When executives express an interest in applying zone management to their current organization, they often ask for a summary “pre-read” to get their entire team up to speed. If you have such an interest, the following provides a quick summary of what is involved.
What is Zone Management?
Zone management is an organizational model that assigns different kinds of enterprise activities to different zones in order to speed up decision-making, simplify execution, and create better accountability. There are four zones, as follows:
- Performance Zone
The mission of this zone is to deliver value to customers through selling and delivering products and services and, in so doing, to meet the annual plan’s targets for financial performance. In a publicly held corporation, it is the most visible of the four zones because its results are reported out in quarterly earnings and annual reports, which get thoroughly discussed by investment analysts on behalf of shareholders.
- Productivity Zone
The mission of this zone is to support the operations of the Performance Zone by performing all the “behind the scenes” services necessary. This includes finance, human relations, information technology, facilities, security, marketing, customer support, partner management, strategy, mergers and acquisitions, and the like.
- Incubation Zone
The mission of this zone is to engage with next-generation disruptive innovations that could have material future impact on current business and operating models. It is governed by an Incubation Zone Board and organized around a venture capital operating model that incubates start-up-like IOUs (Independent Operating Units) funded on a milestone as opposed to a calendar basis. Its goal is to create viable businesses with proven product/market fit that can, often in conjunction with a major acquisition, be taken to scale by the Performance Zone.
- Transformation Zone
For market-facing initiatives, the mission of this zone is to shepherd a truly disruptive innovation as it transitions from the Incubation Zone (or from an M&A acquisition) into the Performance Zone. For internal initiatives, the mission is to change the operating model and company culture to execute at a higher level in the future. In both cases, transformation requires redirecting resources away from proven lines of business and well-established processes and investing them in emerging, not-yet-proven ones. Moreover, due to the learning curve, transformational initiatives typically involve a dip in performance before things improve. As a result, there are all kinds of reasons to resist such moves, resulting in many transformational efforts losing momentum and failing to complete. To avoid this fate, the primary purpose of this zone is to inspire and maintain an unswerving commitment to completing the transition as rapidly as possible, with no opting out.
Why adopt Zone Management?
Each of the four zones has a different mission, different operating model, different success metrics, and a different return on investment. When enterprises try to use one model across multiple zones, it creates unnecessary conflicts. These can be resolved through negotiation, but that takes time, talent, and management attention away from executing the core missions. To prevent this outcome, zone management assigns every activity to one and only one zone, thereby aligning it with the governance model that is most suited to it. At the same time, it insulates that activity from expectations that are appropriate for other zones but inappropriate for it. This enables faster decision-making, clearer decision rights, and greater empowerment. The overall result is an enterprise that is organized to compete in an age of disruption.
How is Zone Management Implemented?
A typical roadmap for implementing zone management is as follows:
- Zone the enterprise. Top management reviews every organization and initiative and makes the call as to which zone it will operate out of and be funded by.
- Zone the budget. Before any organization or initiative is funded, the total annual budget is first allocated by zone. Organizations and initiatives compete for the budget allocated to their zone, never across zones.
- Install the appropriate operating and governance model within each zone.
- The Performance Zone is organized around a performance matrix, a table in which the rows are lines of business and the columns are channels for sales.
- The Productivity Zone is organized by functional disciplines (finance, HR, etc.) within which all activities are subdivided into systems and programs. Systems support current operations by making them more efficient, and they are funded centrally as part of General and Administrative expenses. Programs introduce material changes to current operations to make them more competitive, and they are funded by the organization requesting the program and managed by a program office consisting of executive sponsors and program management leaders from both the organization delivering the program and the one consuming it.
- The Incubation Zone is organized around an Incubation Zone fund overseen by an Incubation Zone Board, which invests in, supports, and oversees Independent Operating Units, following the venture discipline of milestone-based funding. IOUs are organized like venture-backed start-ups, led by a full-time general manager, and staffed across all functions needed to develop and bring to market a disruptive innovation.
- The Transformation Zone only comes into existence when and if a transformational initiative is required (ideally only once in any given decade as they are highly disruptive). It hosts one and only one line of business or internal initiative that is being transitioned to scale. The person orchestrating this effort reports directly to the CEO, and its completion becomes the number one priority for every employee in the enterprise, meaning its needs and requests get met first, regardless.
- Manage each zone separately to its own cadence and calendar. Performance Zone management is organized around quarterly business reviews, Productivity Zone management around annual reviews, Incubation Zone management around milestone funding requests and reviews, and Transformation Zone management around twice-a-month meetings of the Executive Leadership Team focused on surfacing anything anyone can do to further support and accelerate the transition.
For further detail about zone management, you can always reference my book, Zone to Win. The key point is that zoning your enterprise and then communicating that zoning to everyone involved is critical to ensuring that you and they apply the right performance measurements to the various initiatives you have underway. When we fail to do this, we unintentionally create conflicts of interest that slow everyone down. When we do it effectively, we allow innovation, competitive performance, and process optimization to achieve their highest levels while operating in parallel to create overall enterprise success.
