THE DELTA MODEL: Discovering New Sources of Profitability in a Networked Economy. Arnoldo Hax Alfred P. Sloan Professor of Management

Transcription

1 THE DELTA MODEL: Discovering New Sources of Profitability in a Networked Economy Arnoldo Hax Alfred P. Sloan Professor of Management

2 The Tenets of Strategy 1.The creation of economic value 2.The development of customer bonding 3.The achievement of the Spirit of Success

3 The Delta Model Three Distinct Strategic Options System Lock-In System Economics Market Dominance Achieving Complementer Share Enabled Through Effective Use of Technology Total Customer Solutions Customer Economics Cooperation Achieving Customer Share Best Product Product Economics Rivalry Achieving Product Share

4 The Triangle: Options for Strategic Positioning System Lock-In Dominant Exchange ebay, Yellow Pages Proprietary Standard Microsoft, Intel Exclusive Channel rural Wal-Mart Horizontal Breadth Fidelity Total Customer Solutions Redefining the Customer Relationship Saturn Enabled Through Effective Use of Technology Customer Integration EDS Low Cost Southwest Airlines, Nucor Best Product Differentiation Sony Wega

5 The Challenge to Decommoditization: Transforming the organization from best product to total customer solutions

6 Transforming the Organization Change your mindset The transformation is not straight forward The case of Codelco and the International Copper Association Regulators Underground cables Efficient motors Business Partners Suppliers Contractors System Lock-In Complementors Architects Construction Motor producers Total Customer Solutions Best Product Targeting Key End-Users Alcatel Carrier KME General Electric ABB Siemens Electrolux Old Codelco - the lowest cost producer

7 Transforming the Organization Redefine the game you are playing Transforming the CSN Organization Decommoditize your customer The case of Castrol

8 What is Castrol Logic? A customized lubrication solution involving products and services that results in documented: Cost Reductions & Productivity Improvements

9 Transforming the Organization Rethink the customer engagement process Client Engagement Process Continuous Improvement Initial Information Exchange Documentation Management Survey Source: Castrol Implementation Proposal

10 The Best Product Positioning is not necessarily the most profitable or the best way to serve your customer.

11 Segmentation: The Key to Superior Strategy and Management Segment everything, but most important segment your customers and consumers (e.g. Unilever Asia). Customers Tier 1. Modern Trade. Es tablished Systems and Business Scale, often International Reaction and Conflict Anticipation and Collaboration Consumers Tier 1. The affluent high LSM (Life style management) across Asia focusing on Aging, Single/Working Women, and Teenagers Satisfy their needs and vitality, Quality Time, Customized Product, and Solutions Tier 2. Modern Trade. driven, largely local Shape and Win Sm aller, more cash Tier 2. The middle LSM focused on upward mobility and social migration Upgradation to higher aspirational brands and affordable price Tier 3. Including Retailers, Wholesalers, Drugstores, Small Retailers System Lock-In by being only Supplier to produce ECR (Efficiency Customer Response) principles. Tier 3. Lower (but not bottom) LSM, less affluent emerging consumers in developing parts of the region Purchasing basket primarily of essentials.

12 Transforming the Organization Prevent the customer from commoditizing you The case of Eastman Chemicals Coating business Channels are essential, they own the customers The case of Hindustan Lever and Unilever de Mexico Channels Massive Direct (the Case of Hindustan Lever D & E market) System Lock-In Total Customer Solutions Best Product Target Direct (the Case of Unilever de Mexico high segment market) General Channel/Mass Distribution

13 The Paint and Coating Industry Paint and Coating Manufacturers Eastman Chemicals Solvents Resins Additives Colorants Tier 1- Preferred strategic solution seekers Tier 2- Large price seekers Tier 3- Least attractive price seekers Tier 4- Local manufacturers Tier 5- Specific targeted companies Distributors Tier 1- Full alignment with EC Tier2- Large power bargainers Tier 3- Fragmented local agents Tier 4- Specialty distributors End Users Architectural Automotive Industrial maintenance Building products Appliances Metal office furniture

14 The Food Service Industry Unilever Bestfoods push Food Service Distributors Operators Final Consumer Corporate broad line (e.g. Sysco) Specialized distributors Other national,regional and local distributors pull Tier chains Tier 2/ chains Tier 4/5- Thousands of independents

15 Transforming the Organization Use technology wisely: This is a very hard task The case of Advanced Micro Devices Total Network Support (e.g. e-system) Open Architecture - Complementors as Key The Role of IT The Role of Innovation Customer and Supplier Support (e.g. B2B, B2C) Internal Support (e.g. SAP) Joint with Customers Internal Product Development

16 Transforming the Organization Beware of the organizational structure implications You have to change dramatically the way you: manage, assign responsibilities, reward people, monitor the business progress, and most important, the way you sell The transformation has to be accomplished by a change in both the front-end as well as the back-end of the organizational structure.

17 Transforming the Organization Beware of the organizational structure implications The back-end should be segmented according to the way we segment Products and Technologies: Administration functions, Supply chain functions, New product development technologies, Process technologies, Information technologies, Functional activities related to product marketing

18 Transforming the Organization Beware of the organizational structure implications The front-end should be segmented according to the way in which we segment the markets: Clients, End-users, Solutions and services, Geographical areas, Functional activities related to customer marketing

19 Transforming the Organization Seek System Lock-In Opportunities This is very hard to accomplish; however if successful the rewards are enormous

20 ACHIEVING YOUR POTENTIAL The way to win is not to beat your competitor but to bond with your customers