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Tue, Jan 1, 2019 @ 09:30 AM
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As a business coach and strategist, I use many concepts to help companies develop the most effective plans for profitable growth. Some of the most common ones are Brand Promise, Sandbox, Hedgehog and Big Hairy Audacious Goal – BHAG. Using these tools helps you define and develop a vision for the future and focus on where and what you will sell to your defined audience. Another concept I use to help them develop their plan is the concept of Strategic Direction. The process I use is based on the work of Treacy and Wiersema from their book The Discipline of Market Leaders. I actually had the pleasure of meeting Fred Wiersema several years ago at Penn State University while attending the International Study of Business Markets conference held there. This book makes it onto my top 20 favorites business books list.
According to Treacy and Wiersema, “What’s needed in response to the new competition is focus and discipline - unprecedented focus and discipline –to define an unmatched value proposition, build an operating model, and sustain it through constant transformation and improvement.”
2. Product Leadership
3. Customer Intimacy
So, what is your business model and strategic direction? Does your value proposition position you to be the best in your sandbox? Can you be the best in the world at what you do? Does your model align with your Profit/X and drive your economic engine?
The whole concept of encouraging companies to choose their customers carefully, narrow their focus, and dominate their market aligns perfectly with what we teach and coach at Rhythm Systems and with the Rockefeller Habits. Competition is fierce today and understanding your central business strategy is essential to being a leader in your market.
According to Treacy and Wiersema, “What’s needed in response to the new competition is focus and discipline - unprecedented focus and discipline –to define an unmatched value proposition, build an operating model, and sustain it through constant transformation and improvement.”
There is a lot of substance in the above quote, and I could not agree more that in order to win today, you need to do everything well, focus on your core, refine your model and direction, and continuously strive to blow up your existing business model and paradigms and create new opportunities for high margin growth.
Different customers and markets buy different kinds of value. Understanding what your company can be the best in the world at and can execute most effectively on can set you apart from the competition. Defining the company’s strategic direction also defines the operating model and the nature of how the company will function.
There are three primary value disciplines:
1. Operational Excellence2. Product Leadership
3. Customer Intimacy
{Image from The Discipline of Market Leaders book}
At first glance, you might be thinking that you need to do all of these well. I would agree that executing at a baseline level on all three of these are table stakes that every business must meet today. Meeting the baseline is expected by customers, but to truly excel, you must choose a business model that will allow you to dominate your industry and execute in this area at a level much deeper than the others. Let’s take a closer look at what each strategic direction and value discipline means.
Operational Excellence –
Best total cost - these companies deliver a combination of quality, price and delivery that others can’t match. A company that uses Lean principles to develop a business model that manufactures products at the lowest cost in the industry and delivers faster than the competition would be a good example of a company using this strategy. I worked with a wood products manufacturer that used this approach to redefine their business model and put themselves on a gazelle-like pace for growth. Industry turn-times were typically 6-8 weeks in their market and products were manufactured in a batch environment. They implemented cellular manufacturing techniques, reduced their costs, and set groundbreaking delivery times of 5 days at a cost the competition could not match.
Product Leadership –
Best product - a company pursuing product leadership bases its business model on innovation by developing new products at breakneck speed and finding solutions to problems the market does not realize exist. The goal is to offer the newer and best products to the market. This type of company possesses a high degree of creativity, a robust product development process, the ability to commercialize, and the willingness to make their own products obsolete. Think Apple, Samsung or 3M. 3M is probably one of my favorite examples in that their goal is to create 30% of their annual sales from products that did not exist four years ago. This company takes innovation seriously and allow employees the free time to work on their own ideas.Customer Intimacy –
Best total solution - a company pursuing this strategy builds deep bonds with customers and understands their needs and businesses at a very deep level. Some even go so far as to place employees in their customers’ facilities as liaisons between the two companies. Others let employees at all levels engage with their customers to best understand and serve their needs. These companies are not so much market focused as they are focused on what a specific company needs and wants. The main ingredient here is the deep relationship that is built and maintained, which in turn drives very low customer turnover. An example comes from a steel company I worked with. They were not going to be the low cost producer in their sandbox and compete with the likes of Nucor, but what they could do was go deeper in understanding what their customers needed. They already had great relationships with their customers, but used the principles of demand integration to learn what value added activities they could provide for their customers to improve their experience and loyalty. By offering more fabrication, powder coating, and packing options, the sale became less dependent on the price per pound of steel and more focused on the total solution being provided. In addition to increasing the services offered, a concerted effort was made to become more integrated into the customers' businesses by having employees visit customers throughout the year to learn more about their businesses and understand their needs so that new, more complete, solutions could be offered.Choosing the right value system is the one key that shapes plans, decisions, strategy, culture, and core competencies. It defines what a company does and, therefore, what it is. If you decide to focus on all three-value areas at once, you create excess managerial complexity, making it difficult to make decisions, resolve conflicts, set priorities, and achieve greatness.
By focusing primarily on the one key value discipline, you can enjoy robust growth and sustained success. You will be able to predict greater profitability and become a market leader in your domain.
So, what is your business model and strategic direction? Does your value proposition position you to be the best in your sandbox? Can you be the best in the world at what you do? Does your model align with your Profit/X and drive your economic engine?
Good luck and let me know your thoughts. Execute well, Alan
Looking for some more information on BHAG to help get you started? Check out our additional Big Hairy Audacious Goal resources:
How To Create Your BHAG: 3 Steps to Discovering, Creating and Putting Your BHAG to Work
What Drives Your Financial Engine? Profit/X Examples
Photo Credit: iStock by Getty Images