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Book
Summary: The
Discipline of Market Leaders: Choose Your Customers Narrow
Your Focus, Dominate Your Market
Printed
with permission from TCI
Management Consultants. A group of senior-level management
consultants, offering strategic planning and marketing services
to a wide range of public and private sector clients.
The
Discipline of Market Leaders: Choose Your Customers Narrow
Your Focus, Dominate Your Market
by Michael Treacy and Fred Wiersema
Addison-Wesley, Reading, Massachusetts, 1997 edition
"The
message of The Discipline of Market Leaders is that no company
can succeed today by trying to be all things to all people.
It must instead find the unique value that it alone can
deliver to a chosen market. Why and how this is done are
the two key questions the book addresses." (p.xii)
The
authors maintain that there are three different types of
'value discipline' that successful companies can adopt to
command leadership in their markets. Which of these (if
any) is taken by any particular firm depends upon the sort
of product or service that they provide, and upon the organizational
culture that they maintain. These three 'value disciplines'
are summarized in the chart below:
| 'Value Discipline'
| Basic Philosophy
| Examples
|
| 1) operational excellence
| -customer proposition is simple: low or lowest price
and hassle-free service
| -Wal-Mart, McDonalds
|
| 2) product leadership
| -offer products that push performance boundaries
| -Intel, Nike, 3 M
|
| 3) customer intimacy
| -delivering what specific customers want
| -Airborne Express, Nordstrom
|
The
book describes the philosophy and operation of these three
value disciplines, and provides a detailed case study of
a business that exemplifies the operation of each.
The
first value discipline is 'operational excellence', which
is an approach to the market dedicated to providing the
lowest cost goods and services, while at the same time minimizing
problems for the customer. This discipline bases its success
on several key principles:
the
efficient management of people - employees are trained in
the most efficient and lowest cost way of doing things
the
management of efficient transactions - for greater efficiency
and speed, processes between suppliers and the organization
are often merged (for example, the quality control function,
which historically has taken place once by the supplier
to ensure a good product leaving their shop, and once at
the buyer's end to ensure a good product coming in, is merged
into one quality control inspection, undertaken under the
auspices of both the supplier and the customer - this reduces
cycle time considerably, allowing just-in-time supply and
at lower overall cost as well)
dedication
to measurement systems - to ensure rigorous quality and
cost control, businesses dedicated to operational excellence
are geared to monitoring and measuring all processes, continually
searching for ways to reduce cost, and improve service and
quality
management
of customer expectations - under the principle that 'variety
kills efficiency', operationally excellent companies provide
only one or a limited number of product or service options,
and manage customer expectations accordingly
The
case study that the book uses to illustrate the 'operational
excellence' value discipline is AT&T's experience in
introducing the 'Universal Card', a combined long-distance
calling card and general purpose credit card, featuring
low annual fees and very customer-friendly service
The
second value discipline is 'product leadership', which is
dedicated to providing the best possible products from the
perspective of the features and benefits offered to the
customer. Product leadership is based upon the following
principles:
the
encouragement of innovation - through small ad hoc working
groups, an 'experimentation is good' mind-set, and compensation
systems that reward success, constant product innovation
is encouraged
a
risk-oriented management style - product leadership companies
are necessarily innovators, which requires a recognition
that there are risks (as well as rewards) inherent in new
ventures
a
recognition that the company's current success and future
prospects lie in its talented product design people and
those who support them
a
recognition of the need to educate and lead the market regarding
the use and benefits of new products
The
company that the book uses to illustrate the 'product leadership'
value discipline is Intel, and it describes in some detail
how they are organized to encourage constant innovation.
The third value discipline is 'customer intimacy', which
involves the selection of one or a few high-value customer
niches, followed by an obsessive effort at getting to know
these customers in detail. This requires anticipating the
target customer's needs as well as (if not better than)
they themselves do, and sometimes sharing risks with them
when the development of new products or services is required.
The operating principles of this value discipline include:
having
a full range of services available to serve customers upon
demand - this may involve running what the authors call
a 'hollow company', where a variety of goods or services
are available quickly through contract arrangements, rather
than the supplier business having everything in stock all
the time
a
corporate philosophy and resulting business practices that
encourage deep customer insight and breakthrough thinking
about how to materially improve the client's business are
essential
The
case study that the book uses to illustrate the operation
of the 'customer intimacy' value discipline is Airborne
Express, and their special relationships with IBM and Xerox.
Treacy
and Wiersema maintain that, because of the focus of management
time and resources that is required, a firm can realistically
choose only one of these three value disciplines in which
to specialize. Most companies in fact, do not specialize
in any of the three, and thus they realize only mediocre
or average levels of achievement in each area. These companies
are in no sense market leaders. In today' s business environment
of increased competition and the need more than ever before
for competitive differentiation, their complacency will
not lead to increased market share, sales or profits.
"...when
we look at these managers' businesses [complacent firms],
we invariably find companies that don't excel, but are merely
mediocre on the three disciplines. Sure, as the ante has
risen in their markets, they've improved their cost structure
and become more aware of their customers. They've added
new products and line extensions over the years. They've
kept up with rising parity levels to stay in the game. They've
maintained threshold levels of performance in each dimension
of value. What they haven't done is create a breakthrough
on any one dimension to reach new heights of performance.
They have not traveled past operational competence to reach
operational excellence, past customer responsiveness to
achieve customer intimacy, or beyond product differentiation
to establish product leadership. To these managers we say
that if you decide to play an average game, to dabble in
all areas, don't expect to become a market leader."
(p.44)
In the
last part of the book, the authors outline a plan whereby
companies can examine their existing operations and choose
which of the three value disciplines the can and should
focus upon. This process that they advocate is for a company
to form a senior management team which then goes through
a three-stage process, where they ask themselves some quite
difficult questions (drawing upon external expertise to
supply competitive intelligence, data about market growth
potential, customer satisfaction feedback, etc). The three
phases of investigation, and the questions to be asked in
each, include:
Phase
1 - Understanding the status quo in your business
What
are the dimensions of value that our customers care about?
For
each dimension of value, what proportion of customers focus
upon it as their primary or dominant decision criterion?
Which
competitors provide the best value in each of these value
dimensions?
How
do we measure up against our customers on each dimension
of value?
Why
do we fall short of the value leaders in each dimension
of value?
Phase
2 - Identify the realistic options for your company
Irrespective
of industry, what are the benchmark standards of value performance
that will affect customer's expectations? How do firms achieve
these standards?
For
value leaders, what will be their standards of performance
three years from now?
How
must the operating models of these value leaders be designed
to attain those levels of performance?
Phase
3 - Detailed designs and hard choices
What does the required operating model look like - i.e.
what are the design specifications for the core processes,
management systems, structure and other elements of the
model?
How
will the model produce superior value?
What
levels of threshold value will the market require in the
other value dimensions? How will these be attained?
How
large will the potential and captured market be for this
value proposition?
What
is the business case - including costs, benefits and risks
- in pursuing this option?
What
are the critical success factors that can make or break
this solution?
How
will the company make the transition from its current state
to this new operating model over a two- to three-year period?
Within
the context of redesigning the operating model of a company
to focus upon a particular value discipline, Treacy and
Wiersema discuss creating what they call 'the cult of the
customer'. This is a mind-set that is oriented towards putting
the customer's needs as a key priority throughout the company,
at all levels. They also review some of the challenges involved
in sustaining market leadership once it is attained (i.e.
avoiding the natural complacency that tends to creep into
an operation once dominance of the market is achieved).
Altogether
The Discipline of Market Leaders is an insightful and interesting
book, with much food for thought on how companies might
reposition themselves to meet the increasingly challenging
times that undoubtedly lie ahead.
The
above summary has been provided to you compliments of TCI
Management Consultants
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