Value Disciplines Model & Your Competitive Advantage
by Pat Ordenes, on Mar 8, 2018 9:04:12 PM
The Value Disciplines Model is one of my favorite strategy frameworks. It helps you better understand and execute on the one thing that you want your organization to be famous for.
There are countless strategy frameworks out there, and we have already covered a few key frameworks which we think are extremely flexible and battle-tested over the years:
- The Ansoff Matrix Helps Organizations To Grow
- The Benefits of Applying The Stakeholder Theory
- Maslow's Hierarchy As a Business Framework
- Unlocking the Power of the Balanced Scorecard
- Using the VRIO Framework to Create Sustained Competitive Advantage
- McKinsey's Three Horizons of Growth Can Help You to Innovate
The great thing about the Value Disciplines framework, it can be applied at any stage of your organization's growth. Whether you're just starting out, or an established multinational - Value Disciplines helps you get laser-focused on your business objectives.
So what are the Value Disciplines?
The Value Disciplines concept was solidified by Michael Treacy and Fred Wiersema in their book: The Discipline of Market Leaders. Having researched and observed trends in companies such as Wal-Mart, Dell, Southwest Airlines, Intel and Sony, the authors presented a business model with three key competitive areas:
- Customer Intimacy
- Product Leadership
- Operational Excellence
They propose that for a business to be competitive, they must do well in all three areas. However, organizations that wish to become market leaders in their category, need not just do well, but excel in one of these. Let's first break each one of these down and look at what they represent. Then, we’ll look at how they co-exist and why no organization can really excel at all three (as nice as that would be).
Customer Intimacy of Value Disciplines
The easiest way to explain the concept is to use this statement:
Your organization must become obsessed with understanding the individual customer in detail.
This will then help you to excel in customer service and customer attention.
Customer intimacy in the Value Disciplines goes beyond understanding your customer’s needs and wants. It means having a full range of services available to help serve your customers on demand. Think of it as a concierge for customer service. E.g. you know you're in a good hotel when the concierge gets to know you to the point where they not only serve you IN the hotel but also outside. The concierge may do this by providing advice you wouldn't normally get on a brochure or Googling. They may even arrange services for you well outside the scope of the hotel (arranging for a tailor to come to the hotel).
This level of intimacy with the customer gives your organization a unique opportunity to bring unparalleled value to your customers. That's a huge deal, because it allows you to differentiate yourself against your competitors. Also, it helps you to compete on value, rather than price (and most likely charge a significant premium for your product or service).
Customers no longer place the value on the product or service alone, but rather the familiarity in the process. A company that comes to mind when it comes to customer intimacy is Zappos. Zappos customer service team are known for going well above the call of duty. Zappos don't just keep customers happy, but also surprise them along the way. Here are some great examples of Zappos stories online. More traditional examples of companies with a customer intimacy approach include Home Depot, Staples in office-supply retailing, Ciba-Geigy in pharmaceuticals, and Kraft.
The guiding principles for effective Customer Intimacy are:
- Having a full range of services available to serve the customers on demand. This may involve having a wide range of services available from other suppliers at very short notice through contract arrangements.
- A corporate philosophy and resulting business practices that encourage deep customer insight. This helps deliver breakthrough thinking about how to improve the customer’s situation.
How would you measure Customer Intimacy?
This can seem a little vague at first, since customer intimacy is not necessarily a tangible dimension. Also, it's often hard to simply quantify the success of customer intimacy. When we look deeper though, there are certain areas we can measure to help understand customer intimacy success. These measures will help paint a picture of how effective a customer intimacy approach can be for an organization:
- Reach and range – This involves the location of service access points, number of channels the product or service can be accessed and levels of self-service available
- Cycle time – Measuring the time between awareness of customer need and delivery, and product or service development time
- Product identification – The ability to identify new products or services required by customers.
Focusing on customer intimacy is a fantastic way to differentiate your business. It can take time and a significant amount of money to achieve. But if done well it can give you a nearly unassailable competitive advantage.
Product Leadership of Value Disciplines
This is simply about leading the charge in product development. Though a simple concept, it is often a difficult space to compete in. Your ability to compete in this space will often be dictated by the level of investment an organization can allocate to researching and developing a product so that it not only leads the market but also remains well ahead of any competitors (easier/cheaper said than done!).
To do this effectively, an organization needs to challenge itself in three specific ways:
Creatively - meaning that they often need to embrace ideas that are usually outside the company’s normal scope
Commercially - the ideas need to move through their due process quickly to reach the market first
Relentlessly - such a product leader must be relentless in their pursuit of new solutions to problems they may have just solved. In the tech space, for example, this means continuously rendering your latest product obsolete (better you do that than your competition).
Apple is probably the poster child in terms of product leadership. However, in recent times this has become increasingly debatable (I can already hear the screams of iPhone fanboys!). Regardless, Apple has always aimed to lead through developing a better product. Their drive for innovation is so embedded into the organization, that it became part of the marketing (“Think Different” campaign).
Guiding principles of an effective product leader are:
- Encouragement of innovation – Maintain a company culture that allows experimentation and innovation and rewards product or service improvement
- Risk-oriented management style – Having management team that allows the organization to take risks and reap the rewards of new ventures (of course this means an inevitable number of failures in the process)
- Recognition that the organization’s current success and future prospects lie in its talented design people and those who support them
- The drive to educate and lead the market in the use and benefits of new products or services.
How do you measure Product Leadership?
Though the initial measurable focus area would be market share, this does not immediately indicate product leadership in a particular product category. If we look at the smartphone market, for example, Apple is still seen as the market leader, although Samsung moves more units. Apple managed to position itself as the innovator at the early stages of the competition, so customer perception tends to lag. Some areas that can help identify product leadership include:
- Capability maturity – The ability to maintain the level of capability to deliver products or services and the continuous improvement of those capabilities
- Intellectual leverage – Being able to develop and use intellectual assets for improved product and service delivery
- Responsiveness – minimizing the response and turnaround times for product and service design and delivery (getting to market quickly)
Operational Excellence of Value Disciplines
Operational excellence revolves around the principal of low or lowest price and hassle-free service. This is simplifying the concept somewhat, but essentially the organization aims to lead the market through price and convenience. The goal is not to simply be the cheapest (from a financial point of view, that can be a journey to the bottom), but to really create an environment for the customer where friction is minimized or completely eradicated.
Dell is a perfect example of this principle. While Compaq computers concentrated on making faster and cheaper machines than IBM, Michael Dell saw an opportunity from his college dorm. He still focused on the product (faster cheaper) like the competitors but decided to emphasize the delivery system.
Dell was able to compete by delivering products to order rather than to inventory (cutting out the middleman and reducing costs) and still maintain quality and service.
The guiding principles for operational excellence revolve around:
- Efficient management of people – Developing a culture and training focused on efficient and low-cost ways of doing things
- Management of efficient transactions – Being able to maximize the efficiency of all facets of a transaction, including the full supply chain
- Dedication to measurement systems – Focus on quality AND cost control (with an emphasis on finding ways to reduce costs). Manage customer expectations by limiting products and services (avoid over-promising).
How do you measure operational excellence?
There are three key areas that can help measure how well an organization is performing in this space. These are:
- Costs - By analyzing and adjusting processes and products to facilitate the most cost-effective delivery
- Quality – By detecting, understanding and removing problems through processes, products, and services that have efficiency impacts both before and after delivery
- Organisational performance – Maintain efficiency through improved processes and automation for speed and hassle-free delivery
If you are familiar with the concept of “Kaizen” from Japan, you will agree that the operational excellence concept borrows a lot from it. In fact, Toyota, is a brand know for its operational excellence.
Can’t I be great at all three?
The short answer is no. Like anything in business though, it depends. The initial reaction when I looked at this framework was to strive to excel in all areas. Alas, Treacy-Wiersema argues that an organization will find it very difficult to excel in all three disciplines. Treacy-Wiersema argues this since the organizational culture, structures, people, facilities, processes and business models that lead to excellence in one discipline are not compatible when attempting to achieve the same in the other two disciplines. For example, Dell would find it hard to break into the product leadership discipline. All Dells processes are geared to providing customized solutions at the lowest possible price. This is a very different business model from Apple who produce few products but with an intense attention to product detail.
Having said that, it doesn’t mean it is not possible. There are companies out there that have somewhat achieved this. Let’s take Staples, the office supply giant in the United States. They have adopted both operational excellence and customer intimacy. Staples achieves the lowest net-landed cost in the entire office stationery business. Recently though, Staples pushed for customer intimacy, by creating a Staples ‘club’ with membership and discounts. They now use the data they gather from the club members to serve better and deepen their relationship with these customers.
Indeed, if we look at the tech space and some of the companies that are disrupting the market, we see that a lot of them manage to excel at two of these areas effectively. If we look at Airbnb for example, the business offers operational excellence from a high level of customer intimacy. This could be said about Uber also.
How can you apply this framework to your business?
An organization looking to define it's direction and quickly gain a competitive edge may use The Value Disciplines Framework as a tool. More than a discipline, once you ‘stake your claim’ in one of these areas, an organization can turn this into a philosophy that is embedded within the company. When that is achieved, employees resonate with the discipline and will aim to uphold it vigorously. It can almost become the WHY of the organization, and this can not only give you a competitive edge but a cultural one as well (watch the video below if you haven't seen it before).
The trick is to not forget that simply because you focus on one discipline, there is no neglect of the other two. Remember, you MUST compete in all three disciplines - there is no choice in that. The choice is simply to make a conscious decision to excel in one.
Cascade's Value Discipline
Here at Cascade, for example, we’ve made a conscious decision to excel in customer intimacy. We do this by going that extra mile for our customers. We don't just provide Cascade as a strategy tool, but as something that integrates with an organization. The way we do that is by really understanding the needs of an organization and going well beyond the software to facilitate success. This doesn't mean we don't focus on our product (most of our team is comprised of developers). But, it is everyone’s responsibility to know, understand and better serve our customer. If our customer feedback and reviews is anything to go off, you can see that customer intimacy is a core strength for Cascade.
The Value Disciplines Model
Value Disciplines is a really powerful strategy framework. Value Disciplines can be quite flexible, but it is not for everyone. For example, if a business offers customer care as a service, trying to focus on a discipline other than customer intimacy will offer limited value. It pays to look at the concept and determine if it really is a good fit for your current structure. If you want to read more about this framework, I strongly suggest picking up the book: The Discipline of Market Leaders.
If you’re curious to see how this framework could work for you, why not use our platform to visualize it? Cascade Strategy allows you to quickly build your plan, along with organizational goals and tasks, to help you quickly determine how this type of strategy can help. Give it a try!
[UPDATE] : We've added an info-graphic that you can download for your reference or share.