Recently, I came to read an article that was basing its main argument on a well-known and well-accepted in the business and tech community principle of Value-Discipline. It states: “for companies to achieve a leadership positions in their industries it is necessary to narrow their business focus, not to broaden it. The focus should be on only one of three value disciplines—Operational Excellence, Customer Intimacy, or Product Leadership while meeting industry standards in the other two.”
This is unquestionably accepted as one of the core business principles with plenty of empirical evidences to back it. The problem is that evidences are old and there are plenty of evidences to show that in today’s hyper-competitive word, in the current reputation-economy, this adage is no longer true.
For avoidance of ambiguity, let’s define terms:
Operational Excellence defines a strategy to establish industry leadership in price. Typically, companies focused on this axis are preoccupied with a ruthless minimization of COGS, SG&A and other expenses. They ruthlessly outsource their manufacturing capabilities, squeeze suppliers, automate whatever the manual processes that can be automated, watching like hawks their labor expenses, obsessing with project execution cost, all in the name of delivering cheapest price possible. Because they build their entire businesses around cost minimization, there is a high risk of commoditization of their value proposition .
Customer Intimacy – are customer-service obsessed companies. Every decision is taken from the perspective of gaining insight into customer needs. The goal is to provide a set of product and services to gain and fortify customers’ loyalty. For true adherents that pay more than a lip service, this is an expensive path. One thing is for certain- there are only a handful of companies that are genuinely committed to this axis. Startling examples are Amazon, Costco and few others. The challenge here is to imbue the company with a very unnatural long-term mindset of supremacy of the customer-lifetime value enhancement over transaction-value maximization. Companies pursuing this axis are not transaction-focused, but relationship focused. Typically, these companies’ employees are brand-ambassadors and are empowered to make decision at the point of interaction with a customer. Rarely this path leads to commoditization, but it can’t be executed without data-first strategy. Meaning, every aspect of the product usage, employee action, customer interaction is captured, analyzed, modeled and enhanced.
Product Leadership axis is for companies that want to to be on the technology’s bleeding edge, that are invest heavily in H2 and H3 horizons of technical innovation. These companies are driven by technocrats, with unique vision, competing on a “laundry list of features”, continuously pushing the envelope of what is possible. They attract snobbish, high-churn, expensive but very creative independent thinkers who want to boil the ocean, fly to Mars, and change the current paradigm. Samsung, Apple (under Jobs), Tesla, Google, Microsoft (under Gates), AT&T, Facebook, and most of the denizens of the Silicon Valley would fiercely compete along this axis.
In my opinion, this logical model is no longer applicable - it is quite outdated. I fully admit that my idea of Product defined in my previous The Positive Trigger Upgrade Framework blog may be controversial and may not be shared by everyone. Still, I haven't seen a better one, this one makes a lot of sense.
Under my model, the Value Discipline Model is no longer applicable nor relevant. As I’ve stated prior in my prior blog, a product is a combination of its innate specifications (features/capabilities), customer experiences, real and perceived benefits, degree of stickiness, and cost of ownership. If we don’t understand inter-dependencies of all these factors in their entirety along the with the market drivers, we’re going to fail. Fundamentally, any company that wants to succeed nowadays, has to dominate across at least two axis. Which ones?
Let's start with Operational Excellence. In today’s hyper-competitive global markets, one cannot afford to take a laissez-faire approach to operational excellence. It provides a huge competitive advantage, so every company must seek economies of scale, engage in hard-nosed supplier negotiations, intelligently outsource and pursue relentless automation
Customer Intimacy is another axis that does not yield itself well to neglect. I truly believe that in this day and age, only customer-obsessed companies like Amazon, Costco, Tesla, AT&T, KettleBell Kings (my personal favorite) can survive and grow over a long-term. If your NPS sucks you won’t be in business for long, operational efficiency and all. So there is no choice here, is it?
Product Leadership, as defined by the Value Discipline mode, whilst most appealing to me, is the path that is only for a selected few. It is expensive, layered with uncertainties, fickle employees, risky development cycles driven by creative geniuses, often neurotic, difficult, and asocial. This path brings the most personal satisfaction, delivers amphetamine-like rush of success and frequent valleys of failures. Above all, it requires a steady hand of visionary leaders who see not obvious, who challenge conventional, thus shaping our future. Musk, Bezos, Gates, Jobs, Lutz, Dalio, Ma, Edison, Welch, and like…
Bottom line: The Value Discipline model is outdated! Stop thinking about the Product in terms of features and specifications. It is much more than that. Again, per my definition, Product should be a well-balanced coalescence of Features, Customer Experience, Benefits, Stickiness and TCO. Given that definition, any company that wants to dominate and grow its TAM, could and must excel if it invests and leverages a data-driven approach to product development, customer insight and operation excellence. The fog of uncertainty is lifted by all the raw, unstructured data that most of companies severely under-utilize. Customer intimacy is no longer an optional axis – it is a part of your product, and it is, in my opinion, supersedes Operational Excellence. Which, by and large, is no longer an option as well. Today, thanks to globalization, automation process and product maturity, this path is available to everyone. It’d be a major handicap to a company no to seek competitive advantage through Operational Excellence. Therefore, the New Value Discipline has diverging axis and can be depicted as following:
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