session 02 - strategy & delta model (edited)

CENTRO DE INNOVACIÓNTECNOLÓGICO DE MONTERREY

http://paradygnamics.wordpress.com

1

Daniel Pandza, M.A.

Centro de Innovación

pandza@itesm.mx

Tel 01-(33) 3669 3000 ext. 2266

www.gda.itesm.mx/innovar

INNOVACIÓN DE MODELOS DE NEGOCIO

SESSION 02 The Delta Model – Setting the strategic Direction for achieving competitive advantage

FACULTY TEAM

Ing. Jorge Valdez Simancas

Ing. Angel Tonatiuh Flores (atflores@itesm.mx)

CERTIFICADO EN INNOVACIÓN

G2 - ENERO-MAYO 2009

Basic Assumptions:

Strategy is About:1. Searching for New Sources of

Competitive Advantage,

2. Being Unique,

3. Creating Wealth:

Reduce Risk, Investment and Time,

4. Inventing New Rules and New Games

Strategy is About Discovery of Wealth

Source: C.K. Prahalad

Competitive Advantage over Time

GAP

Time

Re

turn

s

Competitive Advantage Gap– Distance from closest competitors

–New, better features

–Lower prices

–Superior customer service

Competitive Advantage Period– Barriers to entry

–Market share dominance

–Blocking patent

–Switching costs

–Brand loyalty

CAP

Mo

ore

(20

02

) Liv

ing

on

the

Fa

ult L

ine

. Harp

er B

usin

ess P

ress

CAP highlow

GAP

low

high

GAP/CAP matrixWhere are Your Offers on this Grid?

Sustainability

Dif

fere

nti

ati

on

Competitive Advantage, Resource Based View,

Delta Model

Source: www.valuebasedmanagement.com

DELTA MODEL

The model on the right

represents the Hax´s point

of view regarding the

development and

implementation of the

corporate strategy.

1. Strategic positioning

2. Define Mission

3. Competitive positioning & assessment of the industry structure

4. Select strategic agenda (i.e. value discipline)

5. Repeat iterations as the competitive environment changes

A Dynamic View of Strategy

Markides (1999). A Dynamic View of Strategy. IEEE Engineering Management Review. Winter 1999.

URL: http://ieeexplore.ieee.org/iel5/46/17508/00808247.pdf?arnumber=808247

Markides (1999)

reinforces the

importance of

viewing the stra-

tegic manage-

ment agenda as

a dynamic pro-

cess that is di-

rected for con-

tinously explo-

ring New Emer-

ging competitive

Positions!

The Delta Model | Three Distinct Strategic Options

Option 1: Best Product

Best ProductProduct Economics

Value chain of the product

Intrinsic value (Standard)

Faceless customers

Mass distribution channels

- First to market

- Dominant Design Rivalry

Diferenciación:

• Sony Wega

• Rolls Royce

Costos bajos:

• Southwest

• Nucor

MEJOR PRODUCTO

Competencia basada en

economía del producto

The Delta Model | Three Distinct Strategic Options

Option 1: Best Product

The Supplier-Customer Relationship:

Traditional and New Economy Structures

ESTRATEGIAS NATURALES Y DE MIGRACION

III IV

I II

Valuación de

los clientes

Uniforme

Necesidades del cliente

Uniforme

Altamente

diferenciado

Expander el set de necesidades

Inte

racti

vid

ad

y e

ficie

ncia

de c

osto

Mercadotecnia

de frecuencia

(Cuentas Claves)

Mercadotecnia

masivaMercados meta

nichos

Mercadotecnia

1 a 1

Altamente

diferenciado

MAPA ESTRATEGICO

III IV

I II

Altamente

Diferenciado

Flexibilidad

en las

comunicaciones

Flexibilidad de Produccion, Logistica y servicios

Uniforme

Necesidades de los consumidores

Valoracion de los

consumidores

H-P Competencias

Usuario Final

Consumidores

Implicit Assumptions

1. Value is Created by the Firm

2. Value is Exchanged between the Firm and a Customer

3. Value is embedded in Products and Services

4. Innovation is about technologies/products/processes

5. Customers have a choice- to buy or not to buy;

Managers’ job is to persuade them to buy

1. All Customers are not alike in their: • Levels of Sophistication

• How they want to dialogue

• Tolerance for problems

• View of switching costs

• Propensity for Personalization

• Role as Individuals in a Social Network

2. Personal Experiences (Value) around identical

physical products can vary significantly.

• Consumers specify the price (auctions)

Customer Heterogeneity

Typical Response:

Good News & Bad News

Richness of Features

and Functions

But not necessarily

Experience Variety

Product Variety means:

Technologies used for

creating Product Variety

can be used to Create

Experience Variety.

We have to Think of

Technologies as

Experience Enablers

Eventos de compra independientes

Clientes

contactados

Necesidades

satisfechas

Total Customer Solutions- Customer Economics

- Strong customer bonding (relationship)

- Solving a wide range of customer needs

- Alternative, non traditional and direct channels.

- Share of wallet.

- Cutting finer

- Improve Customer Cost position, incomes and profits.

The Delta Model | Three Distinct Strategic Options

Option 2: Total Customer Solutions

Eventos de compra condicionales

Clientes

contactados

Necesidades

satisfechas

Soluciones completas para los clientes

Hay tres maneras de lograr la solución total al cliente:

Redefinir la experiencia con el cliente.

Alterar la relación con los clientes desde el punto de adquisición hasta el final

de la vida del producto o servicio.

Saturn

Disney

Amplitud horizontal.

Proveer un conjunto completo de productos y servicios acerca de las

necesidades del cliente.

Amazon

Wal Mart.

Home Depot

Integración en el cliente. Esto es una forma de outsourcing facilitando

actividades que antes las hacia el cliente.

Dell

Transferir trabajo del cliente a la empresa o de la empresa al cliente.Aquí se transfiere trabajo al cliente a cambio de una reducción de costos.

Autoservicio en las gasolineras

Business

Solutions

Product

Solutions

Knowledge Capital Dynamics

Transactions

Partnering

Working with the customer to jointly

craft business opportunities that

would not have been possible without

a deep mutual understanding / trust

Shaping/ configuring an array of

benefits and features services to

provide the value creating

functionality required by a customer

Selecting/ proposing an “augmented”

product/ service in response to an

expressed customer need

One time sale of a product/ service

The Delta Model | Three Distinct Strategic Options

Option 3: Dominant System

Sistema dominante

• La opción estratégica de “Sistema dominante” tiene el mayor Valor

agregado posible.

• En vez de enfocarse estrechamente en el producto o en el cliente,

la compañía considera a todos los jugadores principales en el

sistema que contribuyen a la creación de valor económico.

• Hay tres condiciones necesarias para crear un sistema dominante:

– Efecto network.

– Feedback positivo

– Efecto de aprendizaje

• La compañía está particularmente preocupada en el desarrollo,

atracción y conservación de los llamados “complementos”.

• Un complemento no es un competidor sino un proveedor de

productos y servicios que mejora directa o indirectamente nuestra

oferta.

Hay tres formas de lograr un sistema dominante:

1. Estándar propietario. Tiene un network extenso de complementadores

dedicados a trabajar para nuestros productos.

2. Intermediación dominante. Una empresa posicionada como

intercambio dominante provee una interface entre compradores y

vendedores, o entre las partes que desean intercambiar informaciónón o

bienes. Cuando este tipo de negocios logran una masa critica es muy

difícil desplazarlos.

3. Acceso restringido. Los competidores son bloqueados de llegar a

los clientes porque el canal tiene capacidad limitada para manejar

múltiples proveedores.

Sistema dominante

Reducción de costos de servir

a clientes o incremento de

ventas / utilidades.

Competencia basada en

economía del cliente:

Costos bajos o

diferenciación.

Competencia basada en

economía del producto.:

SISTEMA

DOMINANTE

MEJOR

PRODUCTO

• “Complementor look in” .

• “Competitor look out”,

• Estándar de Tecnología

propietario.

Competencia basada en

economía del sistema:

SOLUCIONES TOTALES

PARA LOS CLIENTES

The Delta Model | Three Distinct Strategic Options

SUMMARY

The Delta Model

Options for Strategic Positioning

System Lock-In

Total Customer

SolutionsBest Product

Dominant Exchange

Exclusive Channels

Horizontal Breadth

Redefining the

Customer Relationship

Customer

IntegrationDiferentiation

Proprietary Standard

Low Cost

Expanding Your Mindset:

Summary for Strategic Decision Making 1|2 STRATEGIC FOCUS RELEVANT BENCHMARKING

VALUE PROPOSITIONINNOVATION

Extended

EnterpriseProduct

Network

Customers Competitors

Complementors

Customized

product bundle

Standardized

Products

Product & Service Portfolio

Extended by

Complementors

Joint with

Customers

Internal Product

Development

Open Architecture -

Complementors as Key

Expanding Your Mindset:

Summary for Strategic Decision Making 2|2

Extended Suppliers,

the Firm, The Customers

SUPPLY CHAIN CHANNELS

Targeted

Direct

Generic

Mass

Massive | Direct

Internal

System - Extended &

Complementors

Customer &

Supplier Support

THE ROLE OF IT DEGREE OF CUSTOMER BONDING

Potentially

high customer

lock-in

Very SmallDepending on

ProductCharacteristics

Highest! Competitor Lock-Out

Internal

Support

Total Network Support

Incremento de valor agregado

Ventaja de ser el primero:

Atributos.

Servicio.

Precio.

Diseño

Dominante

Producto

Clientes

Look in

Aprendizaje del cliente.

Producto Customizado

Activos Colaterales.

Marcas

Estructura de precios.

Asegurar al

cliente

Producto

Clientes

Distribución del espacio en

el anaquel.

Marcas.

Innovaciones implacables.

Patentes.

Bloquear a la

competencia

Producto

Clientes

Distribuidores/ Proveedores

Desarrollo de redes de complementos de 3as

partes para incrementar el atractivo del

producto.

Posición de apalancamiento como líder en

participación de mercado en la atracción de

complementos.

Los clientes buscan los productos que tenga

el mayor numero de complementos.

Algunas veces los clientes pueden ser el

complemento, como en el caso de

intercambios.

Retro

alim

enta

ció

n

positiv

a

Estándar

propietario

Complementos

Producto

Clientes

Valor agregado

SISTEMA DOMINANTE

MEJOR PRODUCTO

SOLUCIONES TOTALES PARA

EL CLIENTE

Integración en los clientes

Amplitud Horizontal

Redefinición de la

experiencia del

cliente

Diferenciación

Costos bajos

Estándar PropietarioIntercambio Dominante

Acceso Restringido

Complementos

Producto

Clientes

Producto

Clientes

Producto

Clientes

Competencia basada en economía

del cliente:

Reducir costos de clientes o

incrementar su rentabilidad

Competencia basada en economía

del producto:

Costos bajos o

diferenciación

Competencia basada en economía del sistema:

Aseguramiento de complementos, bloqueo de la

competencia, estándar propietario.

THE CHALLENGES TO

TRANSFORM THE

ORGANIZATION FROM BEST

PRODUCT TO TOTAL

CUSTOMER SOLUTIONS

1. Fight the product-centric mindset

The Best Product Positioning is not necessarily

the most profitable or best way to serve your

customer.

2. The transformation is not straightforward

The alternative to a Best Product positioning are not

always easy to define or to accept .

(The case of Codelco and the International Copper Assoc.)

3. You have to redefine the game you are playing.

It is not that your products are unimportant; it is not that

you should ignore the efficiency of product delivery - it is

simply that often this is not enough.

(The case of CSN.)

Transforming the focus of the CSN Organization

From Support Units To Strategic Marketing Units

• Steel (e.g. processor, • Automotive

rerollers, etc.) • Civil construction

• Export • House appliances

• Mining • Packaging

• Energy

• Ports

4. The Challenge: “Commodities only exist

in the minds of the inept.”

Product differentiation, as technology gets more

mature, is very hard to achieve. If your product

becomes a commodity, you are deprived from

superior financial performance, from serving your

customer splendidly, and from having fun. (You

violate the three tenets.)

Do not sell products; sell customer solutions:

customization, learning, and services bundled with

products as a unique customer offering. (The Case

of National Starch).

Use all the corporate capabilities supported by key

complementors. This is a corporate strategy. (The

case of Siemens USA.)

Premium Products

Specialty Products

Specification Products

Competitive Driving ForcesProduct Differentiation

Product

Technology

Source: Castrol

Competitive Driving ForcesProduct Differentiation

Source: Castrol

“The technology is mature …

less opportunity to differentiate”

Before Future

Serv

ice

s

Source: Castrol

Competitive Driving ForcesService Differentiation

Significantly Differentiated

Occasionally Differentiated

Responsive

Minimum Required to Maintain Businesses

Competitive Driving ForcesService Differentiation

“Customers are demanding

more than just products”

Before Future

Source: Castrol

5. De-commoditize your customer.

1. Start with segmentation:

segment your markets,

your customers,

your customers’ customers, and

customers’ attitudes (productivity, cost, and price

consciousness). (The case of Castrol.)

2. Do not treat every customer equally.

You could not and should not provide everyone the

same degree of attention.

3. Select your customers.

4. Do not let your customers select you.

Market Segmentation: BEFORE

Food &

Beverage

Mining

Glass Cement

Sugar

Pulp &

Paper

TextileWood

Source: Castrol

Productivity Conscious Customers

Market Segmentation: AFTER

These customers are

conscious of total costs

and new production

yields higher sales

Source: Castrol

Cost Conscious Customers

Market Segmentation: AFTER

Source: Castrol

These customers are conscious of total costs but

new production does not necessarily yield higher

sales or economies of scale

Price conscious customers

Market Segmentation: AFTER

Source: Castrol

These customers

are not necessarily

conscious of total

costs and generally

buy on price/unit

6. Rethink the customer engagement process.

You are not selling products by the ton, or by the

gallon, or by the drum.

You are selling documented improvements in your

customer costs and productivity.

Use an executive team as part of the customer

management process.

“Sales are too important to be left to the sales force.”

(The case of Castrol.)

What is Castrol Logic?

A customized lubrication solution involving

products and services that results in documented:

Cost Reductions & Productivity Improvements

Customer ExperienceHow do we deliver cost savings?

Source: Castrol

Documentation

Client Engagement

Process

Continuous

Improvement

Initial Information

Exchange

Management

Survey

ProposalImplementation

7. Prevent the customer from commoditizing you.

Your customers might feel they benefit from

standardizing the product offering of their suppliers,

and move the bargaining power in their favor.

The problem is “You get what you pay for.”

(The case of Eastman Chemicals Coating Business.)

Case: The Paint and Coating Industry

Paint and Coating

Manufacturers

Distributors

Eastman Chemicals End Users

Tier 1- Preferred strategic

solution seekers

Tier 2- Large price

seekers

Tier 3- Least attractive

price seekers

Tier 4- Local

manufacturers

Tier 5- Specific targeted

companies

Tier 1- Full alignment with EC

Tier2- Large power bargainers

Tier 3- Fragmented local

agents

Tier 4- Specialty distributors

• Architectural

• Automotive

• Industrial maintenance

• Building products

• Appliances

• Metal office furniture

• Solvents

• Resins

• Additives

• Colorants

8. Channels are essential, they “own” the customers.

Ownership or control of the channels is

critical to the pursuit of a Total

Customer Solutions strategy.

Generic channels are only effective for

the “average customer. They are

unsatisfactory for the very poor and the

very rich. (The case of Hindustan

Lever and Unilever de México.)

If you cannot own the channels, use a

“pull” strategy. (The case of Unilever

Bestfoods Food Service.)

The Food Service Industry

Unilever Bestfoods

Food Service Distributors Operators Final Consumer

• Corporate broad line

(e.g. Sysco)

• Specialized

distributors

• Other

national,regional and

local distributors

Tier 1- 100 chains

Tier 2/3- 1500 chains

Tier 4/5- Thousands of

independents

push

pull

9. Use technology wisely: This is a very hard task.

Joint development with our customers is an effective

mechanism to get customer lock-in.

Product technology is not enough, add service technical

support.

Effective IT infrastructure is imperative: e-Business

allows the implementation of the integrated value chain,

e-Commerce allows access to massive fragmented

customers.

Technology-based system lock-in is very hard to achieve,

if you can do it is a dream. (The case of Advanced Micro

Devices.)

10. Beware of the organizational structure implications

You have to change dramatically

the way you manage, assign

responsibilities, reward people,

monitor the business progress,

and most important, the way you

“sell”. (The case of Motorola

Semi-Conductors.)

THE DELTA PROJECT:

DISCOVERING NEW SOURCES OF

PROFITABILITY IN A NETWORKED ECONOMY

Arnoldo C. Hax and Dean Wilde

Palgrave, 2001

http://www.palgrave.com

http://www.amazon.co.uk