innovative products at which such companies excel, but also rapid product introduction processes, fast decision making, and an ability to experiment and adjust quickly during the product introduction process.
Product leaders, in Treacy and Wiersema's view, are those companies that continuously innovate. They referred to Intel. Today, we would also probably consider Apple as an iconic example of continuous market-disrupting innovation: iTunes, the iPod, the iPhone, the Retina Display, the MacBook Air, the iPad, and the Apple Watch come to mind, and perhaps someday the iCar. They propose that for product leaders, competition is not about price, but about performance. Picture a Lamborghini dealer trying to win a wealthy customer's business from a Ferrari dealer. She will not argue that the Lamborghini costs $20,000 less than the Ferrari nor that it's easier to select trim colors over the web. Instead, she will focus on more exclusive leather seats, a different center of gravity, greater sex appeal, or a faster 0 to 60 time.
Treacy and Wiersema illustrated the concept of product leadership primarily through the leading product manufacturers of the time such as Glaxo, Intel, Johnson & Johnson, Microsoft, Nike, and Sony. But they intended for the concept to apply equally to services, and highlighted companies such as Disney.
Customer Intimacy
Treacy and Wiersema defined customer intimacy as “segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches.”43 Such companies have intimate knowledge of their customers' needs and use that knowledge to flexibly meet those needs. Importantly, such companies focus on relationships and lifetime customer value rather than individual transactions, and thus often segment their customers to provide the best service to their most profitable customers.
Treacy and Wiersema highlighted The Home Depot, Nordstrom, and Four Seasons as exemplifying customer intimacy. Home Depot will provide a personal consultant – a sales clerk wearing an orange apron – for hours, even for the purchase of a 15-cent screw, helping to recommend wood or metal, aluminum or steel, galvanized or not, and so on.
Or consider Nordstrom's legendary return policy: you can return anything. At any time. For any reason. With or without a receipt. Perhaps even if you bought the item somewhere else: one urban legend concerning Nordstrom is that a customer successfully returned tires there, even though Nordstrom doesn't sell tires.44 Whether the story is true or not doesn't really matter; the legend underscores the brand's value proposition around customer service.
Customer-intimate companies, according to Treacy and Wiersema, are not focused on meeting the needs of the “market,” but rather of individual customers. They provide the best customer value, based on best meeting the needs of each customer through greater in-depth knowledge of that customer's needs. Such an approach is clear for, say, a custom home builder or architect, who sits down with the family to better understand their lifestyle and preferences. Does the family want the family room open to the kitchen, encouraging togetherness? Or would Mom or Dad prefer to cook in peace while the kids play video games? A military contractor might use the same approach, better understanding the Army's objective for a new weapons system before designing it or bidding on it. But customer intimacy is not restricted to high-value goods, as the Home Depot example shows.
Importance of Focus
It is possible for a company to participate or excel in more than one discipline at a time, as we'll see with several of the highlighted companies, and in particular in Chapter 17 with GE. However, Treacy and Wiersema observed that straying from a disciplined focus is fraught with danger, partly because companies pursuing a value discipline need to align their culture, management, IT, organization, and processes.
It's a challenge to focus on one discipline. What company wouldn't rather have streamlined processes than cumbersome ones, great products rather than outdated, shoddy replicas, and delighted, loyal customers rather than high churn, lawsuits, and bad word of mouth? However, a key component of Treacy and Wiersema's argument is the need for focus. They argue that Sears tried operational excellence, offering everyday low prices and cutting costs. However, Sears didn't match Wal-Mart's single-minded focus on cost reduction through its innovations in supply chain management and logistics. In what Treacy and Wiersema considered a customer intimacy strategy, Sears then tried expanding beyond its Kenmore and Craftsman brands by carrying well-known ones, which merely matched competitors' product variety. Finally, Treacy and Wiersema pointed out that Sears attempted a product leadership strategy via celebrity endorsements, but didn't execute as well as a top competitor at that time, J.C. Penney.45 Trying to be all things to all buyers – simultaneously pursuing operational excellence, product leadership, and customer intimacy – can be like trying to undercut Hyundai pricing with a custom-designed Lamborghini.
Their advice is still often valid. After the market close on January 28, 2015, McDonald's, the world's largest restaurant chain, ousted its CEO after a two-year tenure. McDonald's financial results had gone stale, but the CEO had gone from out of the frying pan and into the fire partly because of his attempt to simultaneously pursue multiple disciplines: operational excellence by offering low-cost Dollar Menu items and quick-service – i.e., fast food – convenience; product leadership through a broader selection of menu items including some “premium” items such as McWrap; and customer intimacy through a “make your own burger.” As one investment advisory firm said, “Trying to please everybody is one of the issues that they're dealing with.”46
There are multiple problems with such an approach. Product leadership conflicts with operational excellence as customers balk at items not on the Dollar Menu. Operational excellence conflicts with product leadership because food is partially prepared in factories and then flash frozen, pitting efficiency against freshness. Customer intimacy and product leadership conflict with operational excellence as customization and extensive menus slow down the drive-through lines.
Less than 40 hours after the McDonald's shake-up, Shake Shack sizzled as its IPO (initial public offering) opened at more than double its offering price. Shake Shack is focused on a 100 percent, all-natural product leadership strategy, offering fresher, higher-quality ingredients at premium prices: they advertise “100 % all-natural Angus beef, vegetarian fed, humanely raised and source verified. No hormones or antibiotics – EVER. We pride ourselves on sourcing incredible ingredients from like-minded artisanal producers.”47 A double SmokeShack bacon cheeseburger goes for $9.49, compared to say, a McDonald's Bacon Clubhouse Burger: $4.99.
In short, Treacy and Wiersema's position was that companies should ideally pick one (although they also pointed out that some companies, such as USAA and Toyota, were excelling at more than one) value discipline, and do whatever is required to attain a leadership position in that discipline and at least maintain parity in the others. Today, the economics of information goods and technologies may enable more companies to pursue multiple disciplines. For example, Netflix can deliver individualized entertainment recommendations (customer intimacy) across a broad portfolio of titles including award-winning Netflix-produced content (product leadership) via convenient, streamlined delivery channels (operational excellence).
The Unbundled Corporation
John Hagel and Marc Singer, in a Harvard Business Review article titled “Unbundling the Corporation,”48 took this notion of focus one step further. They argued in 1999, a few years after the value disciplines model emerged, that companies often have three separate virtual businesses, or core processes, related to operations, products, and customers, and should consider “unbundling” themselves – that is, splitting into those separate businesses. Or, if the company is not already integrated,
Ibid., 84.
“Return to Spender,” Snopes.com, April 25, 2011, www.snopes.com/business/consumer/nordstrom.asp.
Katie Little, “McDonald's CEO Don Thompson Steps Aside, Stock Jumps,” CNBC.com, January 28, 2015, www.cnbc.com/id/102376552.
www.shakeshack.com/ (accessed May 14, 2015).
John Hagel and Marc Singer, “Unbundling the Corporation,”
