Hierarchy of Powers

The Hierarchy of Powers is a model that sizes up product opportunities and economic competition in relation to different types of economic power, to help guide product development and investment decisions. The model is specifically useful to predict growth opportunities and what a product needs to achieve in a specific market environment to compete successfully, and to drive alignment between different types of forces influencing product growth. Combining and aligning different types of power allows a product to achieve “escape velocity” and beat the market.

In descending order from the most general to the most specific, the powers are:

  1. Category power
  2. Company power
  3. Market power
  4. Offer power
  5. Execution power

Geoffrey A. Moore introduced the Hierarchy of Powers in the book Escape Velocity in 2011. For each type of power, Moore suggests looking at the level as a set of forces, heading in its own direction, combining both within the same level and across the levels.

These vectors can align with one another to reinforce the sum total of power, or they can cancel each other out to reduce power to near zero. Thus you can be in a hot category and fail to execute, producing a net zero result. Similarly, you can execute as crazy in a dying category and have an equally disappointing outcome. But when you get the powers aligned, when each is reinforcing he others, then the magic they call synergy appears, and very good things can happen indeed.

– Geoffrey A. Moore, Escape Velocity

Category Power

Category power is driven by the demand for a class of products compared to the other types of products. When a product is in a high-demand category, it grows faster and typically enjoys better profit margins as a result of global market forces. When a product is in a low-power category, the business model usually needs to work with slim margins. Moore suggests that “category performance is the number-one predictor of company performance” and that “no business can outperform its category over time”.

Company Power

The company power is driven by the relative status of a specific company related to its competitors inside a specific category. Moore suggest that this type of power is typically signalled by the company’s market share. Tier 1 companies are particularly prominent, Tier 2 companies have brand recognition, and Tier 3 companies are “unbranded”. Companies that want to increase their power need to spend a disproportionate amount of effort outside product development, on working with “customers, partners, competitors, technology changes and market shifts”. By doing that, companies can find external forces that can drive them forward, achieving a leadership position in the market.

Market power

Market power is driven by the company position in a specific market segment, and “measured by word-of-mouth reputation within the community of reference, and is confirmed by the market share specific to this segment.”

Moore suggests that market power is highly desirable when markets are in transition, or when companies that have previously occupied a leadership position have moved into the middle of the pack and are at risk of falling further. In such cases, companies can capture a new market segment and gain a leadership position. Becoming a leader in a market segment can make a product a “safe buy within the target segment” and provide a sustainable competitive advantage over the competition, even against the overall category leaders.

Ecosystems prefer to organize around an established leader at the head of a known pecking order. Company power establishes the global pecking order, but individual markets frequently cast their votes for a different candidates.

– Geoffrey A. Moore, Escape Velocity

Offer power

The offer power is driven by the demand for a specific product relative to its key competitors. Focusing on offer power is typical for volume-operations, where a highly transactional nature of customer interactions “leaves the offer to fend more or less for itself”. Because the offer power is so tied to a specific product, Moore suggests that it is the most transient of all types of powers in the model.

Execution power

The execution power is driven by the ability to outperform competitors in conditions that do not favor any specific company. In particular, this relates to the ability to “execute a game-changing shift in operating priorities”, and transitioning from being able to execute on projects to being able to define and execute “playbooks”.

Once the playbook has been captured, complex-systems offers can be scaled and competitors can be left behind.

– Geoffrey A. Moore, Escape Velocity

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