Value Discipline Leadership
In line with Kotlers values-based approach to marketing, Micheal Treacy and Fred Wiersema in their book “The Discipline of Market Leaders” introduce the idea of three Value Disciplines that a company can focus on. Which of these is chosen by a company depends on the sort of product or service that they provide, and on the organizational culture that they maintain. These three 'Value Disciplines' are summarized in the chart below:
Value Discipline | Basic Philosophy |
Operational excellence | Low or lowest price, hassle free service |
Product leadership | Offer products that push performance boundaries |
Customer intimacy | Delivering what specific customers want |
Treacy and Wiersema say that, by focusing primarily on the one key Value Discipline that suits your business best, you can enjoy robust growth and sustained success. You will be able to predict greater profitability, and become a market leader in your domain.
Operational Excellence: They are not product or service innovators, nor do they cultivate 1:1 relationships. However, they do execute extraordinarily well with guaranteed low price and hassle-free service. Operations are standardized, simplified, tightly controlled and centrally planned, leaving few decisions to the discretion of localized rank-and-file employees. Management systems focus on integrated, reliable, high-speed transactions and compliance to norms. Operationally excellent companies have a culture that abhors waste and rewards efficiency. (Treacy, Wiersema, p47-60)
Product Leadership: Offers the best product and continuously innovates. This type of company continually pushes its products into the realm of the unknown, the untried, and/or the highly desirable. It concentrates on offering customers products or services that expand existing performance boundaries. A product leader’s key proposition to its customers is: We have the BEST product - period. These companies bring in new ideas, develop them quickly and then look for ways to improve them. They have a business structure that is loosely knit, ad hoc, and ever changing to adjust to the many entrepreneurial initiatives and redirections that characterize working in unexplored territory. It has management that measures and rewards new product success, and does not punish the experimentation needed to get there. Therefore, it creates a culture that encourages individual imagination, accomplishment, “out of the box” thinking, and a mindset driven by the desire to innovate and create the future. (Treacy, Wiersema, p81-96)
Customer Intimacy: Focuses on specific customer needs, cultivates relationships, satisfies unique needs and has the best solutions. These organizations build strong interdependent relationships with their customers. To do this one must become an expert in the customer’s business/ life and offer desirable solutions/products. The critical objective is to increase share of your client’s business - and to NEVER lose a client (intelligent Loyal Customer management). A customer-intimate company creates a culture that has its people do whatever it takes to please the customer. It must take the long view by assuring that every initial client transaction leads to a long-term relationship. ( Treacy, Wiersema, p119-137)
To reach leadership in one of these areas, the authors offer a 3 step plan for companies to identify which of the three value disciplines they are in and then should focus on. For this rather difficult process they propose to form a senior management team that works together with outside consultants. However, it can also be done for small companies, to give a general idea of the direction they want to go to. The three phases and the questions for them are:
Phase 1 - Understanding the status quo | Phase 2 - Realistic options | Phase 3 - Detailed designs and hard choices |
· What are the dimensions of value that our customers care about? · For each dimension of value, what proportion of customers focus upon it as their primary or dominant decision criterion? · Which competitors provide the best value in each of these value dimensions? · How do we measure up against our customers on each dimension of value? · Why do we fall short of the value leaders in each dimension of value? | · Irrespective of industry, what are the benchmark standards of value performance that will affect customer's expectations? How do firms achieve these standards? · For value leaders, what will be their standards of performance three years from now? · How must the operating models of these value leaders be designed to attain those levels of performance? | · What does the required operating model look like - i.e. what are the design specifications for the core processes, management systems, structure and other elements of the model? · How will the model produce superior value? · What levels of threshold value will the market require in the other value dimensions? How will these be attained? · How large will the potential and captured market be for this value proposition? · What is the business case - including costs, benefits and risks - in pursuing this option? · What are the critical success factors that can make or break this solution? · How will the company make the transition from its current state to this new operating model? |
(Treacy, Wiersema, p 165 – 171)
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