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When a mature company fails to endure over the long term, it's often due to the "Horizon 2 vacuum," argues Geoffrey Moore, author of "Crossing the Chasm" and several other books on innovation strategy, and managing director of the consulting firm TCG Advisors. The reference is to the strategic horizons outlined by McKinsey's Mehrdad Baghai and colleagues in "The Alchemy of Growth": Horizon 1 is today's cash-generating business, Horizon 2 is the set of innovations just being commercialized, and Horizon 3 consists of forward-thinking R&D. Most companies understand they must invest in their future, so the funding and management of Horizon 3 is not the problem. The trouble starts when those innovations are brought to market and must compete with the mainstay business for company resources. They disappear from top management's radar screen and suffer a level of neglect few ventures could survive. Cisco Systems is one company that has recognized the problem and tried to address it. To begin with, CEO John Chambers has insulated Horizon 2 projects from many of the pressures of Horizon 1--for example, by re-orchestrating sales coverage so that emerging markets won't be neglected. He has also kick-started some Horizon 2 businesses by augmenting them with acquisitions, increasing their scale, and giving them more management attention. For the same reason, he has challenged his head of product development to think in terms of new businesses, not simply new products--knowing that the latter tend to get lost in salespeople's bags. Most important, Cisco is handicapping its Horizon 2 projects so that they need not compete head-to-head with established businesses. Their success is judged by metrics that are appropriate to new businesses, and they are given the benefit of Cisco's best managerial talent.

There are two kinds of businesses in the world, says the author. Knowing what they are--and which one your company is--will guide you to the right strategic moves. One kind includes businesses that compete on a complex systems model. These companies have large enterprises as their primary customers. They seek to grow a customer base in the thousands, with no more than a handful of transactions per customer per year (indeed, in some years there may be none), and the average price per transaction ranges from six to seven figures. In this model, 1,000 enterprises each paying $1 million per year would generate $1 billion in annual revenue. The other kind of business competes on a volume operations model. Here, vendors seek to acquire millions of customers, with tens or even hundreds of transactions per customer per year, at an average price of relatively few dollars per transaction. Under this model, it would take 10 million customers each spending $8 per month to generate nearly $1 billion in revenue. An examination of both models shows that they could not be further apart in their approach to every step along the classic value chain. The problem, though, is that companies in one camp often attempt to create new value by venturing into the other. In doing so, they fail to realize how their managerial habits have been shaped by the model they've grown up with. By analogy, they have a "handedness"--the equivalent of a person's right- or left-hand dominance--that makes them as adroit in one mode as they are awkward in the other. Unless you are in an industry whose structure forces you to attempt ambidexterity (in which case, special efforts are required to manage the inevitable dropped balls), you'll be far more successful making moves that favor your stronger hand.

As commercial processes commoditize in a developed economy, they are outsourced or transferred offshore, leaving onshore companies with unrelenting, Darwinian pressure to come up with the next wave of innovation. But "innovation" is a broad term. There are many types, from the ballyhooed disruptive innovation to more mundane forms such as process and experiential, which might involve, respectively, doing such things as streamlining the supply chain and delighting customers with small product modifications. Many executives find it hard to decide which kind to focus on. The best way to choose is to consider the phases of a market's life span. In a market's earliest phase, a new technology attracts enthusiasts and visionaries. Eventually, the market reaches the Main Street section of its life, when growth slows, flattens, and finally subsides. Different types of innovation produce more bang for the buck at different points in the life cycle. Disruptive innovation, for example, is rewarded most during the earliest phase. Once the life cycle advances to Main Street, however, the marketplace is no longer willing to yield the revenue or margin gains necessary to fund that type of innovation, so other forms, including process and experiential, yield better returns. But attempts to change the company's direction are often thwarted by the inertia that success creates. To overcome the inertia demon, managers must introduce new types of innovation while aggressively extracting resources from legacy processes and organizations. By running the two efforts in parallel, they can defeat the demon and renew the company.