In Technology Innovation, Darwin Rules

May 1, 2005

BY MICHAEL KRAUSS

It must be hard to be an icon.

Once the protégée of Regis McKenna, the marketing and PR wizard who created Silicon Valley, Geoffrey Moore is now a stand-alone icon.

He’s an icon pointing the way to American prosperity in a hotly competitive global economy. And he’s an icon with ideas that can help each of us capitalize on the continuing technology revolution.

You may remember Moore as the author of Crossing the Chasm and Inside the Tornado. Those two books defined high-tech marketing, separating it from the traditional marketing we learned from Northwestern University professor Phil Kotler and his Marketing Management textbook.

It was ironic to be on professor Kotler’s home court at Northwestern in Evanston, Ill., the other day for the 11th annual Kellogg Technology Conference. There at the podium, keynoting the conference was Geoff Moore.

And Moore rocked. He knocked my socks off.

Geoff Moore just might have a shot at being the Michael Porter of the current decade. (That’s Harvard Business School strategy professor Michael Porter.) It’s too soon to tell, but Moore’s new work--called Dealing with Darwin: The Evolution of the U.S. Technology Sector, expected at year’s end--may provide more illumination on the future of global competitiveness than Porter’s Competitive Advantage of Nations.

OK, so I’m a little biased in Moore’s favor. Don’t get me wrong--I’m not saying Moore has the fact base of a McKinsey study or the steely gaze of Michael Porter. But he’s offering up analytical frameworks that have intuitive appeal and should grab us as much as Crossing the Chasm.

Moore wants to assure American competitiveness through continued technology innovation. “In my entire lifetime, the economic advantage lived in the United States,” Moore says. “Now we are watching that torch cross the Pacific.”

Moore says the United States may soon look to Asia like Europe looks to the United States today. “That doesn’t mean the end of civilized life; in Europe they live pretty well,” Moore jokes.

His point is that competitiveness and innovation wait for no one. “Natural selection never sleeps,” Moore says. “We want it to sleep. We want to feel entitled. You have to keep re-earning it. It’s an endless game.”

Moore’s upcoming book is about how you play that game. He again puts in place a vocabulary for defining what ails the technology sector.

After the dot-com fall, Moore consulted with established companies. He found a commitment to innovation but also enormous inertia. Trying to understand the sources of inertia, he found technology organizations frequently grew and scaled by becoming complex systems providers.

Think of innovative companies such as IBM in the 1960s or Digital Equipment Corp. in the 1980s. Something happens to these complex systems providers. They give rise to companies that standardize on their technology, modularizing and componentizing the technology. Think of Compaq or later Dell in PCs. Low-cost volume operations emerge. For a while, the complex systems providers collaborate with the volume operations. Ultimately, the latter dominate, and the former move on to new opportunities.
Think of how IBM migrated from a mainframe provider to today’s model of complex global infrastructure and services. As the power of mainframes became commoditized, former IBM CEO and Chairman Louis Gerstner Jr. brought IBM to renewed prominence by evolving the business model to a new form of complex systems delivery.

This was a painful process because of the inherent inertia in IBM’s old mainframe-dominated culture. As a complex systems player, IBM should have let go of the past and moved to the new paradigm. Thanks to Gerstner they did, and now they’re back.
Moore points to the rise of Mountain View, Calif.-based Silicon Graphics Inc. as an example. “They just nailed computer visualization,” Moore says. “Then ATI Technologies came along and took all the value. Nvidia put it into a chip. For a while that was great. They could fly together. But eventually the proprietary chips of SGI tanked. Nvidia and ATI went to the top.”
What Moore’s describing explains the rise of Dell, a volume operation, and it explains why IBM, a complex systems provider, sold its PC operations to China’s Lenovo.

“If you look at how categories evolve in the technology sector,” he adds, “there are two polarities. They are complex systems and volume operations.”

Moore’s point is that a subtle choreography goes on in the tech economy not unlike biological systems. Complex systems companies innovate. Volume operations modularize. The two collaborate for a while. Ultimately, the volume operations dominate. The complex systems companies move on to new ground.

“You have to allow the volume operations to supply the commodity elements in order to enable the next generation of complex systems,” Moore says. “In theory, this is an infinite cycle. It’s just like a double helix in DNA.”

In the process of this spiraling, individuals and investors can have brilliant careers and make millions, or they can get stuck in the downdraft of a devolving company, burn their career and lose lots of wealth. Understanding the macro strategic marketing processes can enable individuals and investors to make wiser choices. That’s why Moore’s work is so important.

The model extends to the global economy in which Moore sees specialization underway. China and India are becoming the world’s key “volume operations” units.

“China is well suited to this game. The world is sending China all its volume operations that are manufacturing-based,” Moore says.

Moore thinks India has an interesting problem. It is culturally a complex systems culture, but it is structurally a volume operations country.

The first wave of Indian entrepreneurs was services outsourcers. “You are seeing a second-generation Indian entrepreneur saying, ‘I want to take on China,’” adds Moore, who feels India’s low-cost manufacturing will rival China.

The complex systems side is where U.S. bread is buttered. There’s still reason for optimism according to Moore, but we have to focus and understand the game we’re playing.

Moore points out that the language of global business and the style of global enterprise are uniquely American--that gives the United States leverage in the global complex systems game. America educates the world’s business class at American business schools. This is also to our advantage.

Plus, the United States is the home of global digital providers that have emerged from our expertise in complex systems. Companies like eBay, Google, Amazon and Yahoo! are examples. But, Moore worries the rest of the world is seeking to copy our advantage. “EBay has to try to buy the local (offshore) eBay before that local (offshore) eBay buys our eBay.”

As a strategic marketer approaching 60, Moore recommends that America “continue to invest in new technology and exploit our complex systems advantage even if the technology is incubated in labs in Moscow and Beijing.”

“We know how to build complex systems companies in this country, global complex systems companies. We have an advantage there. Those companies should resist commoditization and exploit volume operations for as long as they can,” he says.

“When things do get to the other side, punt,” Moore says. Then go on to the next life cycle.

It’s a bit Darwinian, but so is life. I can’t wait to read Moore’s new book.

Michael Krauss is a partner with Marion Consulting Partners based in Highland Park, Ill., and can be reached at Michael.Krauss@Marionpartners.com or news@ama.org.