THE CHALLENGES TO TRANSFER THE ORGANIZATION FROM BEST PRODUCT TO TOTAL CUSTOMER SOLUTIONS

1
The Delta Model Discovering New Sources of
Profitability in a Networked Economy
Arnoldo C. Hax
2
THE TENETS OF STRATEGY

• The Creation of Economic Value
• The Development of Customer Bonding
• The Achievement of the Spirit of Success

3
Customer Bonding - The Driving Force in Strategy
4
The Delta Model - Three Distinct Strategic Options
System Lock-In System Economics Monopolistic Power
Total Customer Solutions Customer
Economics Cooperation
Best Product Product Economics Rivalry
5
The Triangle Options for Strategic Positioning
System Lock-In
Dominant Exchange eBay, Yellow Pages
Proprietary Standard Microsoft, Intel
Exclusive Channel Walls
Low Cost Southwest Airlines, Nucor
Horizontal Breadth MCI Worldcom
Best Product
Total Customer Solutions
Customer Integration EDS
Differentiation Sony Wega
Redefining the Customer Relationship Saturn
6
Expanding Your Mindset
Strategic Focus
Relevant Benchmarking
Value Proposition
The Network
Complementors
Portfolio of Products and Services Extended by
Complementors
Customized Bundle of Products Services
Standardized Products
Extended Enterprise
Product
Customers
Competitors
Supply Chain
Channels
Innovation
System - Extended Complementors
Massive Direct
Open Architecture - Complementors as Key
Extended - Suppliers, the Firm, The Customers
Internal
Targeted Direct
Generic - Mass
Joint with Customers
Internal Product Development
7
The Role of IT
The Degree of Customer Bonding
Total Network Support (e.g. e-system)
The Highest - Competitor Lock-Out
Very Small - Depending on Product Characteristics
Potentially High -Customer Lock-In
Customer Supplier Support (e.g. B2B, B2C)
Internal Support (e.g. SAP)
8
THE CHALLENGES TO TRANSFORM THE ORGANIZATION FROM
BEST PRODUCT TO TOTAL CUSTOMER SOLUTIONS
9
1. Fight the product-centric mindset
The Best Product Positioning is not
necessarily the most profitable or best way to
serve your customer
10
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.)
11
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
12
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.)
13
Competitive Driving ForcesProduct Differentiation
Product Technology
Premium Products
Specialty Products
Specification Products
Source Castrol
14
Competitive Driving ForcesProduct Differentiation
The technology is mature less opportunity to
differentiate
Before
Future
Source Castrol
15
Competitive Driving ForcesService Differentiation
Services
Significantly Differentiated
Occasionally Differentiated
Responsive
Minimum Required to Maintain Businesses
Source Castrol
16
Competitive Driving ForcesService Differentiation
Customers are demanding more than just products
Before
Future
Source Castrol
17
5. Decommoditize your customer.
Start with segmentation segment your markets,
your customers, your customers customers, and
customers attitudes (productivity, cost, and
price consciousness). (The case of Castrol.)
Do not treat every customer equally. You could
not and should not provide everyone the same
degree of attention. Select your customers. Do
not let your customers select you.
18
Market Segmentation
Cement
Glass
Sugar
Mining
Pulp Paper
Textile
Wood
Food Beverage
Source Castrol
19
Market SegmentationPrimary Target Segment
These customers are conscious of total costs and
new production yields higher sales
Productivity Conscious Customers
Source Castrol
20
Market SegmentationSecondary Target Segment
These customers are conscious of total costs but
new production does not necessarily yield higher
sales or economies of scale
Cost Conscious Customers
Source Castrol
21
Market SegmentationThe Least Desirable Segment
These customers are not necessarily conscious of
total costs and generally buy on price/unit
Price Conscious Customers
Source Castrol
22
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.)
23
What is Castrol Logic? A customized lubrication
solution involving products and services that
results in documented Cost Reductions
Productivity Improvements
24
Customer ExperienceHow do we deliver cost
savings?
Client Engagement Process
Initial Information Exchange
Continuous Improvement
Documentation
Management Survey
Implementation
Proposal
Source Castrol
25
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 isYou get what you pay for.
(The case of Eastman Chemicals Coating Business.)
26
The Paint and Coating Industry
Paint and Coating Manufacturers
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
Eastman Chemicals
End Users
Architectural Automotive Industrial
maintenance Building products Appliances
Metal office furniture
Solvents Resins Additives Colorants
Distributors
Tier 1- Full alignment with EC Tier2- Large power
bargainers Tier 3- Fragmented local agents Tier
4- Specialty distributors
27
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.)
28
The Food Service Industry
push
Unilever Bestfoods Food Service
Distributors
Operators
Final Consumer
pull
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
29
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.)
30
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.)
31
The Delta Model Framework
32
Reinterpreting Porters five forces through the
Delta Model
33
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