Previous Lecture Complete and continue  

  Reading - Customer Intimacy and Other Value Disciplines

by Michael Treacy and Fred Wiersema

How was Dell Computer able to charge out of nowhere and outmaneuver Compaq and other leaders of the personal computer industry? Why are Home Depot’s competitors losing market share to this fast-growing retailer of do-it-yourself supplies when they are all selling similar goods? How did Nike, a start-up company with no reputation behind it, manage to run past Adidas, a longtime solid performer in the sport-shoe market?

All three questions have the same three answers. First, Dell Computer, Home Depot, and Nike redefined value for customers in their respective markets. Second, they built powerful, cohesive business systems that could deliver more of that value than competitors. Third, by doing so they raised customers’ expectations beyond the competition’s reach. Put another way, these industry leaders changed what customers valued and how it was delivered, then boosted the level of value that customers expected.

The idea that companies succeed by selling value is not new. What is new is how customers define value in many markets. In the past, customers judged the value of a product or service on the basis of some combination of quality and price. Today’s customers, by contrast, have an expanded concept of value that includes convenience of purchase, after-sale service, dependability, and so on. One might assume, then, that to compete today, companies would have to meet all these different customer expectations. This, however, is not the case.

Companies that have taken leadership positions in their industries in the last decade typically have done so by narrowing their business focus, not broadening it. They have focused on delivering superior customer value in line with one of three value disciplines—operational excellence, customer intimacy, or product leadership. They have become champions in one of these disciplines while meeting industry standards in the other two. (For a discussion of companies that excel at more than one discipline, see the insert “Masters of Two.”)

By operational excellence, we mean providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. Dell, for instance, is a master of operational excellence. Customer intimacy, the second value discipline, means segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches. Companies that excel in customer intimacy combine detailed customer knowledge with operational flexibility so they can respond quickly to almost any need, from customizing a product to fulfilling special requests. As a consequence, these companies engender tremendous customer loyalty. Home Depot, for example, is better than any other company in its market at getting the customer precisely the product or information he or she wants. And product leadership, the third discipline, means offering customers leading-edge products and services that consistently enhance the customer’s use or application of the product, thereby making rivals’ goods obsolete. Nike excels in product leadership in the sport-shoe category.

Companies that push the boundaries of one value discipline while meeting industry standards in the other two gain such a lead that competitors find it hard to catch up. This is largely because the leaders have aligned their entire operating model—that is, the company’s culture, business processes, management systems, and computer platforms—to serve one value discipline. Knowing what they want to provide to customers, they have figured out what they must do to follow through. And with the hard work of transforming their organizations behind them, they can concentrate on smaller adjustments that produce incremental value. Less focused companies must do far more than simply tweak existing processes to gain this advantage.

Companies that pursue the same value discipline have remarkable similarities, regardless of their industry. The business systems at Federal Express, American Airlines, and Wal-Mart, for example, are strikingly similar because they all pursue operational excellence. An employee could transfer from FedEx to Wal-Mart and, after getting oriented, feel right at home. Likewise, the systems, structures, and cultures of product leaders such as Johnson & Johnson in health care and pharmaceuticals and Nike in sport shoes look much like one another. But across two disciplines, the similarities end. Send people from Wal-Mart to Nike, and they would think they were on a different planet. Moreover, homogeneity exists only among leaders in the same value discipline; mediocre performers are not distinctive enough to look like anything except other mediocre performers in their own industries.

The conclusions we’ve drawn about the value disciplines are based on a three-year study of 40 companies that have redefined performance expectations in their markets. Through this research, we have come to understand what each value discipline demands of an organization and why.

Link to Original Article: Customer Intimacy and Other Value Disciplines by Michael Treacy and Fred Wiersema