How Market Leading Companies Do It

September 18th, 2009   •   no comments   

In the world of business, there are few winners and many losers. The merciless marketplace leaves little room for companies trying to be all things to all men, spreading their resources too thinly across many areas. Those who make it focus their energies and resources on focusing their energies on one of the three key value disciplines – operational excellence, product leadership or customer intimacy – and look at ways to continually improve superior value.

According to The Discipline of Market Leaders, the true formula for enduring strategic success is to be either operationally excellent, exceptional in leading the market in product development, or to have one’s entire business closely integrated with one’s customer’s processes. Authored by Michael Treacy and Fred Wiersema, the slim volume proposes that market leaders choose their customers carefully and find the best ways to meet their needs in a highly differentiated and focused manner while ensuring that quality standards are not compromised.
The core idea behind the book is that of embracing value disciplines, which are are “based not on industry, but upon what kind of value proposition the companies pursued – best total cost, best product, or best total solution.” These are defined by the authors as follows:

“By operational excellence, we mean providing customers with reliable products or services at competitive prices, delivered with minimal difficulty or inconvenience. By product leadership, we mean providing products that continually redefine the state of the art. And by customer intimacy, we mean selling the customer a total solution, not just a product or service.”

To be operationally excellent, companies must deliver a combination of quality, price and convenience that is unbeatable. They need to have extraordinary business processes and supply chain management systems that can squeeze value out of every transaction, and minimise time while maximising efficiency. Workers in such firms are experts in the art and science of continuous improvement (ala Deming), and many franchises belong to this category. Examples include Walmart, PriceCostco (now Costco), McDonalds, FedEx and AT&T’s Universal Card, a credit card offered by the telco which pulled in some 300,000 new accounts each month and won the 1992 Malcolm Baldridge National Quality Award.

Product leaders, on the other hand, are innovators and creators of cutting edge, state-of-the-art products and services. Unlike operationally excellent firms, employees here need to have a mixture of structure and freedom to invent and develop new products that confound market expectations, while still remaining within the raison detre of the company. In other words, while innovation, ideation and imagineering is valued, they should take place within the boundaries of what the company specialises in. Examples here include 3M, Sony (in the past), Nike and Intel, which was challenged by previous CEO Andy Grove to “double their microprocessor speed every 18 months”.

Unlike the first two, customer intimate firms place a premium on understanding their client’s business processes and problems. To offer solutions which address the holistic concerns of their customers, such firms hire people who are naturally service oriented and create and build deep relationships with their customers. While they don’t offer products at the leading edge or the best possible price, they do address a wide range of customer concerns which go beyond just a single transaction. Strategies like customer relationship management and life cycle management becomes key here. Examples include Cott Corporation (private label supplier to Safeway and Walmart), Nordstrom, Roadway Logistics and Airborne Express (which was now acquired by DHL).

Being a market leader isn’t just a stroll in the park however, and companies need to continually improve their lead. They need to choose their customers carefully and to focus on those yielding the greatest profit potential. As the overall standards of value in the industry rises, leaders need to move ahead of the pack and continue to hone their operating model to yield ever greater results.

Unfortunately, its not an easy journey to take. Many once great leading companies (like GM and Ford) have fallen by the wayside. However, others have fallen and risen again like IBM, which has completely retooled itself to become a customer solutions provider, and McDonald’s, which have continually embraced the operationally excellent paradigm and is now giving Starbucks a run for its money in the cafe wars.

Overall, this is a great read for anybody trying to understand how successful companies manage their B2B relationships with other firms. By choosing where to compete, and aligning their entire enterprise in that direction, companies can sharpen their business and operational strategies. Despite being written more than 14 years ago (1995), this volume still carries many timeless lessons for us, especially in a hypercompetitive business landscape that is full of alternatives and overflowing with distraction.

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