On Moore's Model of the Gorilla Game
The members of this thread form a talented community who share a common belief that is coupled with uncommon ambitions. We are dedicated to dreams of various, desirable, possible futures, believing that our imagined possibilities can be secured by long-term investing using the strategies of the Gorilla Game (GG). A consensus unites us: the belief that Moore's modeling of the GG provides a means of selecting high technology stocks that can transform our dreams into reality, a means of securing what is to come from knowing what is here now.
The historic trail of the human being was blazed by new inventions of technology, from chipping flint to lasers. According to Jacob Bronowski (1973, p. 34), "There are many gifts that are unique in man; but at the center of them all, the root from which all knowledge grows, lies the ability to draw conclusions from what we see to what we do not see, to move our minds through space and time, and to recognizes ourselves in the past on the steps to the present."
Standing in the present on the steps to the future, we need to understand not only the GG model but also how Moore constructed his model and how he is extending it. In moving our minds from what we see to what we don't see, we can draw conclusions about his formula for success.
At the turn of this millennium, the truly revolutionary discontinuous innovation is the Internet. What is the secret of the Internet's success? Given that the success is visible, is that secret also ours to see? I believe its secret is also Moore's secret and science's secret, that they share a meta-model. Not that each answer is identical in its particulars but that the process of building and testing the formula for finding success is essentially the same. Whether we seek to glimpse the past or the future from the present, we look with the mind's eye.
In The Internet Book, a founder, Douglas Comer (1994), reveals his mental image of the formula that created the success of the Internet. The foundation of that success was designing an open suite of software, an open architecture to interconnect a network of networks. The key architectural decision was to use packet switching. This suite of software designed for packet switching is called TCP/IP. Internet Protocol provides the flexibility to accommodate a diverse set of networking hardware, be it LAN or WAN, fast or slow, no packet loss or best efforts, whether wired, wireless, or fiber in any combination.
Transport Control Protocol provides the reliability to handle communication problems, particularly the vexing problem of overload creating a temporary slowdown. According to Comer (p. 139), "The secret of TCP's success arises from the way it automatically adapts to change." And, that is the secret of all success.
The innovators of the Internet made a huge problem small enough to manage by separating it into two main tasks, each attacked by multiple contributors. By separating the tasks into software designed to manage the addressing and routing of messages in packets and software designed to handle the overload problems of temporarily congested networks, the complementary TCP/IP software suite was engineered for efficiency, designed to send no more than the minimum number of packets required in a way that did not mandate extensive computer processing.
How was it done? The scientists and engineers took a practical approach: they built, tested, and measured a working communication system. Each individual selected an innovative approach to a problem, wrote the software, and tested it in multiple configurations of hardware. Their model was build and test, rebuild and retest, until it worked efficiently. This iterative process of build and test, using a feedback loop, is a basic model not only of cognitive processing in the human being but also a meta-model of science itself. As they stood on those steps in the past, the early 1980's, the model they built of the Internet-to-come created an Internet-at the-millennium that is far more successful than they dared dream. This is so because science, as build and test with a feedback loop, is a meta-model for realizing far more than we dare dream of.
The Architecture of Moore's Models
In Crossing the Chasm, Moore (1991; 199RE, p. 5, his italics) began by discovering the point of greatest peril in a developing high tech market, "…making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of customer who are predominantly pragmatists in orientation." He called this perilous gap: The Chasm. In this quote, Moore foreshadowed his principal model through his use of italics to highlight his major concepts. His master model is his adaptation of Everett Rogers' Technology Adoption Life Cycle (TALC).
Based on his critical insight that business strategies are not general in time, his creative and crucial addition was to detail how strategies must be tailored to fit the individual company's specific stage in the high technology adoption life cycle. Not only that, he (1995, p. 10, his bolding) added this counter intuitive clincher, "The winning strategy does not just change as we move from stage to stage, it actually reverses the prior strategy."
In Chasm, Moore used this TALC model to bridge the chasm, specifically using a D-Day analogy of strategic steps: Target the Point of Attack, Assemble the Invasion Forces, Define the Battle, and Launch the Invasion.
In Inside the Tornado, Moore (1995) extended his discussion to strategies useful during the Tornado by integrating his specific, temporal TALC model with two earlier models, largely derived from Michael Porter. Moore integrates the dynamics of the development of hypergrowth markets with Porter's competitive business strategies: strategic partnerships, competitive advantage, positioning, and organizational leadership. Porter's (1980) business strategies are generic; whereas Porter's s competitive advantages (1985) are specific exemplars; both are designed to create and sustain superior business performance. Porter's models can be called a Competitive Advantage Model (CAM) and a Competitive Strategy Model (CSM).
By imposing CSM/CAM on TALC, Moore derived specific business strategies for various stages of hypergrowth markets. By this intellectual merger, Moore derives explicit steps to creating and sustaining competitive advantage beyond the Chasm and into the Bowling Alley, The Tornado, and onto Main Street. The implicit meta-strategy that the consultant Moore offers to management is build, test, and measure your progress. Use the feedback to rebuild the business model, when necessary, then the new or extended business model is tested by stepping boldly from past to present, climbing the steps to the future, as your business progresses through the technology adoption life cycle.
Switching from an audience of high tech business customers to an audience of investors, Moore (1998, 1999RE) wrote The Gorilla Game. In it, he created a fertile union by linking business strategy to financial markets through a mutual interest in power. Management strategically values the power that comes from gaining competitive advantage; whereas, investors strategically value the power of a company's competitive advantage because it adds value that, over time, is associated with higher stock prices. By owning a share of a company, you own a share of its future profits, returns that are powered by its sustainable competitive advantages, power to get more customers, keep more customers, drive costs down, and keep profits up.
These sustainable competitive advantages are always found in a Gorilla game. Moore's Taxonomy Model (TM) divides high technology competition into two genera, Gorilla or Royalty Games, with three species each: Gorilla, Chimp, and Monkey or King, Prince, and Serf. Gorilla power, the ability to control its value chain, comes from its proprietary open architectures with high switching costs.
Moore ascends from the step of understanding Gorilla power--the nature of competitive advantage--to the next step of understanding the Stock Market--the valuation of competitive advantage. Here, Moore introduced the well-known financial model of discounted cash flow analysis (DCFA). DCFA posits that market capitalization, the number of shares outstanding times the price of a share, was the stock market's best estimate of the net present value of a company's future after-tax profits. Moore devised area graphs to illustrate his various concepts derived from the implications of his TM when nested in the DCFA model. For example, market capitalization was portrayed as returns, on the ordinate, to time, on the abscissa. The graphical approach helps us visualize relationships, like the huge market capitalization of the Gorilla in comparison to an average company. Because competitive advantage builds economic value, the height of a graph of market capitalization corresponds to the depth of relative competitive advantage (GAP); whereas, its width corresponds to the sustainability of the competitive advantage period (CAP). The GAP/CAP Model represents related phenotypes of the genotypic crossing of TM with CAM /DCFA.
Moore recommended stalking the Gorilla in the terrain of computer and network systems, passing along its banks of hardware and software, searching for signs of a Tornado that is unable to eradicate the footprints of its proprietary open architecture with high switching costs. Watching for Tornados is all about value chains (another concept introduced by Porter); "Tornados occur when-and only when-a new value chain comes into existence." New value chains form around discontinuous innovations (Clayton Christensen's work appears to overlap, cross-fertilizing Moore's thinking.).
Moore's model of the high technology value chain (HTVC) consisted of three temporally ordered chunks, a beginning, middle, and end. Each chunk contained three role positions, together forming a value chain with a beginning--Product Providers (Technology, Products & Accessories, and Applications), middle--Service Providers (Consulting, Sales & Support, and end-Customers (Technical Buyers, Managers & Users, and Economic Buyers). Once the value chain is formed the Gorilla's ascent to ascendancy depends upon its ability to overcome any constraints keeping it from forming a mass market. The obstacles to be overcome are adoption complexity and solution complexity; relief is enabled by a killer application for the former and a complete solution for the latter. Capturing the Gorilla entails following Moore's ten rules for playing the Gorilla Game in the buying and selling of high-tech stocks.
Living on the Fault Line, is Moore's (2000) dramatic metaphor for companies living in the Internet age, where violent shifts in business strata produce disruptive earthquakes and fearful tremors of increased vulnerability, shifts in the competitive landscape that stem from discontinuous innovation in technology. In his key conceptual linkage, the shifting fault line is equated with the stage reversals created during the technology adoption life cycle. The Internet age is characterized by six transitions that are occurring across the entire economy: (1) from Assets (atoms) to Information (bits); (2) from Products to Services, (3) from Vertical Integration to Virtual Integration; (4) from Command and Control to Self-Organizing Systems; (5) from scarce Money to scarce Time; and (6) from managing by Profit & Loss to managing by Market Capitalization.
The overriding aim of management must be to keep its focus on the CORE of the business, which is everything that add competitive advantage, while outsourcing CONTEXT, which is all the rest.
Moore argued that stock price provided an information system for management because capital flows from competitive disadvantage to competitive advantage. Decreases in market capitalization are being created by disruptive technologies associated with the Internet that produce previously unprecedented and unpredictable shifts in the landscape of competitive advantage. Particularly vulnerable are Main Street companies that manage by their profit and loss statement because, in the Internet age, P/E ratios become less relevant when plate tectonics topple you from Main Street. When in the Tornado, P/S ratio is a crucial metric; whereas, P/V ratios characterize the creatively destructive disrupters who are anticipating and catching the next wave of DI. Thus, managers must focus on their core task of increasing shareholder value by creating increased GAP and CAP.
Next, Moore extended the CAM by introducing a hierarchical model that specifies five levels, with deeper advantages being more highly valued. From surface to depth, the hierarchical model of competitive Advantage (HMCA) rank orders (1) Differentiated Offerings, (2) Company Execution-Value Disciplines, (3) Market-Segment Leadership, (4) Value-Chain Leadership or Domination, and (5) Catching the Technology Wave. On the one hand, for deep competitive advantage in the Internet age, a company must catch the technology wave and dominate (as a Gorilla) or lead (as a King) its value chain. On the other hand, the surface layer is the one that touches the customer as differentiated offerings. Such offerings can elevate the GAP but contribute nothing to CAP, not possessing the sustainable advantages offered by the technology wave and value-chain power.
Next, Moore examined living on the fault line from the integrative perspective of the multiple models that he has introduced. The basic model remains TALC, perhaps second in importance is the model called the Hierarchy of Competitive Advantage. Other models used were the Technology Value Chain model, area graphs for the DCFA or GAP/CAP model, The Taxonomy model, and the as yet to be introduced, Value-Disciplines model.
Treacy and Wiersma introduced the Value-Disciplines model (VDM). It addresses a company's strategy for adding unique value and the core competencies required to execute that strategy. The VDM is a path model with four members arranged as three layers, with two members on the lower layer. At the top is Discontinuous Innovation, which leads, at the apex of a triangle, to Product (Service) Leadership, which, completing the triangle, leads either to Customer Intimacy or Operational Excellence that also are linked to each other by a path. Although each of these value-disciplines adds value, management has to prioritize them, elevating or suppressing particular disciplines at different stages of the TALC.
By nesting these multiple models within the TALC, Moore examines the changing roles in the value chain, forms of competitive advantage, and shifting emphases on value disciplines across the technology adoption life cycle, along with their implications for stock price.
When the fault line shifts, a leading company can lose its competitive advantage to a discontinuous innovator that disrupts its markets. What is required is triage, rapid decision making about what is to be done by whom. Because Moore believes that such disruptions permanently alter the competitive landscape, two immediate and simultaneous first-aide-actions must occur if the company's life is to be saved. Triage is required for each of the line functions: R&D, Operations, Professional Services, Sales, and Finance. To be successful, each line function must abandon its vested interests in favor of an emergency response to insure the survival of the company. At the same time, the Board of Directors and management must recognize that this is an emergency and then rapidly discover a new strategy for re-crossing the Chasm. That is, the disruption of a competitor with a discontinuous innovation topples the company from Main Street forever; instead it must develop a new strategic plan. It faces a new Chasm that requires that a chasm-crossing team develop and execute a new set of D-Day strategies with all of their implications for gaining a foothold in the Bowling Alley, seeking Gorilla power over a new value chain by creating competitive advantage, shifting emphases on value-disciplines, and the like.
Finally, because, in the Internet age, companies are now forever Living on the Fault Line, Moore addresses the issue of building to last. To survive earthquakes, buildings must sway while retaining their balance. Moore argues that the point of balance that withstands shifts in the fault line is the company's culture. A culture provides unifying values and practices that demarcate a style of asking questions and doing things that permit its members to cope with unpredicted and unprecedented change. Thus, a culture is a means of changing with change, the master skill that permits human beings, their social structures, and for life, itself, to survive and prosper.
From William Schneider, Moore adopted a slightly revised Four Cultures Model (FCM). Schneider developed the model from psychological models of needs, using three needs taken from David McClelland (who took them from Henry Murray), and one from Abraham Maslow. The four needs were: need for (1) achievement, (2) affiliation, (3) power (to which Moore added security), and (4) self-actualization. The need for power and security motivates the development of a control culture; the need for affiliation motivates a collaboration culture; need for achievement, a competence culture; need for self-actualization, a cultivation culture. Continuing to build new models that rebuild TALC and other models, Moore's creativity is accelerating.
Moore (pp. 269-270) summarizes: "Each of these four cultures can sustain long-term competitive-advantage-strategies (FCM with CSM/CAM). Each culture aligns with a different value discipline (FCM with VDM). Each culture (FCM) shines at different points in the TALC. Each of the four cultures creates shareholder value in its own distinctive way. Each culture declares itself through a characteristic global focus. When companies merge or acquire each other, managing the transition to a new declared culture is a critical task for preserving shareholder value. When cultures age, they fall prey to context overtaking core and degenerate into parodies of their true selves.
Moore offers his models and metaphors as a common vocabulary with which managers (and investors) can accurately describe changes in the marketplace and definitively prescribe actions. Given understanding and correlated action, what more could we ask for from Moore than this formula for investing success?
If I have succeeded, I have done more than summarize Moore's ideas, I will have helped you see both his models and how he is builds them. Moore is gifted in his choice of metaphors and in his selection of models but his integrative and applicative powers are even more remarkable. He builds practical models with specific implications for action. He crosses and nests his models at an accelerating rate.
Moore made a crucial choice, often missed by many in social science, when he realized, by incorporating and extending TALC as his root model, the importance of change through time. Because vision is the dominant sensory system in the human being, most of our models of people and social systems have been spatially oriented. Yet all life lives in time. Had our auditory sense been as dominant as our visual sense, we may have innovated more temporal models. By his selection of the TALC model, Moore focused on change, which is the general rule, rather than to stability, which is the special case. That is, in social scientific models, change is core; stability, merely context.
Another step is yet to come, thank God in briefer form: how Moore tests his models. Moore uses his observation (or other forms of data collection) when he consults and case studies when he writes as data to test his models. The case study is a comprehensive method of collecting and organizing data through time. The case study method is tied to the numbers in quarterly reports and management's discussion of strategy. Competitive advantage is confirmed by high and increasing growth rates, gross margins, operating margins, net margins, and CashKing margins and strong balance sheets. The appreciation in the stock prices of Gorillas over time provide fascinating data, a lure that drives us to find new pongid companies possessing proprietary open architectures with high switching costs.
A significant aspect of Moore's approach is its leverage-an advantaged gain in information-that is achieved through the process of model building and testing. This step precedes the step of making practical inferences about managing or investing in a company. Contrast this with autobiographical reminiscences that outline an investing philosophy or some practical rules of investing. The Motley Fool goes beyond the step of simply offering rules by educating investor's and increasing their sense of competence. Still, the rules in Rule Markers, Rule Breakers lack this systematic grounding in social scientific models. Their basic model is a variant on fundamental analysis that incorporates DCFA, but, the rules are not linked and do not leap to a conceptual model, a meta-model for generating rules. Communicated ideas are our most important tools. The meta-tool of the human being and of science that powers an accelerating advance is using tools to develop tool. On the one hand, rules are spatial models, given and fixed, like the Ten Commandments, for all time. On the other hand, strategies like recursive-build-and- test focus on the change of change itself.
As an experienced social scientist myself, I believe Moore's modeling is near the top of the contemporary applied social science game. My assessment might matter; at least, when I am preaching to this choir. Or, is that groupthink? Just teasing.
The G&K thread has developed a remarkable culture. Our integrated discussions move our investing work along when it helps us do the task of building or rebuilding and testing or retesting our models; the thread is a feedback loop for building and testing ideas and portfolios. It is part of a process of caring engagement that marks us as human beings and that propels the ascent of our species. Each of us has something to offer to all of us; together we build models that are more than the sum of our parts. As Bronowski (1981, p. 269) concluded, "The personal commitment of a man to his skill, the intellectual commitment and the emotional commitment working together as one, has made the Ascent of Man."
Don |
