The Treacy & Wiersema Value-Discipline Model was first published in the ground-breaking Harvard Business Review article “Customer Intimacy and Other Value Disciplines,” (c. 1993) and was expanded in a book, “The Discipline of Market Leaders” in 1995. The Value-Discipline Model is a strategic tool that helps enterprises establish what they want their customers to value them for.
The Value-Discipline Model looks at 3 different areas or “value disciplines” in which an enterprise can focus. Each area results in customers valuing the enterprise in a different way. The three value-disciplines are:
- Operating Excellence;
- Product Leadership; and
- Customer Intimacy;
Those familiar with Michael Porter‘s work will see that Tracey and Wiersema’s model reflects Porter’s three basic strategy concepts of cost leadership, segmentation strategy and differentiation strategy. Tracey and Wiersema extend them into “value disciplines”. The primary difference between Porter’s work and the value discipline model is that Tracey and Wiersema deepened the focus on the customer relationship by defining the Customer Intimacy value discipline. Porter’s focus was market-focussed, Tracey and Wiersema shifted to a customer focus.
Tracey and Wiersema proposed that in order to be competitive, an enterprise must be competent in all three disciplines (the minimum threshold in the diagram), but to be a market leader, an enterprise must excel in just one discipline. Treacy-Wiersema further propose that an enterprise cannot excel in all three disciplines because the basic enterprise culture, structures, people, facilities, processes and business models that lead to excellence in any one discipline are incompatible with achieving excellence in the others.
For example, Operationally Excellent enterprises tend to have a limited range of products and configurations as this is cheaper to build and deliver than a vast range of products and configurations typical of a Customer Intimate enterprise. Tracey and Wiersema thus proposed that Enterprises must make a key strategic choice about which value discipline to select.
The Value Disciplines
Product Leadership is characterized by products that are the best in their market and highly valued by customers.
The principles of a product leadership enterprise are:
- Encouragement of innovation – a culture that fosters experimentation and innovation and rewards product or service improvement;
- Risk-oriented management style – management that allows the enterprise to take risks and reap the rewards of new ventures;
- Recognition that the enterprise’s current success and future prospects lie in its talented design people and those who support them; and
- Recognition of the need to educate and lead the market in the use and benefits of new products or services.
The dimensions of Product Leadership are:
- Capability maturity – maintaining the level of capability to deliver products or services and the continuous improvement of those capabilities;
- Intellectual leverage – developing and using intellectual assets for improved product and service delivery; and
- Responsiveness – minimizing the response and turnaround times for product and service design and delivery.
Examples of product leadership aligned enterprises: Ferrari, Apple, Nike
Operational Excellence is characterized by low or lowest price and hassle free service. The principles of an operationally excellent enterprise are:
- Efficient management of people – employees trained in the most efficient and lowest cost ways of doing things;
- Management of efficient transactions – maximizing the efficiency of all parts of a transaction, including the full supply chain;
- Dedication to measurement systems – ensuring rigorous quality and cost control, with measurement targeted at finding ways to reduce costs; and
- Management of customer expectations – provision of a limited variety of products and/or services and managing customer expectations accordingly.
The dimensions of Operational Excellence are:
- Enterprise performance – efficiency through improved processes and automation for speed and hassle-free delivery;
- Quality – detecting, understanding and removing problems in processes, products and services that have efficiency impacts both before and after delivery; and
- Cost – analyzing and adjusting processes and products to facilitate the most cost- effective delivery.
Examples of operational excellence aligned enterprises: BHP Billiton, Fed Ex,
Customer Intimacy is characterized by occupying only one (or a few) high-value customer niches and being obsessive about understanding the individual customers in detail. Excel in customer attention and customer service.
The principles of a customer intimate enterprise are:
- Having a full range of services available to serve the customers on demand – may involve having a wide range of services available from other suppliers at very short notice through contract arrangements; and
- A corporate philosophy and resulting business practices that encourage deep customer insight and breakthrough thinking about how to improve the customer’s situation or business.
The dimensions of Customer Intimacy are:
- Reach and range – location of service access points, number of channels through which the product or service can be accessed, level of self-service available;
- Cycle time – time between awareness of customer need and delivery, and product or service development time; and
- Product identification – ability to identify new products or services required by customers.
Examples of customer intimacy aligned enterprises: Nordstrom, Casinos (for high rollers), the hair salon.
There are suggestions that the Value Discipline Model is outdated. I understand the reasoning of the people making this claim but I still find the model very useful and I use it regularly. I’ll show you how below but for me the Value Discipline Model remains relevant for 2 reasons: 1. That it is useful and 2. It shifted strategic thinking towards customer-centricity and that view is becoming more relevant rather than less relevant.
The only caveat that I have on my endorsement of this model is that the notion of value disciplines can be difficult for executives to absorb. They are a novel way of looking at a business and understanding organizational alignment, so please always be mindful of this when introducing them.
OK. That’s enough for now. In the next part of this series I will discuss a method for how to actually apply the Tracey & Wiersema Value Discipline Model.
Harvard Business Review article “Customer Intimacy and Other Value Disciplines,” (c. 1993)
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