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.
  3. Customer intimacy: 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. Companies that excel in customer intimacy combine detailed customer knowledge with operational flexibility so they can respond quickly to almost any need, from customizing a product to fulfilling special requests. Companies pursuing a strategy of customer intimacy continually tailor and shape products and services to fit an increasingly fine definition of the customer. As a consequence, these companies engender tremendous customer loyalty.
Value Discipline Basic Philosophy
Operational Excellence Customer proposition is simple: low or lowest price and hassle-free service
Product Leadership Offer products that push performance boundaries
Customer Intimacy Delivering what specific customers want

Three Value Disciplines - Michael Treacy and Fred Wiersema

The purpose of the model is to focus executives’ attention on attaining a minimum standard in all three value disciplines and choosing one in which to excel, by asking questions around what has the most meaning for customers, what industry standards are like and how competitors shape up.

According to Treacy and Weirsema, organisations must excel at one of the three value disciplines, while remaining competent at the other two. Most companies in fact, do not specialize in any of the three, and thus they realize only mediocre or average levels of achievement in each area. These companies are in no sense market leaders. In today’ s business environment of increased competition and the need more than ever before for competitive differentiation, their complacency will not lead to increased market share, sales or profits.

“…when we look at these managers’ businesses [complacent firms], we invariably find companies that don’t excel, but are merely mediocre on the three disciplines. Sure, as the ante has risen in their markets, they’ve improved their cost structure and become more aware of their customers. They’ve added new products and line extensions over the years. They’ve kept up with rising parity levels to stay in the game. They’ve maintained threshold levels of performance in each dimension of value. What they haven’t done is create a breakthrough on any one dimension to reach new heights of performance. They have not traveled past operational competence to reach operational excellence, past customer responsiveness to achieve customer intimacy, or beyond product differentiation to establish product leadership. To these managers we say that if you decide to play an average game, to dabble in all areas, don’t expect to become a market leader.” (p.44) –  Treacy and Weirsema

Treacy and Wiersema’s Three Value Disciplines framework is quite similar to the Three Generic Strategies from Porter (Cost Leadership, Differentiation, Focus). ‘Operational excellence’ is very similar to  Porter’s low cost strategy, but at least with Treacy and Wiersema were clear that the strategy is targeted at a particular type of segment. ‘Product leadership’ is a strategy of differentiation through innovation, and ‘customer intimacy’ is a strategy of differentiation through bespoke service. However there is at least one major difference: according to the Three Value Disciplines framework no discipline may be neglected: threshold levels on the two disciplines that are not selected must be maintained. According to Porter, companies that act like this run a risk to get “stuck in the middle“.

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