While Michael Porter’s generic strategies were introduced in the 1980s and still dominate much of the dialogue about strategy and strategizing, a complementary approach was offered more recently by CSC Index consultants Michael Treacy and Fred Wiersema. Their value disciplines model is quite similar to the three generic strategies from Porter (cost leadership, differentiation, focus). However, there is at least one major difference. According to the value disciplines model, no discipline may be neglected: threshold levels on the two disciplines that are not selected must be maintained.
Example 5.12 Operational Excellence
AT&T’s introduced the Universal Card, a combined long-distance calling card and general purpose credit card, featuring low annual fees and customer-friendly service. At the time, mobile phones and free long distance calling were unheard of. AT&T combined the scale of its telecommunications network to provide a unique offer to relatively interchangeable credit cards. TO be successful, AT&T had to provide both with industry leading performance levels.
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In their book, The Discipline of Market Leaders, they offered four rules that competing companies must obey with regard to strategy formulation:
- Provide the best offer in the marketplace, by excelling in one specific dimension of value. Market leaders first develop a value proposition, one that is compelling and unmatched.
- Maintain threshold standards on other dimensions of value. You can’t allow performance in other dimensions to slip so much that it impairs the attractiveness of your company’s unmatched value.
- Dominate your market by improving the value year after year. When a company focuses all its assets, energies, and attention on delivering and improving one type of customer value, it can nearly always deliver better performance in that dimension than another company that divides its attention among more than one.
- Build a well-tuned operating model dedicated to delivering unmatched value. In a competitive marketplace, the customer value must be improved. This is the imperative of the market leader. The operating model is the key to raising and resetting customer expectation.
What Are Value Disciplines?
Treacy and Wiersema describe three generic value disciplines: operational excellence, product leadership, and customer intimacy. As with Porter’s perspective about the importance of making trade-offs, any company must choose one of these value disciplines and consistently and vigorously act on it, as indicated by the four rules mentioned earlier.
Example 5.13 Product Leadership
Just like product leadership can create a competitive advantage, it can also harm a company’s performance when it becomes vulnerable. Boeing had a reputation in the airplane market for innovative products, rapid development of new products, and safety. However, the Boeing 737 Max came under fire for not being as safe as expected when questionable practices were exposed following the fatal crash of two of the airplanes. Boeing had rushed this product to market to protect their innovative brand and failed to ask key safety question. Its actions may have encouraged employees to overlook crucial safety features and requirements. Boeing’s board and management are under immense pressure from external authorities including the FAA and foreign safety regulators, industry investment watchdogs, and even criminal investigations to reevaluate its business-level strategy in light of this recent crisis.
Source: CNN, Boeing has a ‘crisis of confidence.’ It’s time for the board to step up, 2019Sp
Key characteristics of the strategy are superb operations and execution, often by providing a reasonable quality at a very low price, and task-oriented vision toward personnel. The focus is on efficiency, streamlined operations, supply chain management, no frills, and high volume. Most large international corporations strive to operate according to this discipline but circumstances impact their degree of success. Measuring systems are important, as is extremely limited variation in product assortment.
Example 5.14 Customer Intimacy
The partnership of Airborne Express with IBM and Xerox is a great example of an effective customer intimacy strategy. Airborne provides centralized control to IBM and Xerox part-distribution networks. Airborne provides Xerox and IBM with a central source of shipment data and performance metrics. The air-express carrier also manages a single, same-day delivery contract for both companies. In addition, Airborne examines same-day or special-delivery requirements and recommends a lower-priced alternative where appropriate.
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Firms executing this strategy well are very strong in innovation and brand marketing. Organization leaders demonstrate a recognition that the company’s current success and future prospects lie in its talented product design people and those who support them. The company operates in dynamic markets. The focus is on development, innovation, design, time to market, and high margins in a short time frame. Company cultures are flexible to encourage innovation. Structure also encourages innovation through small ad hoc working groups, an experimentation-is-good mindset, and compensation systems that reward success.
Companies pursuing this strategy excel in customer attention and customer service. They tailor their products and services to individual or almost individual customers. There is large variation in product assortment. The focus is on: customer relationship management (CRM), delivery of products and services on time and above customer expectations, lifetime value concepts, reliability, and being close to the customer. Decision authority is given to employees who are close to the customer. The operating principles of this value discipline include having a full range of services available to serve customers upon demand—this may involve running what the authors call a “hollow company,” where a variety of goods or services are available quickly through contract arrangements, rather than the supplier business having everything in stock all the time.
Only One Discipline
Treacy and Wiersema maintain that, because of the focus of management time and resources that is required, a firm can realistically choose only one of these three value disciplines in which to specialize. This logic is similar to Porter’s in that firms that mix different strategies run the risk of being “stuck in the middle.” Most companies, in fact, do not specialize in any of the three, and thus they realize only mediocre or average levels of achievement in each area.
Example 5.15 Cult of the Customer
Amazon is the shining example of of how to create a cult customer following. The CEO Jeff Bezos has built Amazon on three pillars, Amazon Prime, Amazon Marketplace, and Amazon Web Services. The culmination of these services has created a wide range of customer types, from the average prime user doing their daily online shopping, to multinational corporations using Amazon Web Services.
Source: Motley Fool, Why Customer Loyalty Is So Important to Investors, Aden Eilers, 2018Fa
The companies that do not make the hard choices associated with focus are in no sense market leaders. In today’s business environment of increased competition and competitive differentiation, their complacency will not lead to increased market share, sales, or profits.
“When we look at these managers’ businesses [complacent firms], we invariably find companies that don’t excel, but are merely mediocre on the three disciplines…What they haven’t done is create a breakthrough on any one dimension to reach new heights of performance. They have not traveled past operational competence to reach operational excellence, past customer responsiveness to achieve customer intimacy, or beyond product differentiation to establish product leadership. To these managers we say that if you decide to play an average game, to dabble in all areas, don’t expect to become a market leader.”
Within the context of redesigning the operating model of a company to focus on a particular value discipline, Treacy and Wiersema discuss creating “the cult of the customer.” This is a mindset that is oriented toward making customer’s needs the key priority throughout the company, at all levels. They also review some of the challenges involved in sustaining market leadership once it is attained (i.e., avoiding the natural complacency that tends to creep into an operation once dominance of the market is achieved).
- Treacy, M., & Wiersema, F. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market. Reading, M Addison-Wesley. ↵
- Treacy, M., & Wiersema, F. (1997). The discipline of market leaders: Choose your customers, narrow your focus, dominate your market (p. 40). Reading, M Addison-Wesley. ↵