not a persistent organizational entity. It only comes into existence during a time of transformation, and once the transformation is complete, it dissolves. Think of it as a crisis center, where a kind of martial law is imposed by the CEO to help the enterprise get through a very nasty set of changes. In there is a whole chapter on the playbook for running this zone. Here are some of the key highlights as they relate to dismantling the web of favors:

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

• Privileged resourcing. The transformational initiative is funded in full prior to any other allocation of funding. This includes both direct funding to the effort and any and all earmarked funding coming from organizations in the other three zones. All other undertakings begin with a zero-based budget.
• Dramatic compensation change. Transformational initiatives are high-risk, high-reward bets that, if successful, should change the valuation of the enterprise substantially. Executive compensation should be modified to align with this objective, normally in the form of performance-based stock awards. Normal bonuses for meeting normal goals should be cut back significantly. No one should come out ahead if the transformational initiative fails to deliver.
• Constant inspection. It is naïve to think that the web of favors will not activate. The key is to ring-fence the resources for the Transformation Zone and the earmarked support for it, and to inspect this allocation bi-weekly at first, transitioning to monthly once it is clear to everyone management is serious.
• Visible reinforcement. At every executive committee meeting, and at every company meeting, the CEO begins the agenda by taking stock of the transformational initiative first, calling out significant progress where accomplished, drawing everyone’s attention to whatever is falling behind. Everyone, regardless of their role in the company, is encouraged to get up every day asking themselves, What can I do today that could accelerate or improve the transformational initiative?
• Swift response to passive resistance. Inevitably there will be some people who just cannot or will not align with the program. Despite direct conversations to the contrary, they persist in running their traditional playbooks. Thus, they become the cleats that anchor the web of favors. Letting them stay in place lets everyone else off the hook. Regardless of how senior the leader is, they must be removed. Acting swiftly in this regard is the number one priority for the CEO, failure to do so, the number one sin.
• Blatant prioritization. There can be no hedging here. There is no such thing as two number one priorities. And in the case of transformational initiatives, the rewards for winning are so high, and the penalty for failure is so great, there should be no doubt in anyone’s mind that, come hell or high water, this initiative is going to succeed.

Obviously, this playbook is not for the faint of heart. Even the best of teams should think twice about undertaking more than one transformation a decade. But if you choose to do so, or if circumstances are forcing you to do so, then you must be brutally realistic about what it takes to succeed. And at the top of that list should be cutting through the web of favors.

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