Wednesday, January 25, 2006


3 Value disciplines

For those of you in IS714, we have an optional reading assignment by Michael Treacy and Fred Wiersema called "Customer Intimacy and Other Value Disciplines". Strangely, I found that the content overlapped with our Ford vs. Toyota class discussion. The authors speak about a value triangle (similar to the project management: cost, time and functionality triangle) that is comprised by three values: operational excellence, customer intimacy and product leadership. The theory is that because you can only be a slave to one master, you can only excel at one value (it is a rare company that excels at two). However, you must meet industry standards on the other two values or you will be at a disadvantage to your competition. In order to excel on one value, everything you do with your company must be built to support that one core value. After introducing the three Values, the authors go on to compare and contrast a few companies and even describe the types of customers that each value will appeal to (price - operational excellence, personal taste - customer intimacy, trends - product leadership).

When you compare this reading to our Ford vs. Toyota discussion you can see that operation excellence is a concept from the industrial age. You identify a product, you build a process and you refine that process until the operation runs smooth as silk. Operational excellence drives efficiency, which should drive low cost production. Ford is (or was) in this realm.

A consumption centric approach however is more centered on Customer Intimacy. The article describes how, if you can understand your customer you can better meet their needs. This concept is still valid but it may have evolved over the past 10 years. In today's environment, maybe a better practice would be to create a situation where your customers tell you their needs and help other customers with their needs.

We could argue that Toyota was able to shift to Customer Intimacy because their company wasn't as tied to operational excellence as Ford was, but that may not be entirely true. Maybe Toyota was built to be a Product Leader, developed an operational excellence that enabled them to be a product leader and just stumbled on Customer Intimacy as a by product. After writing this I am not really sure anymore.

However, one thing I am still sure of is that concept of dominance in one area can make it difficult to shift to another. If your systems and support structures are built to perform one function and perform it really well, even if you are able to read the "weak" signals, you may not be able to shift gears fast enough.


Here is snipet of the article I mentioned (it was published in the Jan-Feb 1993 edition of the Harvard Business Review):

it is funny that one of the authors tenants for Customer Intimacy is too put decision making power in the "hands of an employee who is close to the customer". In contrast, Network Era companies have gone one step further and put the decision making power in the customer's hands.
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