The Discipline of Market Leaders - Semantic Scholar...– Michael Treacy & Fred Wiersema – Worked for CSC Index – the fastest growing management consulting firm during the early

The Discipline of Market Leaders

January 2004

Introduction

• Authors – Michael Treacy & Fred Wiersema – Worked for CSC Index – the fastest

growing management consulting firm during the early 90’s

• Process – 3 years of research – 80 companies – 3 dozen markets – Big, small, old, new, leaders, laggards

Introduction

• General findings – No company can succeed by trying

to be all things to all people – Instead, find a unique value that it

alone can deliver to a chosen market – This book answers the why and the

how

Introduction

• To whom is this book useful? – Large companies facing turnarounds – Market leaders looking to sustain

their leadership – And, to someone managing a small

business, as small as corner donut shop in Anytown, USA

– By highlighting the key issues upon which that business will succeed or fail

Introduction

• What do you need to know? – Three concepts

• Value proposition • Value driven operating model • Value disciplines

PresenterPresentation NotesValue proposition – think of this as the end – this is what at the end of the day your customer is actually buying from you – its what you as a supplier promise to your customerValue driven operating model – if the value proposition is the end, then the operating model is the means – this is the processes, management systems, culture, and business structure of your business that is designed to deliver on that promise to your customerValue disciplines are desirable combinations of value proposition and operating models that companies can use to be the best in their markets

Introduction

• The conclusion? – There are three distinct value

disciplines • Operating Excellence • Product Leadership • Customer Intimacy

PresenterPresentation NotesOperating Excellence – Lowest price, hassle-free service, middle of the road qualityProduct Leadership – its all about being the best product, people expect to pay more to have the bestCustomer Intimacy – its not about what the market in general wants, its about what the specific customer wants

Introduction

• What will this book do for me? – Describe why a value discipline

choice must be made – Provide help in identifying the right

choice for me – Detail the means for implementing it – Ready?

How to Fail in Business without even trying

• Customers today want more of whatever they value

• Leading companies are driving the market by redefining the level of value that customers expect

• They don’t shine in every way

PresenterPresentation NotesBusinesses that fail, fail because they aren’t trying, they aren’t trying to give their customers what they wantWhatever it is customers value, today, they want more of itIf convenience – they want it easier and fasterIf expert advice – they want companies to give them more time, more depth, more of a feeling that they’re the only customerToday’s market leaders know they have to redefine value by raising customers expectations in the one component of value they choose to highlightWal-mart has established new affordability limits for familiar productsHertz makes car rental nearly as convenient as taking a cabHome Depot proves that old fashioned advice hasn’t gone out of styleThese market leaders, however, are not all things to all peopleBut they do shine in a way their customers care most aboutThey’ve honed at least one component of value to a level of excellence that puts all competitors to shame


• Components of value – Price – Time – Premium Service – Quality

PresenterPresentation NotesWhat are these components of value

Price is one of these components of value. The rule today – lower your prices by this afternoon and lower them again tomorrowThis demands that companies get a handle on costsLarge, established brands, not used to controlling costs, are susceptible to significant loss in market share to an agile competitor who has better cost controls and better pricingTime is another component of valueCustomers now penalize suppliers that infringe on their timeSpeed of response is a key value dimensionSelf service checkout systems can be found in grocery storesThe more a customer values time, the less tolerant they will be of mistakes, mistakes that cost them timeIf you don’t make it easier for your customers to do business with you, somebody else willLet your customer buy time in every transaction with your company, if you don’t, your customer will go to someone who willWhat was once premium service becomes commonplaceCustomers expectations regarding service are always changing, and competitors work hard to leap frog each otherProduct companies cannot be certain that just having good products is enough, they may need to wrapper their products in additional value added servicesBORN is a services business and as such must deliver superior customer services in a tough competitive marketplace to retain customersI remember early on a customer asked one of our Account Executives if BORN could be flexible on some issueOur account executive replied that we were so flexible we could hardly stand up It became a principle of treating customers at BORN that every employee understoodQuality is yet another component of valueHigh Quality is just the price of admission today, without it, you’re not even in the ballgameToday, for many, quality means new featuresTechnology advancements cause obsolescence at a dizzying paceProducts must be improved to incorporate these advances


• The New World of Competition – Companies must lower costs to

remain price competitive – Companies can no longer aim for

less than hassle-free service – Customers demand premium service

and raise their standards continuously

– Companies must build products that deliver nothing less than superiority


• The Road to Failure (Success) – Its the operating model – Focus and Discipline to

• Define an unmatched value proposition • Build a corresponding operating model • Sustain it through constant

transformation and improvement

PresenterPresentation NotesThis section of the book essentially talks about large company failures to match changes in their customers needs and some typical responses that actually avoid the real issueThe real issue is that you need an operating model that’s successful, the heart of your businessIt’s the machinery of your business that creates the value you deliver for your customerIf that machinery isn’t delivering what customers need today, you have to change itIf you are a start up or emerging company, you have to create this machinery to create valueIf you don’t know if that’s what you are doing or this idea of a value proposition to your customer is new to you, then you’re going to have to respond with focus and disciplineFocus and discipline are like diet and exercise – if you want to lose weight, its going to include diet and exerciseYou start by defining an unmatched value proposition – Building an operating model (machinery) designed to deliver that for your customerAnd, continuously strive to measure it and improve it to deliver more and mor

This chapter should have convinced you, if you weren’t already convinced that success in business rarely happens accidentallyBusinesses succeed because they deliver superior value to their customersIn order to be successful over the long term you need to know what your customers want and continuously revisit this questionThe operating model, the machinery that delivers value for your customers, must be designed entirely to deliver this value

The New Rules of Competition

• Companies can be hugely successful by selling continually improving superior customer value

• Master one band in the value spectrum

PresenterPresentation NotesThe first section of this chapter tells about three companies that were rewarded for making, what appears on the surface appeared to be, unprofitable decisions that demonstrated their commitment to delivering on their value proposition to the customer. We won’t go into those, but they are worthy of reading because they’ll give you insight into the kinds of challenges you may be faced with and how important it is to remain true to your value commitment to your customer.Three important truths that characterize the world of competitionDifferent customers buy different kinds of value. You can’t hope to be the best in all dimensions, so you choose your customers and narrow your value focus.As value standards rise, so do customer expectations; so you can stay ahead only by moving ahead.Producing an unmatched level of a particular value requires a superior operating model – a machine – dedicated to just that kind of value


Customer value formula

Sum of Benefits The costs incurred by the customer

in acquiring a product or service

Benefits build value to the extent that the product or service improves the customers performance or experience.

Costs include

•Money spent on purchase and maintenance

•Time spent on errors, delays, and effort

•Both tangible and intangible costs reduce value.

Performance

Performance

Performance

Performance

Performance


Value Destroyed Value Created

Performance

Performance

PresenterPresentation NotesAll of these dimensions have the power to create or destroy value depending on how much the value exceeds or falls short of customer expectations.


• Different customers buy different kinds of value – Product performance or uniqueness – Personalized service or advice – Lowest total cost

• Market leaders choose to excel in delivering extraordinary levels of one particular value

PresenterPresentation NotesStudy of 80 market-leading companies discovers that their customers fall into three distinct categories based on what the customers viewed to be the pivotal component of valueFor some Product performance or uniqueness was most important, price played some role in their decision-making because there is a limit to how much they will pay, but product results matter most. These people usually know exactly what they want. Electronics is a good example. They’ll have the features and functions of competing products nailed when they go to shop, they’ll have prioritized each function as their relative meaning to them and probably will enjoy arguing with the salesperson about those priorities and will in the end leave the store with exactly what they came for. These people endeavor to optimize their purchase by buying the maximum amount of technology their budget allows.Second group most value personalized service and advice, they can’t be satisfied with standard products or fair services, they want their individual requirements met. You probably know someone like this, you can recognize them by how they interact with wait staff and the menu at a restaurant. This type of person inevitably will modify a menu item somehow, regardless of how comprehensive the menu is, there won’t be an item that quite suits them exactly, their order will be customized to their personal wants and needs and they don’t mind if the price paid deviates from the standard menu price.Still a third group of customers looks largely for the lowest total cost. This person buys the maximum amount of features or volumes per dollar spent. In a grocery store they select products based on their price per ounce. Nothing else much matters other than the expiration date. These people are not looking for sizzle. If your customer is driving a Buick Century of any vintage or has the round paper canister of Quaker Oaks Oatmeal in their pantry, they’re in this category.These companies have created a set of expectations in customers’ minds that competitors must strive to meet.


• Four rules that govern market leaders’ actions: – Rule 1: Excel in a specific dimension

of value – Rule 2: Maintain threshold standards

on other dimensions of value – Rule 3: Dominate your market by

improving value year after year – Rule 4: Build a well-tuned operating

model dedicated to delivering unmatched value

PresenterPresentation NotesMarket leaders abide by four rules that govern their actions:Rule 1: Provide the best offering in the marketplace by excelling in a specific dimension of valueThey first develop a value proposition that is compelling and unmatchedAny market leader, whatever value it chooses to deliver, must maintain reasonable standards in other dimensions as well, but it doesn’t have to excel in all of them – just oneCustomers can distinguish among the various kinds of value and generally won’t demand all from the same supplier, they know that would be unreasonableRule 2: Maintain thresholds standards on other dimensions of valueA good example of not doing this is Yugo, they found out that having the lowest-cost automobile on the market wasn’t enough when the package also included sub-par quality and service standards.You can’t allow performance in the other dimensions to slip so much that it impairs the attractiveness of your company’s unmatched valueChannel your efforts into what separates you from the pack and perform ably and adequately in other areasRule 3: Dominate your market by improving value year after year Market leaders raise expectations not only in their industries but across the boardTo sustain market leadership you must be able to deliver the best of whatever value dimension you’ve chosen to focus on today, tomorrow, and the day afterThe operating model of market leaders – the machinery that delivers unmatched value – must improve faster than the competitionRule 4: Build a well-tuned operating model dedicated to delivering unmatched valueThe companies studied structured their operations to deliver on their value propositionThese operating models were clustered not by industry, but by which value dimension the company had selected to pursueThe operating models of market-leaders pursuing the same value proposition in different industries are remarkably similarIt’s the operating model that is the market leader’s ultimate weapon in its quest for market domination


• Three final key points regarding customer value proposition – Without customer value, there is no

sustainable business – Value comes from choosing customers and

narrowing the operations focus to best serve those customers

– Customer satisfaction and loyalty are by-products of delivering on a compelling value proposition

PresenterPresentation NotesConclusion to this chapter: You should now understand that by studying market-leaders we can discover that:Customer buy valueValue is determined solely by the customer and based on how we as suppliers perform against their expectationsWhat customers value differ, but fall into three main categoriesBy building a business model to focus on delivering unmatched value in one of these categories they have been able to dominate their markets

The Winner’s Choice

• Companies cluster into three distinct “value disciplines” – Best total cost, named operational

excellence – Best product, named product

leadership – Best total solution, named customer

intimacy • Differentiate

PresenterPresentation NotesIn the same way that customers cluster in to three categories, companies cluster into distinctly different value disciplines based upon what kind of value proposition is pursued by the companyOperational excellence means providing customers with reliable products or services at competitive prices with minimal difficulty or inconvenience – example FedExProduct leadership means providing products that continually redefine the state of the art – example 3MCustomer Intimacy means selling the customer a total solution, not just a product or service – example AirborneThese companies have taken their leadership positions by narrowing their business focus, not broadening it.When a company selects and pursues one of these value disciplines, it ceases to resemble its competitors


• The operating model – Defines the very nature of a

company – Different value disciplines demand

different operating processes – Companies that excel in the same

value discipline have the similar operating models

PresenterPresentation NotesTo select a value discipline and its corresponding operating model is to define the very nature of a companyThe core processes , structure, management and reward systems, will be different based on the value discipline selectedMarket leaders in one value discipline have remarkably similar operating models to other market leaders in that value discipline, regardless of industry- even within an industry, market leaders pursuing different value disciplines, have completely different operating models


Operational Excellence

Product Leadership

Customer Intimacy

Processes

End-to-end product supply and basic services which are

optimized and streamlined to minimize costs and

hassles

Invention, product development, and market exploitation

Solution development (helping the customer understand exactly what’s needed),

results management (ensuring the solution

gets implemented properly), and

relationship management

Operations

Standardized, simplified, tightly controlled, and centrally

planned, leaving few decisions to the discretion of rank-and-file employees

Loosely knit, ad hoc, and ever-changing to adjust to the

entrepreneurial initiatives and redirections that characterize

working in an unexplored territory

Delegates decision making to employees who are close

to the customer

Management Systems

Focused on integrated, reliable, high-speed transactions and

compliance to norms

Results driven, measure and reward new product success and don’t

punish the experimentation needed to get there

Geared toward creating results for carefully selected and

nurtured clients

Culture

Abhors waste and rewards efficiency

Encourages individual imagination, accomplishment, out of the box

thinking, and a mind set driven by the desire to create the future

Embraces specific rather than general solutions and thrives on deep and

lasting client relationships

Manny's Steakhouse

PresenterPresentation NotesThis table shows the three disciplines that were discovered in the study of market leaders.The columns of the table are the the three value disciplinesThe rows are the four dimensions of an operating modelThis clearly demonstrates the differences in the operating models from value discipline to value discipline. It demonstrates how each operating model is customized to deliver that value discipline.Operational excellence – its clear that these companies are dedicated to a consistent customer experience. Key messages of these type of business is quick, easy, and inexpensive. Think McDonalds in the restaurant industry, when you think operational excellence – standard menu, $1.00 menu, easy in out, fast, burger fries and a coke.Product leadership – these companies are built to deliver innovative products and services. Key messages of these companies are leading edge, lots of features, latest technology. Think California Pizza Kitchen in the restaurant industry, when you think Product Leadership – try ordering Carne Asada or Jamaican Jerk Pizza at Pizza Hut.Customer Intimacy – these companies endeavor to establish a long term relationship with their customers. Key messages are solutions, consulting, advisors, personal service. Think Manny’s Steakhouse, in the restaurant industry when you think Customer Intimacy – need a reservation, price doesn’t enter into the decision, professional wait staff, large portions, personal service, its about the total experience not just the food.


• Why Choose? – Purposely destines the company to

choose a secondary role in other disciplines

– If you think you are or can be excellent at all three, you’ll end up mediocre at all three

– Not choosing at all means letting circumstances control your destiny

PresenterPresentation NotesEssentially forces a company to a commitment that makes choices clear by relegating the other two disciplines to lower place on the priority listThe disciplines, as shown on the previous table are so extremely different in the major parts of the operating model that trying to be all things to all people will create such conflicts in an organization that it will fail to deliver breakthrough performance in any one disciplineThey may achieve competence in each, but they won’t achieve market leading excellence.Not Choosing means creating complexity that results in you doing business with yourself rather than with your customers.Choosing a discipline is the Winner’s Choice.Let your yeah be yeah and your nay be nay.

Summary

• Businesses succeed by delivering value to customers

• Different customers buy different value

• There are three primary value disciplines

• Market leaders choose one discipline in which to excel

Discussion Groups

• Did you read the material? • Do you buy into the concepts? • If so, are you pursuing one of the

disciplines today or, if not, at this point which one seems to make the most sense for your business?

The Discipline of Market LeadersIntroductionIntroductionIntroductionIntroductionIntroductionIntroductionHow to Fail in Business without even tryingHow to Fail in Business without even tryingHow to Fail in Business without even tryingHow to Fail in Business without even tryingThe New Rules of CompetitionThe New Rules of CompetitionThe New Rules of CompetitionThe New Rules of CompetitionThe New Rules of CompetitionThe New Rules of CompetitionThe Winner’s ChoiceThe Winner’s ChoiceThe Winner’s ChoiceThe Winner’s ChoiceSummaryDiscussion Groups

The Discipline of Market Leaders - Semantic Scholar...– Michael Treacy & Fred Wiersema – Worked for CSC Index – the fastest growing management consulting firm during the early

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