Three Value Disciplines by Treacy and Wiersema

Value discipline, a term coined by Michael Treacy and Fred Wiersema in their book, “The Discipline of Market Leaders” to describe different ways companies can differentiate itself from competitors. A value discipline is more than just a benefit statement—it is a statement of strategic focus and provides a context for a company to set its corporate vision and objectives, to target its most profitable customers, and to focus and align its activities.

Treacy and Wiersema identified three different ways of bringing together a compelling value proposition with an effective operating model. The basic idea is that any company can deliver value to its customers in three value disciplines.

  1. Operational Excellence: Delivering quality products or services at the lowest total cost with the least inconvenience and always on time. Companies pursuing operational excellence are relentless in seeking ways to minimize overhead costs, to eliminate intermediate production steps, to reduce transaction and other “friction” costs, and to optimize business processes across functional and organizational boundaries. They focus on delivering their products or services to customers at competitive prices and with minimal inconvenience. An operationally excellent company proactively designs its entire business model for its targeted customer segments, paying particular attention to speed, efficiency, and cost.
  2. Product leadership: Aims to build a culture that continuously brings superior products to market. Companies that pursue product leadership are innovation-driven, and they constantly raise the bar for competitors by offering more value and better solutions. Product leaders continually scan the landscape for new product or service possibilities; where others see glitches in their marketing plans or threats to their product lines, companies that focus on product leadership see opportunity and rush to capitalize on it.
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Mass Customization – Dynamic Stability Product/Process Matrix

Mass Customization Concept

“It is the customer who determines what a business is” – Drucker, 1954

The concept of mass customization was coined by Stan Davis in 1987, in his book “Future Perfect”. In this book, he emphasizes that in traditional industrial production there is on the one hand mass production, using economies of scale to produce goods at low costs, but with nearly no variety or on the other hand individual production with a high degree of variety but in small volumes with high costs. Joseph Pine, an IBM-executive turned consultant and author who is the father of the mass customization concept, in his 1993 book “Mass Customization – A New Frontier in Business Competition”, outlines more about Mass Customization.

“developing, producing, marketing and delivering affordable goods, and services with enough variety and customization that nearly everyone finds exactly what they want.” -  Joseph Pine, 1993

“Mass customization is a system that uses information technology, flexible processes, and organizational structures to deliver a wide range of products and services that meet specific needs of individual customers at a cost near that of mass-produced items” - Hart, 1995

Mass customization is a viable business strategy, by enabling customized products to be manufactured with the economies of scale associated with mass production. Mass customization explains how affordable products and services can be delivered to satisfy the needs of the individual by combining the efficiency of mass production and the customization level of craftsmanship. The goal of mass customization is to produce high quality products with the shortest delivery time and lower cost.… Read the rest

Value Net Framework

The Value Net Framework, also known as Coopetition Framework is an analytical strategy tool developed by Adam Brandenburger and Gary Nalebuff in 1996, combining strategy and game theory, in order to describe and analyze the behavior of multiple players within a given industry or market. The Value Net Framework is an alternative to Porter’s Five Forces framework, extends the five forces framework more general by examining the role of complementors.

The frameworks fundamental idea is that cooperation and competition coexist. Cooperation and competition are both necessary and desirable when doing business. Cooperation is required to increase benefits to all players (focus on market growth), and competition is needed to divide the existing benefits among these players (focus on market share).

Co-opetition

Co-opetition is a neologism representing the ambivalence of competition and cooperation in business relationships. Co-opetition is part competition and part cooperation. It describes the fact that in today’s business environment, most companies can achieve more success in a dynamic industry than they ever could working alone. Specifically, when companies work together, they can create a much larger and more valuable market than they ever could by working individually. Companies then compete with each other to determine who gets the largest share of that market. Co-opetition allows for the real-world business situation that there can be multiple winners in the marketplace. Business, unlike war, is not a winner takes all proposition. The objective is to maximize your return on investment – regardless of how well or how poorly other people or other companies perform.… Read the rest

McKinsey’s Strategic Control Map

Strategic Control Map shows the relationship between size (measured by book value) and performance for shareholders (measured by market-to-book ratio). It was developed by McKinsey consultants D’Silva, Fallon and Mehta in 1996, and it is used to help companies get visibility into their own and competitors performance trajectories and better understand the threats and opportunities for a company’s strategy execution.

Strategic Control Map is helpful in analyzing an industry landscape, looking at various companies or firms in this industry, by breaking down overall performance into two key drivers or indicators, helps companies identify their biggest opportunities and threats and boost their odds of hunting for acquisition targets rather than being hunted themselves.

Strategic Control Map tracks the relationship between the two dimensions of market capitalization by plotting a company’s size against its performance for shareholders.

The principle behind Strategic Control Map is that, market capitalization = book value of assets under management x market-to-book ratio.

To arrive the above equation;

Market Capitalization = The market value of a company’s equity and debt securities = (Ve + Vd)

where,

  • Ve = Value of Equity = Outstanding Shares x Price per Share
  • Vd = Value of Debt
  • By adding (Be + Bd) to the numerator and denominator of the above equation;

    where,

  • Be = Book value of Equity
  • Bd = Book value of Debt
  • Market Capitalization =  (Ve + Vd) / (Be + Bd) x (Be + Bd) / 1

    where,

  • (Ve + Vd) / (Be + Bd) = Market-to-Book Ratio
  • (Be + Bd) = Book Value
  • Strategic Control Map is essentially a visual representation of this “equation breakdown” process with respect to market capitalization. … Read the rest

    Business Model Canvas – Business Model Generation

    Business Model Canvas is the most popular tool for entrepreneurs to create their business models. The Business Model Canvas is an analytical tool outlined in the book Business Model Generation by Alex Osterwalder. It is a visual template preformatted with the nine blocks of a business model, which allows you to develop and sketch out new or existing business models.  It’s an amazing and powerful too and instantly creates a shared visual language while defining a business.

    A business model describes the rationale of how an organization creates, delivers and captures value. Using the Business Model Canvas, the business model is defined across 9 key areas. With a central focus on the value proposition facilitated groups are able to quickly capture (i) how the business will actually create the products, (ii) how customers will access the products, and (iii) how the business will monetize the transactions. The nine building blocks for a business model are:

    1. Customer Segments – Definition of the different groups or organisations a company/enterprise aims to reach and serve.
    2. Value Propositions – Describing the bundle of products/services that create value for a specific customer segment.
    3. Channels – Describing how a company communicates with and reaches its customer segments to deliver its value propositions. Channels have five distinct phases: awareness, evaluation, purchase, delivery, and after sales. Each channel can cover some or all of these phases. We can distinguish between direct channels and indirect ones, as well as between owned channels and partner channels. Finding the right mix of channels to satisfy how customers want to be reached is crucial in bringing a value proposition to market.
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    Four Levels of Uncertainty – Strategic Planning Under Uncertainty

    Even the most uncertain business environments contain a lot of strategically relevant information. First, it is often possible to identify clear trends, such as market demographics, that can help define potential demand for future products or services. Second, there is usually a host of factors that are currently unknown but that are in fact knowable-that could be known if the right analysis were done. The uncertainty that remains after the best possible analysis has been done is what we call residual uncertainty.

    Hugh G. Courtney, Jane Kirkland, and S. Patrick Viguerie in their article Strategy Under Uncertainty have developed a useful framework for dealing with various uncertainties in strategy formulation.

    Four Levels of Uncertainty

    The authors present four levels of uncertainty: 1) A predictable future, 2) Alternate futures 3) A range of futures 4) True ambiguity.

    Level 1: Clear Enough/Predictable Future

    This would apply to situations where sufficiently precise predictions can be made about key variables affecting a company’s markets and businesses (e.g. market demographics in a reasonably stable consumer goods sector). In this case, executives can apply the standard strategy tool kit (market segmentation, competitor’s costs and capacities, value chain analysis, Porter’s five forces model, etc.) to define an optimal course of action.

    Level 2: Alternative Futures

    Sometimes firms are faced with discrete scenarios, e.g. regulatory changes, significant actions of competitors, etc. It’s hard to predict which outcome will actually happen, although one can assign probabilities to various alternatives. The recommendation here is to develop strategic scenarios, and apply a decision analysis framework or a “real option” approach.… Read the rest