Value Disciplines

What is it?

Companies have one of three Value Disciplines as their competitive advantage. It is very challenging to change value discipline since it is so hard-wired into the company DNA. The three value disciplines are:

  • Product Leadership, where the company wins through having differentiated product functionality
  • Operational Excellence, where the company wins through delivering better value and reliability
  • Customer Intimacy, where the company wins through loyal customer relationships

The concept was created by Tracey and Wiersema, and expanded upon by Geoffrey Moore in his book "Dealing with Darwin".

value disciplines

 

Product Leadership companies.......

.......win through having differentiated product functionality

.......have their edge in their product development process, whether in early stage R&D or later stage product innovation

.......reduce their time-to-market for new products so that they have a longer first mover advantage before competitors catch up

.......have superior products due to a technology or know-how edge

Examples of Product Leadership companies are Tencent, Samsung, Google, Pfizer, FT, Harvard Business School, Time Warner

 

Operational Excellence companies.......

.......win through delivering better value and reliability

.......have lower costs than competitors. Costs will be driven down by simplification, standardization and scale economies

.......run very efficient lean processes with reliable quality and dependable delivery

.......offer the best combination of price and performance, though their products and services will be more advanced than competitors

Examples of Operational Excellence companies are Walmart, Maersk, Foxconn, Dell, Vodafone, SouthWest Airlines

 

Customer Intimacy companies......

.......win through loyal customer relationships

.......understand the needs of their customer very deeply and are continuously trying to add more value

.......enjoy very high customer loyalty, enabling them to invest based on the lifetime value of the customer

.......in B2B customize their products to develop full solutions for their customers

.......in B2C build valuable brands that deliver emotional as well as functional value to customers

Examples of Customer Intimacy companies are Harrods, Zappos, Louis Vitton, McKinsey, HSBC, Accenture

Value Discipline DNA

When is it useful?

As part of your strategic analysis of your own company, ask your own management team which ONE you are, and debate to a consensus answer. Multiple business unit corporates with businesses with different Value Disciplines will find it hard to be the best parent to them all (e.g. HP with Printers (Product Leadership); PCs (Operational Excellence) and Services (Customer Intimacy))

For competitive analysis - identifying the Value Discipline of competitors will help you predict their future strategy

For generating alternative strategies - adopting a different Value Discipline will create a fundamentally different strategy

When you are imagining the future, your industry lifestage may require a move to a different value discipline:

Value Disciplines

A Tech company at a strategic crossroads uses Value Disciplines to clarify its choices

Imagine a high tech company who launched on the back of an R&D breakthrough. Their Value Discipline is Product Leadership. However, over time they find that they cannot earn the margins that they used to - competitors are catching up their technology edge and the product is becoming commoditised. They have a choice of three strategies:

  • Stay Product Leadership, return to the R&D capability and come up with the next breakthrough
  • Transition to Operational Excellence, becoming efficient enough to compete with low cost competitors on price
  • Transition to Customer Intimacy, building on their good customer relationships, combining their product with third party's to deliver a integrated full solution to a bigger job for their customer

They could set a different team to explore each of these fully, but ultimately they will have to choose one - there unlikely to be a defensible middle ground

The Automotive Industry shows how different Value Disciplines win at different lifecycle stages

Value Disciplines - Automotive Example
The Automotive Industry illustrates the migration of value from Product Leadership to Customer Intimacy and Operational Excellence

 

 

In the early years of the automotive industry, the cars were not very good. Product Leadership was the winning value discipline, with many of the fundamental breakthroughs in product design coming within decades of the car's creation.  There was industry consolidation, with the survivors settling on very similar technology. It was harder to differentiated through Product Leadership, so later competitors adopted different Value Disciplines to win:

  • Operational Excellence, epitomised by Toyota. Their Total Quality Manufacturing and JIT systems fuelled by continuous improvement (Kaizen) led to them gaining a huge productivity advantage over Western car makers by the end of the 1980s
  • Customer Intimacy, practiced by companies like Chrysler or Jaguar. Neither built the best cars or were the most efficient manufacturers, but both designed cars that their customers fell in love with - whether it was the E-Type Jag or the Chrysler LeBaron or Jeep Cherokee

I want to know more

Geoffrey Moore's "Dealing with Darwin" book expands to identify different innovation focuses for each Value Discipline:

Product Leadership innovation can be:

  1. Disruptive - Creating a totally new product category to the world
  2. Application - Applying existing products to new market segments
  3. Product - Improving the core functionality of the product/service (e.g. Pfizer)
  4. Platform - Expanding the product to an multi-sided ecosystem (e.g. Windows/Facebook/Google)

Customer Intimacy innovation can be:

  1. Line extension - Developing incremental new products to address specific segment/jobs
  2. Enhancement - Superficially differentiating a product
  3. Marketing - Creating an emotional benefit to customers through marketing communication (e.g. Chanel, Nike)
  4. Experiential - Improving the customer experience of the product (e.g. Disney, Zappos)

Operational Excellence innovation can be:

  1. Value Engineering - Systematically evaluate all costs for customer value (e.g. SouthWest Airlines)
  2. Integration - Bundle services/products to take out cost (e.g. MSOffice)
  3. Process - Continuous improvment of key processes (e.g. McDonalds, Foxconn)
  4. Value Migration - Follow the value shift of a component to create a new business (e.g. SABRE, AWS)