The Impact of the Hierarchy of Powers on PM and Strategy

How can organizations follow a dual strategy when business is going well but change is inevitable? Keep the existing business going…but use the Hierarchy of Powers to implement a parallel strategy to position for success in a new future. Learn what the Hierarchy of Powers is, and how it can be leveraged to build a strong foundational business position for the future.

What Is the “Hierarchy of Powers”?

Geoffrey Moore‘s “Hierarchy of Powers” is a framework designed to help businesses understand the different layers of their operations and competitive advantage. The concept is particularly useful in the context of technology companies but can be applied more broadly.  It is explained in Moore’s book, “Escape Velocity:  Free Your Company’s Future From the Pull of the Past“.

The hierarchy is structured as follows, from the bottom to the top:

1. Category Power – This is the foundational layer, emphasizing the importance of choosing the right market category to compete in. A company must position itself in a category that has growth potential and where it can differentiate itself effectively.
2. Company Power – This level focuses on the internal strengths of the organization, such as its culture, talent, and internal processes. These internal capabilities enable the company to execute its strategy effectively.
3. Market Power – This level is about the company’s ability to understand and dominate its market or segment. It involves a deep understanding of customer needs, market trends, and the competitive landscape. Market power is achieved when the company becomes a leading player in its target market.
4. Offer Power – This level pertains to the company’s value proposition and how it packages and delivers its products or services. It includes pricing strategies, marketing, and customer experience, making the company’s products or services more attractive to customers compared to alternatives.
5. Execution Power – The highest level of the hierarchy, execution power, is about the company’s ability to consistently deliver on its promises. This includes operational excellence, supply chain management, and customer support. Execution power ensures that customers receive the value they expect, thereby fostering loyalty and long-term relationships.

The framework has bee applied most notably to high tech firms becasue it it there that digital influences, and thus rapid change, are most pronounced. However, to illustrate that it is not strictly a high tech application, let’s take a look at each by providing an example – specifically not high tech.

Category Power

Let’s consider an example of category power in the context of Whole Foods Market and the organic and natural foods market.

Whole Foods Market strategically positioned itself within the organic and natural foods category, recognizing the growing consumer demand for healthier, more sustainable food options. This positioning allowed Whole Foods to capitalize on an emerging market trend and establish itself as a leader in the category.

Here are the key elements of Whole Food Market’s Category Power:

1. Identifying a High-Growth Market:
2. • Whole Foods recognized the increasing consumer interest in organic and natural foods driven by health consciousness, environmental concerns, and a desire for transparency in food sourcing.
   • By focusing exclusively on high-quality, organic, and natural products, Whole Foods tapped into a niche but rapidly growing market segment.
2. Differentiation within the Category:
3. • Whole Foods differentiated itself by offering a wide selection of organic and natural products that met stringent quality standards. The company built a reputation for being a trusted source of healthy, sustainable food options.
   • Unlike traditional supermarkets, Whole Foods emphasized local sourcing, transparency, and ethical production practices, appealing to environmentally and health-conscious consumers.
3. Shaping Customer Perception:
4. • Whole Foods invested in educating consumers about the benefits of organic and natural foods through in-store signage, informational campaigns, and knowledgeable staff.
   • The company created an upscale shopping environment with a focus on customer experience, reinforcing the perception of Whole Foods as a premium brand in the organic and natural foods category.
4. Influencing Industry Trends:
5. • Whole Foods played a significant role in mainstreaming organic and natural foods, influencing other retailers to expand their offerings in this category.
   • The company’s success and growth prompted larger grocery chains to adopt similar practices and introduce their own lines of organic and natural products, further validating the category’s importance.

In summary, Whole Foods Market’s Category Power lies in its strategic decision to position itself within the organic and natural foods market, recognizing the potential for growth in this category. By differentiating its offerings, shaping customer perceptions, and influencing industry trends, Whole Foods established itself as a dominant player in the organic and natural foods category. This foundational positioning enabled Whole Foods to build on its other powers (Company Power, Market Power, Offer Power, and Execution Power) and achieve significant success and growth in the grocery industry.

Company Power

Let’s consider an example of company power in the context of IKEA and the global furniture market.

IKEA is renowned for its strong internal capabilities, including its innovative corporate culture, efficient production and supply chain processes, and a commitment to sustainability. These elements form the foundation of IKEA’s ability to execute its strategy and maintain a competitive edge in the global furniture market.

Here are the key elements of IKEA’s Company Power:

1. Innovative Corporate Culture:
2. • IKEA fosters a culture of innovation and cost-efficiency, encouraging employees to continuously find ways to reduce costs without compromising on quality or design.
   • The company values simplicity, practicality, and functionality, which are reflected in its product designs and operational processes.
2. Efficient Production and Supply Chain Processes:
3. • IKEA has developed a highly efficient production and supply chain model, which includes a mix of in-house manufacturing and outsourcing to a network of global suppliers.
   • The company uses flat-pack furniture design, which reduces shipping and storage costs and allows customers to easily transport and assemble the products themselves.
3. Sustainable Practices:
4. • IKEA is committed to sustainability, sourcing raw materials responsibly and aiming to minimize its environmental footprint. The company invests in renewable energy, sustainable forestry, and recycling programs.
   • This commitment to sustainability resonates with customers who value environmentally responsible products and practices.
4. Cost Leadership:
5. • IKEA’s business model is built around offering well-designed, functional home furnishings at affordable prices. The company achieves this through economies of scale, efficient supply chain management, and innovative product design.
   • By maintaining cost leadership, IKEA can attract a broad customer base while maintaining profitability.
5. Customer Experience:
6. • IKEA offers a unique shopping experience with its large, maze-like stores that encourage customers to explore and discover new products. The in-store experience includes fully furnished room displays, a wide range of products, and various amenities such as cafeterias and play areas for children.
   • This immersive experience enhances customer satisfaction and drives repeat visits.

In summary, IKEA’s Company Power is evident in its innovative culture, efficient production and supply chain processes, commitment to sustainability, cost leadership, and unique customer experience. These internal capabilities enable IKEA to consistently deliver high-quality, affordable furniture, maintain a strong market presence, and drive continuous innovation. This foundational strength supports IKEA’s ability to leverage other powers (Category Power, Market Power, Offer Power, and Execution Power) to sustain its leadership in the global furniture market.

Market Power

Let’s consider an example of market power in the context of Nike and the athletic footwear and apparel market.

Nike has established itself as a dominant player in the athletic footwear and apparel market through a deep understanding of customer needs, effective branding, and strategic market positioning. This market power enables Nike to influence market trends, set industry standards, and maintain a strong competitive edge.

Here are the key elements of Nike’s Market Power:

1. Strong Brand Recognition:
2. • Nike’s “Swoosh” logo and “Just Do It” slogan are among the most recognizable in the world. This strong brand identity resonates with consumers and conveys values of performance, innovation, and inspiration.
   • Through strategic endorsements from high-profile athletes and partnerships with sports teams, Nike has reinforced its brand image and connected with a broad audience of sports enthusiasts.
2. Understanding Customer Needs:
3. • Nike invests heavily in research and development to understand the evolving needs and preferences of athletes and active consumers. This customer-centric approach ensures that Nike’s products meet high-performance standards and incorporate the latest technological advancements.
   • The company frequently engages with its customer base through social media, events, and community programs, allowing for direct feedback and fostering brand loyalty.
3. Wide Market Reach:
4. • Nike has a global presence, with a distribution network that spans over 170 countries. This extensive reach allows Nike to capture a large share of the market and serve diverse customer segments.
   • The company strategically places its retail stores in high-traffic locations and leverages online platforms to ensure easy accessibility for consumers.
4. Product Diversification:
5. • Nike offers a broad range of products, including footwear, apparel, equipment, and accessories, catering to various sports and lifestyle needs. This diversification helps Nike appeal to a wide audience and reduces dependency on any single product category.
   • By continually expanding its product lines and introducing limited editions and collaborations, Nike keeps its offerings fresh and relevant.
5. Influence on Market Trends:
6. • Nike has the ability to set and influence market trends through its innovative product launches and marketing campaigns. The company often leads the industry in introducing new technologies, materials, and designs.
   • Nike’s emphasis on sustainability and social responsibility has also set a precedent for the industry, encouraging other companies to adopt similar practices.

In summary, Nike’s Market Power is evident in its strong brand recognition, deep understanding of customer needs, extensive market reach, product diversification, and influence on market trends. These elements enable Nike to dominate the athletic footwear and apparel market, shape industry standards, and maintain a competitive edge. This market power, combined with other strengths (Category Power, Company Power, Offer Power, and Execution Power), has helped Nike achieve sustained success and growth in the global market.

Offer Power

Let’s consider an example of offer power in the context of Costco and the wholesale retail market.

Costco has established a compelling value proposition through its unique membership model, bulk purchasing options, and focus on high-quality products at competitive prices. This offer power enables Costco to attract and retain a loyal customer base while maintaining a strong competitive edge.

Here are key elements of Costco’s Offer Power:

1. Membership Model:
2. • Costco’s membership model creates a sense of exclusivity and belonging. Members pay an annual fee to gain access to Costco’s stores, which encourages repeat visits and long-term customer loyalty.
   • The membership fees also provide a stable revenue stream, allowing Costco to maintain low prices on its products.
2. Competitive Pricing:
3. • Costco leverages its bulk purchasing strategy to negotiate lower prices with suppliers, passing these savings on to customers. This cost advantage allows Costco to offer high-quality products at prices lower than those of traditional retailers.
   • The company’s commitment to maintaining a limited markup on its products further reinforces its reputation for providing value to customers.
3. High-Quality Products:
4. • Costco carefully curates its product selection, focusing on high-quality items across various categories, including groceries, electronics, apparel, and household goods.
   • The Kirkland Signature brand, Costco’s private label, is known for its quality and value, often competing with national brands at a lower price point.
4. Bulk Purchasing Options:
5. • By offering products in larger quantities, Costco appeals to both individual consumers looking to save money on everyday items and small businesses needing supplies in bulk.
   • This bulk purchasing model not only provides value to customers but also reduces packaging waste and promotes sustainability.
5. Customer Experience:
6. • Costco enhances the shopping experience with additional services such as pharmacy, optical, tire center, and food court. These services provide convenience and added value to members.
   • The company’s generous return policy and excellent customer service contribute to high customer satisfaction and loyalty.

In summary, Costco’s Offer Power is evident in its unique membership model, competitive pricing, high-quality product selection, bulk purchasing options, and enhanced customer experience. These elements create a compelling value proposition that attracts and retains customers, setting Costco apart from other retailers. This offer power, combined with other strengths (Category Power, Company Power, Market Power, and Execution Power), has helped Costco achieve sustained success and growth in the wholesale retail market.

Execution Power

Let’s consider an example of execution power in the context of McDonald’s and the fast food industry.

McDonald’s has built its success on its ability to consistently deliver a reliable and efficient customer experience worldwide. This execution power is a key factor in McDonald’s ability to maintain its position as a leader in the fast food industry.

Here are the key elements of McDonald’s Execution Power:

1. Operational Efficiency:
2. • McDonald’s has streamlined its operations to ensure quick service, consistent food quality, and cleanliness. Standardized processes and procedures are followed across all locations to maintain a high level of efficiency.
   • The company’s focus on operational efficiency allows it to serve millions of customers daily with minimal wait times, which is crucial in the fast food industry.
2. Franchise Model:
3. • McDonald’s operates a successful franchise model, enabling rapid expansion and local market adaptation. Franchisees are carefully selected and receive extensive training to ensure they adhere to McDonald’s standards.
   • This model allows McDonald’s to scale its operations effectively while maintaining consistent quality and service across its global network of restaurants.
3. Supply Chain Management:
4. • McDonald’s has developed a robust supply chain to ensure a steady and reliable flow of ingredients and supplies to its restaurants. The company works closely with suppliers to maintain high standards of food quality and safety.
   • By leveraging its scale, McDonald’s can negotiate favorable terms with suppliers, which helps keep costs down and ensures a consistent supply of high-quality ingredients.
4. Quality Control:
5. • McDonald’s has strict quality control measures in place to ensure that every meal meets its standards. Regular inspections and audits are conducted to maintain consistency in food preparation and service.
   • The company’s commitment to quality control helps build customer trust and loyalty, as customers know they can expect the same experience at any McDonald’s location.
5. Employee Training and Development:
6. • McDonald’s invests heavily in employee training and development programs. From front-line staff to managers, employees receive comprehensive training to ensure they understand the company’s standards and can deliver excellent customer service.
   • This focus on training helps McDonald’s maintain a knowledgeable and capable workforce, which is essential for consistent execution.

In summary, McDonald’s Execution Power is evident in its operational efficiency, successful franchise model, robust supply chain management, strict quality control measures, and comprehensive employee training programs. These elements enable McDonald’s to deliver a reliable and efficient customer experience across its global network of restaurants. This execution power, combined with other strengths (Category Power, Company Power, Market Power, and Offer Power), has helped McDonald’s achieve sustained success and growth in the fast food industry.

Implications of the Hierarchy of Powers for Strategy

The Hierarchy of Powers offers a structured approach to understanding and leveraging different layers of a company’s capabilities for strategic advantage. Here are the implications for strategy, its applicability, and how practitioners can leverage it effectively:

1. Dual Prioritization
2. • It allows organizations to continue to prioritize established businesses that are later in their lifecycle.
   • It enables organizations to prioritize investment in appropriate growth areas that may otherwise conflict with established business areas.
2. Holistic Understanding
3. • The Hierarchy of Powers provides a comprehensive framework for understanding how various aspects of a business contribute to its competitive advantage.
   • It emphasizes the interdependence of different layers (Category Power, Company Power, Market Power, Offer Power, Execution Power) and how weaknesses in one layer can undermine strengths in others.
3. Business Focus
4. • By breaking down the components of competitive advantage, companies can prioritize efforts and investments in areas that need strengthening.
   • It helps in identifying the foundational elements that need to be addressed before building higher-level capabilities.
4. Sustainable Competitive Advantage
5. • The framework guides companies in developing sustainable competitive advantages by ensuring that foundational elements (such as Category Power and Company Power) are solid.
   • It encourages a long-term view, where immediate gains are balanced with foundational improvements.
5. Strategic Alignment
6. • The Hierarchy of Powers helps align various strategic initiatives with the company’s overall goals.
   • It ensures that all parts of the organization work towards enhancing different layers of power systematically.

The Hierarchy of Powers is applicable to growth-oriented businesses, highly competitive industries, and for market leaders and challengers alike.

It might not apply in niche or highly specialized markets or to small businesses with limited resources.

By systematically applying the Hierarchy of Powers, strategists can build a robust strategic framework that enhances their company’s competitive position and drives sustainable growth.

Implications of the Hierarchy of Powers for Project Management

The Hierarchy of Powers has significant implications for project management, particularly in guiding the Project Management Office (PMO) and portfolio management practices. It can be used to achieve strategic alignment, prioritization, and a balanced portfolio.

Here are some potential approaches to leveraging the Hierarchy of Powers for greater PMO effectiveness:

1. Framework Integration – Integrate the Hierarchy of Powers into PMO’s project selection and prioritization. Consider how each project aligns with the business – either supporting later stage business segments, or strengthening the different layers of power supporting a new business segment.
2. Strategic Project Mapping – Map each project supporting new business segments to the relevant layer(s) of power it impacts. Take an alternative – definitely different – approach for projects supporting existing business. Visually represent both for all to seen and develop a common understanding.
3. Governance and Oversight – Establish governance processes that ensure projects – those supporting new segments of the business as well as existing – are continuously evaluated for their strategic alignment. Use appropriate metrics and KPIs that reflect targeted contributions to ensure delivery of the intended strategic benefits.
4. Resource Allocation – Evaluate resource allocation to ensure new and existing business areas are being supported to the level needed. It this is out of sync, bring it up for discussion.

Here are some potential approaches to leveraging the Hierarchy of Powers for greater Portfolio Management effectiveness:

1. Strategic Portfolio Review – Conduct regular portfolio reviews with a focus on strategic alignment – particularly the proper balance between new initiatives and existing business support. Assess projects in new business areas to ensure al areas of power are being given appropriate support. Resolve any gaps or over-emphasis.
2. Risk Management – Consider the strategic risk associated with not addressing conflicts between new business areas that might not provide a near term financial return and existing areas. Ensure that Execution Power is sufficient to support all initiatives, regardless of time horizon.
3. Value Realization – Measure the value delivered by projects in terms of their contribution to building strategic capabilities. Use metrics that reflect both immediate project outcomes and long-term strategic benefits. These will be different across projects.
4. Stakeholder Engagement: – Engage stakeholders especially on alignment. Guide them on time horizon and on appropriate metrics. For projects in new business areas, communicate how projects contribute to the company’s strategic goals through the Hierarchy of Powers.

PMO and PPM efforts described above many require special efforts at education and training, development of more focused tools and templates, and customized efforts at continuous Improvement.

By embedding the Hierarchy of Powers into the PMO and portfolio management practices, you can take a big step to ensure that projects are not only successful on an individual basis but also contribute to building sustainable competitive advantages across all strategic layers.

Conclusion and Further Resources

This post examined how organizations can follow a dual strategy when business is going well but change is inevitable. While keeping the existing business going…the idea is to use the Hierarchy of Powers to implement a parallel strategy to position for success in a new future.

This post described what the Hierarchy of Powers is, and dug further into each of the five powers – Category Power, Company Power, Market Power, Offer Power, and Execution Power – with strong non-technology examples of each.  It further discussed the impact of the Hierarchy of Powers on project management and strategy within the organization.

Follow this link to see Geoffrey Moore explain the Hierarchy of Powers framework.