Understanding Value Disciplines
M. Treacy and F. Wiersema postulated, in their book The Discipline of Market Leaders, that an organization can only succeed and be a leader in its market by focusing on one of three value disciplines while maintaining a threshold value in the other value disciplines. By definition, value discipline is a statement of strategic focus that expresses various ways a firm can differentiate itself from competitors. Therefore, it is synonymous with a competitive advantage and unique selling proposition/point.
Treacy and Wiersema argued that a company that tries to excel at all three value disciplines i.e. Product Leadership, Operational Excellence, and Customer Intimacy; would end up being average rather than excellent. Instead, a company interested in becoming a market leader must find its special offering (just one value discipline) and leverage that in its chosen market.
“A company interested in becoming a market leader must find its special offering (just one value discipline) and leverage on that to a chosen market”
The Three Value Disciplines
Companies that excel at this value discipline aim to continually produce market-leading solutions and services. Product leaders continuously create innovative solutions, consistently pushing their products beyond their limits. This requires that they create an environment that supports inventive and innovative processes, creativity, and ideas. For an organization to be a product leader its approach to product development needs to be consistent: innovative, first-to-market, and iterative. An example of a product leader is Apple:
Apple’s unique and highly secretive product development process puts design at the forefront. They have an Industrial Design studio that only a few people have access to, they set their own budgets (not the finance team) and are encouraged to ignore typical manufacturing practicalities. Apple has created an organizational culture that encourages employees to be innovative and share creative ideas and takes a step further to empower creative employees. Apple constantly redefines its market and introduces new service offers to its market, creating its own opportunities and meeting its market needs.
Core Aspects of Product Leadership
- Creative: Innovation is often encouraged and ideas often experiment. Such organizations need to constantly think out of the box to produce solutions that meet changing customer needs.
- First-to-market: Creative ideas need to be explored and processed internally, quickly and made available to customers before their competitors.
- Iterative: Product leaders need to continuously explore and research ways to improve products, including theirs, to ensure that they remain competitive.
Operational Excellence is often used interchangeably with continuous improvement, but they are different. Operational excellence refers to an organization-wide focus on increasingly delivering value to customers. Operationally excellent companies involve value-adding activities at every level by every person in the organization.
Where continuous improvement efforts are focused on process/work activity excellence, operational excellence requires that companies innovate in their overall strategic direction, leadership, teamwork, employee well-being, product/service, commitment to quality, and customer satisfaction. Operational Excellence value discipline focuses on optimizing business processes across functional and organizational boundaries; by innovating processes at every level, such an organization is able to consistently provide high quality yet cost effective products and services.
Organizations operating in this value discipline differ from organizations operating in other value streams. Some of the principles that guide operational excellence include personnel management, transaction management, and measurement system management. An example of an operationally excellent organization is Dell.
Dell redefined its model by eliminating dealers from the distribution process altogether. By selling to customers directly, building according to orders rather than inventory, and integrating a disciplined, cost-efficient culture, Dell has been able to offer high-quality products and services at cheaper prices than their competitors.
Core Aspects of Operational Excellence
- Personnel Management: Such organizations encourage a culture of efficiency and cost reduction among employees
- Transaction Management: They maximize the efficiency of every transaction across the supply chain.
- Measurement System Management: Focus on high quality and cost control at all times and track improvements in each area.
Organizations that prioritize this discipline are customer centered and thrive on customer loyalty. They work to meet the demands of the individual customer and provide high-value services that are tailored to their specific needs. This allows them to charge significant premiums relative to the market.
Companies that excel in customer intimacy combine:
- Reach and range: This ensures that the products and services are available and easily accessible through various means wherever the customer is.
- Cycle time: This refers to the amount of time between when the customer develops a need for the product/service to the time when that need is fulfilled. The shorter the time frame, the more value is attached to the product as a result of the convenience it creates.
- Product identification: This is the ability to figure out what new products or services are needed by the customer.
Netflix is a good example of an organization with customer intimacy value discipline. Netflix provides its users with unique and specific services through personalized and custom products. This allows them to meet the vast needs of their customer base at a relatively low cost. Netflix applies user-centric based policies to provide a strategic solution that is tailored to each individual customer. The management of their customers’ individual preference database enables them to provide product/ service customization.
It’s difficult to excel in all three disciplines because it requires that the company focus intensively on each area. To excel in today’s market, organizations need to narrow their focus. In the past customers tilted towards products due to their quality and price. However, in recent times customers have an expanded concept of value that includes the convenience of purchase, after-sale service, dependability, etc.
On the flip side, for a company to succeed, it needs to succeed at all three value discipline models. An organization performing exceptionally well in one value stream and not performing well in one or both will fail at leading its market. However, a few organizations like Toyota excel in two value disciplines. In the case of Toyota, it excels in both operational excellence and product leadership.
In the early 1970s, Toyota implemented a new operational model in its manufacturing plants and product development process. This was aimed to avoid waste, reduce inventories and increase production efficiency. In doing so, the company has been able to respond to the changing needs of its customers and offer high quality products at low costs thus increasing customer satisfaction. However, this has not inhibited their pursuit of innovative design as they aim to provide exciting cars for their customers.
Applying value discipline to your business model strategy requires that you focus on the area unique to your business or an area you can easily perform the best at then target your specific market. After this, continuously work on improving and creating an organizational structure that supports the model you’ve chosen. Employing value discipline(s) is summarized in the popular saying “You can’t please everyone, find the people that matter to you and make them happy.”