MaRS Library Competitive strategies in operational excellence, customer intimacy and product leadership
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In their 1997 book, The Discipline of Market Leaders, authors Michael Treacy and Fred Wiersma describe three competitive strategies, or value disciplines:
- Operational excellence
- Customer intimacy
- Product leadership
They argue companies must achieve market leadership for one competitive strategy and perform adequately with the other two.
To succeed in the marketplace, companies must embrace a competitive strategy. Authors Michael Treacy and Fred Wiersma describe three generic competitive strategies, or value disciplines: operational excellence, customer intimacy and product leadership. These are described in their book, The Discipline of Market Leaders (1997).
The author’s main premise is that companies must choose—and then achieve—market leadership in one of the three disciplines, and perform to an acceptable level in the other two.
Operational excellence as a competitive strategy
An operational excellence strategy aims to accomplish cost leadership. Here the main focus centres on automating manufacturing processes and work procedures in order to streamline operations and reduce cost. The strategy lends itself to high-volume, transaction-oriented and standardized production that has little need for much differentiation.
A strategy of operational excellence is ideal for markets where customers value cost over choice, which is often the case for mature, commoditized markets where cost leadership provides a vehicle for continued growth. Leaders in the area of operational excellence are strongly centralized, with strong organizational discipline and a standardized, rule-based operation.
Measuring the performance of key processes and benchmarking costs comprise an integral part of the operations of these companies who relentlessly seek to streamline their processes in order to eradicate errors. Disciplines such as TQM, SCM and Six Sigma are cultivated in a volume-oriented business model. Examples of companies pursuing this competitive strategy include Wal-Mart, IKEA, Southwest Airlines, McDonald’s and FedEx.
Customer intimacy as a competitive strategy
The customer intimacy strategy focuses on offering a unique range of customer services that allows for the personalization of service and the customization of products to meet differing customer needs. Often companies who pursue this strategy bundle services and products into a “solution” designed specifically for the individual customer.
The successful design of solutions requires vendors to possess deep customer knowledge as well as insights into their customers’ business processes. The solutions offered rarely present the cheapest option for the customer, nor the most innovative, but are regarded as “good enough.”
Customer intimacy focuses on the needs of the individual customer
True customer intimacy can only arrive through aligning the product development, manufacturing, administrative functions and executive focus around the needs of the individual customer.
Customer-centric companies tend to have a decentralized organization which allows them to learn and change quickly according to customers’ needs. These types of companies often keep an entire ecosystem of partners for the actual production and delivery of products and services to their customers. Examples of companies who pursue this type of strategy include IBM, Lexus, Virgin Atlantic and Amazon.com.
Product leadership as a competitive strategy
Product leadership as a competitive strategy aims to build a culture that continuously brings superior products to market. Here product leaders achieve premium market prices thanks to the experience they create for their customers.
The corporate disciplines they cultivate include:
- Research portfolio management
- Product management
- Talent management
Product leaders recognize that excellence in creativity, problem solving and teamwork is critical to their success. This reliance on expensive talent means that product leaders seek to leverage their expertise across geographical and organizational boundaries by mastering such disciplines as collaboration and knowledge management.
The consumer electronics, fund management, automotive and pharmaceutical industries include many companies pursuing a strategy of product leadership. Examples of these include Apple, Fidelity Investments, BMW and Pfizer.
Summary: In their 1997 book, The Discipline of Market Leaders, authors Treacy and Wiersma argue companies must achieve market leadership for one competitive strategy and perform adequately with the other two (the three being operational excellence, customer intimacy and product leadership).
Michael Treacy & Fred Wiersma (1997). The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market. Massachusetts: Addison-Wesley.