leveraging those competencies into interrelated products and businesses, NEC grew into a global leader.38 Today, we see companies like Tesla taking a core competency such as lithium-ion batteries and using it to expand beyond cars into home energy storage.39
Other strategists, such as professor Michael Porter of the Harvard Business School, have been primarily concerned with a firm's competitive strategy, so their focus is outward, but primarily oriented to competition, not customers. In Porter's five forces framework, customers, often referred to as buyers, are just one of the five major considerations for strategy – others being suppliers, substitute products or services, the threat of new competitors entering the business, and the intensity of rivalry among existing competitors.
Yet another approach to strategy would be to work from the outside in, starting from the customer perspective backwards to the firm's positioning and strategic architecture. Treacy and Wiersema did just this, and after studying 40 companies for several years, concluded that companies could lead their industry through the delineation and delivery of differentiated customer value in one of three ways, which they called value disciplines: operational excellence, product leadership, and customer intimacy.
Value Disciplines
Treacy and Wiersema counseled that companies could advantageously differentiate themselves through better processes, better products, or better relationships. Their ideas about competitive strategy were structured according to three related components: the value discipline and its supporting value proposition and operating model.
According to Treacy and Wiersema, the value proposition is the implicit promise, that is, the offer that the company makes to its customers regarding the value – benefits less costs – that the customer can expect if he or she does business with the firm. Perhaps the simplest such proposition is Geico's famous “15 minutes could save you 15 percent.” In other words, an investment (i.e., cost) of 15 minutes of your time could save you 15 percent on your car insurance premiums (i.e., benefit).
Value is not only measured in cost reduction, of course. It might include access convenience, purchase convenience, elegance, design, ego gratification, entertainment, emotion, user experience, or personal or business transformation, to name a few.
Treacy and Wiersema then defined the value-driven operating model as the integrated mechanism by which that value is delivered: processes, resources, data, plant, equipment, IT assets, location, organization, culture, leadership, management, governance, and employee skills and motivation. Different companies may have different approaches to delivering value: Toyota uses a very different model for manufacturing Camrys than Rolls-Royce does with its handmade Phantom Coupé. Each creates value for its target segments, but they are different kinds of value with different kinds of operating models.
Each value discipline is a combination of a generic value proposition with its corresponding operating model.40 A company pursuing operational excellence through cost reduction, for example, will think about controlling costs everywhere, and is more likely to invest in automated self-service and interactive voice response (IVR) systems than in front-line account teams to build customer intimacy.
Treacy and Wiersema argued that value disciplines are very different from strategic goals. Whereas the same company can have different strategic goals one year versus the next, having a different value discipline requires rethinking all dimensions of corporate identity. So, to continue the example, an annual goal for an operationally excellent company might be to grow the proportion of customer service calls handled by the IVR system; whereas a customer intimate company might have a goal of increasing average customer satisfaction scores by 5 points, and incentivizing its dedicated account teams accordingly.
They also distinguished value disciplines from quick fixes. A company noticing a decline in market share might offer special promotions to win some deals that otherwise might be lost, but this is very different than reengineering core processes for lower cost. A CEO might desperately visit some top customers, but this is very different than customer intimacy that is deeply practiced throughout the organization. A company might paper over deep process issues by introducing expediters to speed some customer orders, but this is not a comprehensive process improvement approach leading to operational excellence.
Operational Excellence
Treacy and Wiersema defined operational excellence as “providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.”41 They cited Dell, which at that time had disrupted the PC industry by offering a direct-to-consumer, make-to-order business model. The insight here is that the product itself – an Intel-based PC – was not really differentiated; it was the processes for configuring it, ordering it, paying for it, and taking delivery of it that were reimagined.
The concept of operational excellence can be broadly viewed as addressing process efficiency – doing things right – and process effectiveness – doing the right things. It can be viewed in terms of cost and convenience, but also in terms of all the ways in which processes can be differentiated: higher quality, higher reliability, shorter cycle times, lower risk and variance, greater flexibility. In some cases, internal process changes, such as maximized throughput, can contribute to customer value, such as lower cost.
Also of importance: accountability, transparency, and traceability; supplier employment practices; governance; sustainability, whether green data centers or sustainable forestry; environmental concerns, such as toxins and emissions; safety; social responsibility, such as offering living wages and eliminating child labor; locality, for example, locally grown food; ethics and fairness, such as fair trade coffee; and other values. Concepts like convenience have additional subtleties. In some contexts and for some segments, self-service is more convenient; in others, service delivery is. For some products and services, instant gratification is convenient. For others, such as using a car service to go to the airport, (delayed) synchronization between the firm and the customer process is more “convenient.”
The value of different process metrics often depends on the specific type of process. For example, consider a sales process versus a manufacturing process. Important characteristics of a sales process might be close rate and sales funnel forecast accuracy. Important ones for a manufacturing process might be cycle time, yield, and compliance.
The notion of process excellence can then be further extended to include business effectiveness: greater customer advocacy and engagement in a customer relationship management process; higher revenues or forecast accuracy for a sales process; greater customer satisfaction for a service delivery process; and lower employee turnover for a talent acquisition process. We can extend revenue generation beyond sales, and also consider how existing processes can move from being cost centers to revenue generators by monetizing physical or information byproducts.
It should be noted that operational effectiveness and efficiency are not the same as operational excellence. To excel is to stand out and be the best – in other words, to be differentiated. Having efficient and effective operations is a good goal, but might not be enough to differentiate a firm.
Product Leadership
Treacy and Wiersema defined product leadership as “offering customers leading-edge products and services that consistently enhance the customer's use or application of the product, thereby making rivals' goods obsolete.”42 They offer the examples of Nike, which outran Adidas in footwear, and Johnson & Johnson's Vistakon unit, which clearly saw its way through to beating competitors to market with the first disposable contact lenses. Importantly,
C. K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,”
Ucilia Wang, “Tesla's Elon Musk: On Creating a ‘Cool’ Battery System for Home Energy Storage,” Forbes.com, May 7, 2014, www.forbes.com/sites/uciliawang/2014/05/07/teslas-elon-musk-on-creating-a-cool-battery-system-with-a-beautiful-cover-for-home-energy-storage/.
Treacy and Wiersema,
Ibid., 84.
Ibid., 85.
