Value Discipline Model – SKCI Business Strategy Tool

Background

Michael Traecy and Fred Wiersema developed a model based on an organisation’s three primary areas, Customer Intimacy, Product Leadership and Operational Excellence.

The value discipline model suggests that for success, an organisation must excel in one of these areas and be on par with industry standards for the other two. 

Underachieving in all three areas is a clear marker that new strategies must be developed immediately in order to succeed.

When To Use The Value Discipline Model

The Value Discipline Model works well in conjunction with Porter’s Generic Strategies for competitive advantage and it is best used on an organisation that has been operating for a few years in order to understand the position in the marketplace. 

Customer Intimacy goes beyond understanding the needs and wants of customers by delivering a full range of services to help customers. At the point that the discipline differentiates from the competitors, value is added and so a higher price can be requested. 

Three ways to measure this are:

1. Cycle time – Time lapse from the customer having a problem and the solution being delivered.
2. Communication reach – Availability and prevalence of the organisation for the customer and the number of channels that can be used.
3. New product realised – Ability to figure out what new products or services are needed by the customer. 

Product Leadership is about leading the market in new product development. Speed of innovation is paramount to product leaders and the R&D cycle needs to be flexible, open-minded and have deep pockets. 

Often this area is led by companies that have continued investment. 

To stay a product leader, the organisation must: 

1. Think outside the box – Just because it hasn’t been done like that before doesn’t mean that it can’t be done. Organisations must remain creative in thinking and not be tied to a stereotype.
2. No red tape – Ideas must be followed through quickly and development must get the product to market faster than a competitor in order to capture a larger stake in the market.
3. Persistence – Organisations must continue to find the next new product. Sitting still in the praise of the last success can’t happen, nor wallowing in the last failure. Always ask what’s next.

Operational Excellence is centred on the principle of low price and hassle-free service. The organisation becomes market leader by being superior in price and convenience. Standard of the products must remain competitive so cost savings must be made elsewhere. To achieve market leader in this discipline:

1. Culture of efficiency – All must buy into this and know how and where to cut costs.
2. Systems efficiency – Where every transaction across the supply chain is maximised.
3. KPI efficiency – Measurement of management quality and costs at all levels.

How To Use Value Discipline Model

The three disciplines need to be analysed to understand which discipline the organisation is leaning positively towards or not. 

Identify 5 KPIs for each discipline and then make best judgement on how they compete against each other and which one stands out.  

Have a look at another 2-3 companies and plot them on the graph to see how your organisation competes. 

If you are not competing on any of the three principles, then the strategy needs to be redefined.  If however, you are better at one than the other, this is your market winning discipline.  

Questions to Encourage Discussion

1. Which KPIs do we value most in the organisation?
2. Who is our biggest competitor and how do they compare to us?
3. Which discipline should we be leaders in and why?
1. Once you have completed the model ask yourself, do the results surprise me?

Worked Example

Now let’s see how NewTechNow, an imaginary technology company with a B2B product that includes both software and hardware models against a competitor using the three value disciplines.

NewTechNow is a leader in operational excellence and is mirroring the market place in Customer Intimacy and Product Leadership. It may be worth now doing a deeper dive into your Operational Excellence to see where your gains are really coming from and then you can make a decision to drive those gains harder. 

There are also some clear fields of concern e.g the Customer Churn at 36% which has been rated as 1. 

Potentially your rating of 1 is actually on par with your competitors and customers are very fickle or this is a weakness that needs to be exploited. 

Potentially it may be worth doing a SWOT analysis and turn this weakness into an opportunity. If the decision is to improve customer churn, fantastic, this could lead to greater things. 

But, do not be tricked into trying to seek excellence in all disciplines. Identify weaknesses for sure, but maintain focus on building on your strengths. 

Do not spread your assets and focus too thin and lose your competitive advantage.   

How Does This Fit Into The 5KQ Strategy Framework?

SKCI’s unique 5 Key Question (5KQ) strategy framework gives our clients an effective way of assessing competing strategies for business.  The Value Discipline Model works best for Questions 1, ‘Where are we now?’, 2,’ Where do we want to go?’ and 3, ‘What are we going to do differently?’.

Our framework allows you to ask the right questions at the right time and a clear structure for the development of your strategy. Other tools we use in conjunction with the Value Discipline Model will ensure that the right strength is being utilised in the right strategy ensuring a clearer path to success.

Additional Resources

Additional Strategy resources, including blank worksheets in PowerPoint and Word format, are available from the SKCI website: www.skcinv.com/business-strategy-resources