Use this framework to find a leadership position by focusing on operational excellence, customer intimacy or product leadership.
Selling value has always been a mark of successful companies. The big question is "How do customers perceive value?". Michael Treacy and Fred Wiersema addressed this question in an article in Harvard Business Review in January/February 1993. It was entitled “Customer intimacy and other value disciplines”.
Michael Treacy and Fred Wiersema's thesis is that companies achieve a leadership position, not by doing everything, but by focusing on one of three value disciplines:
(This is not unlike Porter's Generic Strategies in which he argues that success comes from cost focus, differentiation or focusing on a niche. Just like Porter, Treacy and Wiersema argue that the worst place to be is in the middle).
Operational excellence describes companies who are leaders in the production and delivery of products and services. As a result of operational excellence they have low prices because they have minimised overhead and variable costs. They quote Dell computers as a good example of a leader in operational excellence.
Customer intimacy focuses on building customer loyalty for the long-term. Companies focused on this strategy look at a customer's lifetime value and not that of a single transaction. Nordstrom is quoted as a good example.
The third discipline is product leadership. Companies that focus on this strategy aim to launch a continuous stream of innovative products and services. The authors cite Johnson & Johnson as excelling with this strategy.
The key to success is focusing on one of these value strategies and staying with it. It does not mean that the other two are neglected but it does mean that the focus is ensuring one of them is perfected while the others are okay. Think of your offer as three concentric circles. Central to everything are the basics which every customer expects and deserves. Beyond these there may be some things that differentiate you from the competition because you do them particularly well. However, key to everything are the values around the edge of the circle that you do better than any other company and that are unique to you. These are the values that confer leadership.
Companies can be tempted to divert or broaden their offer if they comes under attack from competitors. Treacy and Wiersema suggest that Sears failed to focus on its core value of operational excellence. It came under pressure from a raft of other retailers and attempted to regain market share through customer intimacy and product leadership. This simply diluted their leadership position. Leadership success is all about discipline. Focusing on one of the values and ensuring that this remains the focus - come what may.
Some things to think about:
How would you rate your company in terms of its operational excellence? How focused is it on processes? How centralised are its functions? How good is it at low cost transactional systems?
How would you rate your company in terms of its product leadership? To what extent is it future driven and inventive? How strong is it in terms of research and development?
How would you rate your company in terms of customer intimacy? How solution orientated is it? How customer driven is it? How flexible and responsive is it to the needs of customers?
Of these three positions (operational excellence, product leadership, customer intimacy), where is your company strongest? This is the position it should take in building a future strategy.