THE DELTA MODEL:Discovering New Sources of Profitability in a Networked EconomyArnoldo Hax Alfred P. Sloan Professor of Management
The Tenets of Strategy creation of economic development of customer achievement of the “Spirit of Success”
The Delta Model–Three Distinct Strategic OptionsSystem Lock-In•System Economics•Market Dominance•Achieving ComplementerShareEnabled ThroughEffective Use of TechnologyTotal Customer SolutionsBest Product•Customer Economics•Product Economics•Cooperation•Rivalry•Achieving Customer Share•Achieving Product Share
The Triangle: Options for Strategic PositioningSystem Lock-In Dominant Exchange Proprietary StandardeBay, Yellow Pages Microsoft, Intel Exclusive Channel Enabled rural Wal-Mart ThroughEffective Use Low C ostHorizontal Breadth of Technology Southwest Airlines, Fidelity Nucor Total Customer Best Product Customer Solutions IntegrationEDS Redefining the Differentiation Customer Relationship Sony Wega Saturn
The Challenge to Decommoditization:Transforming the organization from best product to total customer solutions
Transforming the Organization z Change your mindset z The transformation is not straight forwardThe case of Codelco and the International Copper Association Regulators Complementors • Architects • Underground cables • Efficient motors • Construction • Motor producers Business Partners • Suppliers System Lock -In• Contractors Total Customer Solutions Best Product Targeting Key End-Users • Alcatel • Carrier Old Codelco -•KME • General Electric the lowest cost • ABB •Siemens producer •Electrolux
Transforming the Organization z Redefine the game you are playingTransforming the CSN Organization z Decommoditizeyour customer The case of Castrol
What is Castrol Logic? A customized lubrication solution involving products and services that results in documented: Cost Reductions & Productivity Improvements
Transforming the Organization Rethink the customer engagement processClient Engagement Process Initial Information Exchange Continuous Improvement Management Documentation Survey Implementation ProposalSource: Castrol
• The Best Product Positioning is not necessarily the most profitable or the best way to serve your customer.
Segmentation: The Key to Superior Strategy and ManagementSegment everything, but most important segment your customers and consumers (. Unilever Asia). rs CustomeConsumersTier 1. The affluent high LSM (Life styleTier 1. Modern Trade. Established Systemsmanagement) across Asia focusing on Aging,and Business Scale, often International Single/Working Women, and Teenagers Reaction and Conflict Anticipation andCollaboration Satisfy their needs and vitality, Quality Time,Customized Product, and Solutions Tier 2. The middle LSM focused on upwardTier 2. Modern Trade. Smaller, more cash mobility and social migration driven, largely local Upgradation to higher aspirational brands and Shape and Win affordable price Tier 3. Including Retailers, Wholesalers,Tier 3. Lower (but not bottom) LSM, lessDrugstores, Small Retailers affluent emerging consumers in developingparts of the region System Lock-In by being only Supplier to produceECR (Efficiency Customer Response) principles. Purchasing basket primarily of essentials.
Transforming the OrganizationzPrevent the customer from commoditizing youThe case of Eastman Chemicals Coating businesszChannels are essential, they “own” the customersThe case of Hindustan Lever and Unilever de MexicoChannelsMassive Direct (the Case of Hindustan Lever D & E market)System Lock-InTotal Customer SolutionsBest ProductTarget Direct (the Case of Unilever deGeneral Channel/Mass DistributionMexico high segment market)
The Paint and Coating IndustryPaint and Coating Manufacturers Tier 1-Preferred strategic solution seekers Tier 2-Large price seekers Tier 3-Least attractive price seekers Eastman Chemicals End Users Tier 4-Local manufacturers • Solvents • Architectural Tier 5-Specific targeted companies • Resins • Automotive • Additives • Industrial maintenance • Colorants • Building products • Appliances Distributors • Metal office furniture Tier 1-Full alignment with EC Tier2-Large power bargainers Tier 3-Fragmented local agents Tier 4-Specialty distributors
The Food Service Industrypush Unilever Bestfoods Food Service Distributors Operators Final Consumer pull • Corporate broad line Tier 1-100 chains (. Sysco) Tier 2/3-1500 chains • Specialized distributors Tier 4/5-Thousands of • Other national,regional independents and local distributors
Transforming the Organization z Use technology wisely: This is a very hard taskThe case of Advanced Micro Devices Total Network Support Open Architecture -Complementors as Key (. e-system) The The Role of Role of IT InnovationInternal Customer and Internal Joint Product Supplier Support Support with Development (. SAP) (. B2B, B2C) Customers
Transforming the OrganizationBeware of the organizational structure implicationsYou have to change dramatically the way you: manage, assign responsibilities, reward people, monitor the business progress, and most important, the way you “sell” The transformation has to be accomplished by a change in both the front-end as well as the back-end of the organizational structure.
Transforming the OrganizationBeware of the organizational structure implicationsThe back-end should be segmented according to the way we segment Products and Technologies: Administration functions, Supply chain functions,New product development technologies, Process technologies,Information technologies, Functional activities related to product marketing
Transforming the OrganizationBeware of the organizational structure implicationsThe front-end should be segmented according to the way in which we segment the markets: Clients, End-users, Solutions and services,Geographical areas, Functional activities related to customer marketing
Transforming the Organization z Seek System Lock-In Opportunities This is very hard to accomplish; however if successfulthe rewards are enormous
ACHIEVING YOUR POTENTIALThe way to win is not to beat your competitor but to bond with your customers
