Value Disciplines model, Explained
Value Disciplines model, Explained
Customer Intimacy, Product Leadership, Operational Excellence
What is Value Creation Definition
When we set out to engage in innovation, the road ahead can at first appear daunting. The path has many potential roadblocks, hazards, and hidden curves. Most importantly, the journey can appear so long and so complicated that it feels like it makes sense not to try at all. That’s the wrong approach, of course, and why we recommend the Value Disciplines model to focus innovation efforts.
The Value Discipline Model is one of our favorite strategy frameworks. It helps you better understand and execute the one thing that you want your organization to be famous for.
There are countless strategy frameworks out there, and we have already covered a few key frameworks which we think are extremely flexible and battle-tested over the years:
The great thing about the Value Disciplines framework, it can be applied at any stage of your organization's growth. Whether you're just starting out, or an established multinational - Value Disciplines helps you get laser-focused on your business objectives.
What are the three Value Disciplines?
The Value Disciplines concept was solidified by Michael Treacy and Fred Wiersema in their book: The Discipline of Market Leaders.
Having researched and observed trends in companies such as Walmart, Dell, Southwest Airlines, Intel, and Sony, the authors presented a business model with three key competitive areas:
Customer Intimacy
Product Leadership
Operational Excellence
They propose that for a business to be competitive, it must do well in all three areas. However, organizations that wish to become market leaders in their category, need not just do well but excel in one of these.
Let's first break each one of these down and look at what they represent. Then, we’ll look at how they co-exist and why no organization can really excel at all three (as nice as that would be).
1) What is the Customer Intimacy Discipline in the Value Disciplines model?
No surprise based on the name, but Customer Intimacy is the discipline that looks at the relationship between you and your customer.
It goes beyond simply understanding the requirements of your customer and moves into a deeper relationship, with knowledge of their challenges, industries and solid relationships that can ensure low churn and high satisfaction.
Like other disciplines in this model, it needs to be embedded into the company culture so that every interaction with the customer is done in a manner that enhances the intimacy between the two businesses (or the business and the individual consumer).
Companies that specialise in this area often have low churn due to deep relationships with their customers. Traits of these companies include:
Decision making that rests with individuals closest to the customer
A Customer Success function complementing Support
Long lasting relationships and low churn
Clear understanding of clients and their challenges
It’s the discipline that is hardest to copy as it requires time and energy to understand and relate to the customer.
What KPIs measure the Customer Intimacy Discipline in the Value Disciplines model?
The type of KPIs that are commonly associated with Customer Intimacy involve Customer Churn and Sales Growth.
Some example companies that have succeeded due to a focus on customer relationships include:
Hilton Hotels
Netflix
Chase Bank
2) What is Product Leadership in the Value Disciplines model?
Product Leadership is the discipline relating solely to Product Development. This is one of the most common perceived disciplines, as it relates specifically to the tangible product or service provided.
Companies that lead with their product are often vying to stay ahead of their competitors and require investment in innovation or diversification. Common traits associated to this discipline include:
Creativity & Innovation. This is a key aspect as ideas and innovation need to be maintained
Commercialism & Sales. The ability to turn innovation into a commercial offering
Relentlessness & Leadership. Customer expectations change rapidly, as do competitor offerings, so you need to keep moving forward
Although Product Leadership is a good way to stay ahead, it is also the easiest to copy from a competitive perspective.
What KPIs measure the Product Leadership Discipline in the Value Disciplines model?
The KPIs relating to Product Leadership are often financial, as there is often a direct relationship between the product development and performance of the company, as well as product specific KPIs. Product focused KPIs range from Churn Rate to Usage Frequency.
What examples are there of companies succeeding through Product Leadership?
I know you’re all thinking Apple, right? Their iPhone was absolutely a Product Leadership success, but they’re not alone. Others include…
Lego
Google Search
Dyson
3) What is Operational Excellence in the Value Disciplines model?
The Operational Excellence discipline focuses on your operational model and your ability to provide a product or service at the lowest price possible for the market. With Operational Excellence focused companies there’s real attention paid to the internal workings of the business and how you translate the inputs to the outputs.
There are several areas of focus when you’re an Operational Excellence company including:
Personnel Management to ensure the team is fully focused on efficiency
Transactional Management to ensure full efficiency in the process of creating your value
Systems Management to ensure full visibility across the process
Common traits of this type of company include:
A focus on automation
Lowest price point in the market
A culture of efficiency and transparency
A product or service that is unlikely to be the best but will do a good job
If you’re looking at this as your leading Discipline, it will be worth exploring Porter’s Value Chain model and analysing how you produce your output.
What KPIs measure Operational Excellence Discipline in the Value Disciplines model?
The financial KPIs around costs are often the ones used to measure Operational Excellence.
What examples are there of companies succeeding with a focus on Operational Excellence?
Companies that are successful by offering really low perceived prices. So now we’re definitely not thinking Apple! How about the following as examples:
RyanAir
Lidl in the UK
Dollar Shave Club
Why Are The Value Disciplines Important?
It’s easy to get bogged down by all the details of innovation as we seek to optimize business processes and exceed customer expectations. The discipline model is intended to help you focus your efforts so your progress doesn’t get impeded by big-picture worries.
Companies pursuing innovation use the value disciplines to better understand their business model and accurately measure operational excellence. They can more easily track product leadership because the value disciplines guide them to look more explicitly at how their products are behaving in the marketplace.
The value disciplines aren’t training wheels, but rather a map that lets you explore your functional and organizational boundaries.
What are the advantages of the Value Disciplines model?
There are a number of advantages to this model including:
It works for any stage of your company growth
It allows focus on strategic objectives
It provides a simple method for positioning your business
What are the disadvantages of the Value Disciplines model?
The main disadvantages to the model are:
The model is not an exhaustive look at different approaches
It requires other models to function well for a company
How to apply Value Disciplines Framework to your business?
An organization looking to define it's the direction and quickly gain a competitive edge may use The Value Disciplines Framework as a tool. More than a discipline, once you ‘stake your claim’ in one of these areas, an organization can turn this into a philosophy that is embedded within the company.
When that is achieved, employees resonate with the discipline and will aim to uphold it vigorously. It can almost become the WHY of the organization, and this can not only give you a competitive edge but a cultural one as well (watch the video below if you haven't seen it before).
The trick is to not forget that simply because you focus on one discipline, there is no neglect of the other two. Remember, you MUST compete in all three fields - there is no choice in that. The choice is to make a conscious decision to excel in one.
Can’t I be great at all 3 Value Disciplines?
The short answer is no. Like anything in business though, it depends. The initial reaction when I looked at this framework was to strive to excel in all areas.
Alas, Treacy-Wiersema argues that an organization will find it very difficult to excel in all three disciplines. Treacy-Wiersema argues this since the organizational culture, structures, people, facilities, processes and business models that lead to excellence in one discipline are not compatible when attempting to achieve the same in the other two disciplines.
For example, Dell would find it hard to break into the product leadership discipline. All of Dell’s processes are geared toward providing customized solutions at the lowest possible price. This is a very different business model from Apple which produce few products but with intense attention to product detail.
Having said that, it doesn’t mean it is not possible. There are companies out there that have somewhat achieved this. Let’s take Staples, the office supply giant in the United States.
They have adopted both operational excellence and customer intimacy. Staples achieves the lowest net-landed cost in the entire office stationery business. Recently, Staples pushed for customer intimacy, by creating a Staples ‘club’ with membership and discounts.
They now use the data they gather from the club members to serve better and deepen their relationship with these customers.
Indeed, if we look at the tech space and some of the companies that are disrupting the market, we see that a lot of them manage to excel in two of these areas effectively.
If we look at Airbnb for example, the business offers operational excellence from a high level of customer intimacy. This could be said about Uber also.
