Living on the Fault Line:
Managing for Shareholder Value in Any Economy, Revised Edition
Geoffrey A. Moore
Geoffrey Moore has had a long-running dialog with the high-tech marketing community concerning the technology adoption life cycle. Through several bestsellers, including Crossing the Chasm, Inside the Tornado, and The Gorilla Game, he has refined his views on high-tech marketing and become ever more granular in his descriptions of that life cycle.
Living on the Fault Line continues that dialog, but takes the discussion in a new direction. While he does review the technology adoption life cycle as background to this book's thesis, his focus is really on the concept of shareholder value, and how to manage high-tech companies to maximize that shareholder value.
While his previous works have focused on the relationships between a company and its customers and employees, this book focuses on the relationships between a company and its investors. He notes that high-tech executives are often surprised by the market's reactions to their actions, but the market's reactions reflect its view of the value that the company has for shareholders. Companies that ignore the concept of shareholder value do so at their peril.
What provides shareholder value?
According to Moore, shareholder value is produced when a company embraces its core functions and sheds its context:
When investors look at management's use of their capital, they have but one wish: please employ it in activities that have at least a chance of increasing stock price. From the investors' view, those are the activities that are core to the company's operations. Everything else is context. (25)
In other words, if you make widgets, invest in such a way to give your widgets competitive advantage, rather than empowering an internal department to create a flashy annual report. While it is important that your company presents a confident and professional face to the general public and investor community, it is far more important to maintain competitive advantage now and for the foreseeable future. Any perceived weakness in competitive advantage will be directly reflected in your stock price.
One of the examples Moore uses to illustrate the difference between core and context is the Dilbert comic strip. The company that Dilbert works for is virtually 100% contextual in its activities. Nothing they do has any effect on competitive advantage, unless it is to weaken it.
Note that even mission critical activities can be contextual in nature. If an activity is extremely important to the success of your company, but is not directly related to maintaining competitive advantage (e.g., some aspects of sales & marketing), then it can be said to be both mission critical and contextual. Such activities are good candidates for outsourcing.
Living on the fault line
What makes maintaining competitive advantage difficult in high-tech strategy is that high-tech companies live and die in a climate of disruptive innovation. This region of disruptive innovation is what Moore calls the "fault line", and it is what distinguishes high-tech from all other businesses. High-tech companies must constantly be prepared to invest in the "next thing" in order to maintain competitive advantage. In other words, what your company defines as core must of necessity keep changing. Maintaining competitive advantage in high-tech is an ongoing process of redefining core and shedding context.
Outsourcing vs. contracting
Moore distinguishes between contracting and outsourcing is an important one. He redefines outsourcing as "a business relationship in which the customer disengages from a process but still maintains active control over its outcomes" (39). In this sense, outsourcing is distinct from contracting. You contract out activities such as printing, because such activities are contextual and not mission critical. In other words, your company does not live and die on the actions of a print bureau.
In outsourcing situations, however, it is extremely important that the company maintain control over outcomes. For example, you wouldn't simply hand over responsibility for branding to a third-party company without establishing some well defined guidelines, checks, and balances. You would certainly stay involved.
Providing value in any business venture
Although Moore's book deals specifically with public companies, its lessons are valuable for even the smallest privately held company. One lesson that stands up for businesses both small and large is the focus on value. Instead of asking "Where's the money?" you must always ask "Where's the value?" Value is found not in your P&L statement, but in your ability to compete, now and into the future. To maintain competitive advantage, you must embrace core value-adding activities and shed context.
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