Modern Times

Basing Strategy on Value

Value Disciplines Model

If your team or organization is providing a service or product, you have to deliver "value" to your customers to be successful.

However, value will mean different things to different customers. For example, imagine that you're buying a new cell phone - for you, value might be a no frills model at a good price. Or it may mean having a lot of interesting functions, albeit at a slightly higher price

While it's possible to provide value in many different ways, organizations tend to choose to concentrate on delivering value in certain areas - after all, it's unlikely that anyone can please everyone all of the time. Therefore, you need to choose the best way to deliver value to your clients.

One way to do this is by using the Value Disciplines Model. This model describes three "value disciplines" that you can develop to give great value to your customers in different ways.

About the Model
The Value Disciplines Model was introduced in the early 1990s by Michael Treacy and Fred Wiersema.

After studying high-performing companies in the United States and Europe, they identified three value disciplines that they found in almost any marketplace that they studied. These disciplines are a development of Porter's Generic Strategies, and each is based on what the customer values.
These three core value disciplines are:

• Operational excellence.
• Product leadership.
• Customer intimacy.

The model says that an organization should focus on one of these disciplines as part of its overall strategy.
We'll look into each discipline in more detail, below.

Note:
This strategic model applies to business-unit-level strategy, not necessarily corporate strategy. It's possible for one organization to pursue different value disciplines with different business units.

1. Operational Excellence
This discipline is based on providing good products at the lowest total cost. Organizations that follow this discipline focus on streamlining and simplifying operations to reduce waste. They strive for efficiency in everything they do, and their aim is to be producers who offer a good product at the lowest price.

Lean Manufacturing tools that improve operational efficiency - such as Kaizen (member-only article), Just In Time, Kanban (member-only article), and Zero Defects - are all useful for this discipline.

Companies that are successful in operational excellence tend to be highly systematized and organized to achieve a good level of operational efficiency. They provide standard products that are very reliable, and their employees are highly trained in company procedures. This ensures that customer experiences are convenient, quick, accurate, and pleasant.

2. Product Leadership
This discipline is based on differentiation and innovation. Organizations that follow this discipline aim to provide cutting-edge products and services with the newest features.
They will use technological and knowledge advances to develop new and better products on an ongoing basis. They're always trying to stay ahead of the competition, and they aim to deliver high profit margins in short timeframes, as customers will be paying more for their products.

Practical innovation (member-only article) is likely to be part of their corporate culture, and creativity is highly rewarded. They will also aim to stay ahead of their competition by developing core competencies in key areas. Employees will look for new ideas everywhere, and they're empowered to make decisions. These are typically very flexible organizations, that operate with an entrepreneurial spirit, and adapt quickly to change.

3. Customer Intimacy
This discipline is based on service and flexibility. Organizations that follow this discipline aim to provide customized products that closely meet the needs of individual customers.

These organizations focus on customer service, and on giving customers exactly what they want. The emphasis is on building lifelong, profitable customers who will continue to come back to them again and again because they know that the company will meet their needs. These companies are able to provide customized solutions, and they often provide many supplemental services, like installation and training, to further establish a relationship and ensure that the customer is satisfied.

Organizations that pursue this strategy must be able to customize their products and services quickly. They also need to look for unique ways to serve their customers better.
It's common for these companies to segment their market into smaller subsegments, and then market to each separately. They use tools like customer experience mapping and market segmentation (member-only articles) to ensure that they keep up with their customers' ever-changing needs. They also make sure that their employees are highly skilled, and have the discretionary authority to customize products as necessary.
Using the Value Disciplines Model

Treacy and Wiersema acknowledge that all companies must do a reasonably good job in all three of the value disciplines, and that you can probably be successful if you're weak in one of the disciplines.
However, the model says that you should choose at least one of the disciplines as being particularly important, while maintaining average performance in the other areas.
So, it's important to structure your team or organization to support the value discipline that you choose. This applies to every element of operations, from recruiting (member-only article) and developing your staff, to rewarding (member-only article) them, and organizing your teams.

For example, a bureaucratic structure will quickly hold back your efforts at product leadership, while having insufficient systems and controls in place will likely limit your ability to pursue operational excellence.
As with other strategy tools, don't be too rigid in your approach, and remember that you can adapt the Value Disciplines Model to your specific needs when developing your strategy.

Tip:
Other generic strategy models to consider include Porter's Generic Strategies, Bowman's Strategy Clock, and Blue Ocean Strategy (member-only article). And to find out more about value, see our articles on Value Chain Analysis, and Porter's Value Chain.

Key Points

The Value Disciplines Model defines three options (disciplines) that are based on how your customers define value. The three disciplines are operational excellence, product leadership, and customer intimacy.
Operational excellence is based on providing products at the lowest cost, product leadership is based on differentiation and innovation, and customer intimacy is based on service and flexibility. The model says that an organization should focus on one of these disciplines as part of its overall strategy.

As with other generic strategy models, be flexible using it, so that you can adapt it to your specific situation, and don't be afraid to deviate from it if necessary.

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