Ideas for small business and startups: Value Disciplines Mike | October 13th, 2009

Graduate school was one of the great times of my life: studying something that I absolutely wanted to study and surrounded by a group of folks who felt exactly the same way. Two years in business school went by with rocket-speed, but some of the ideas took root and continue to have an impact on our business. Our strategy, our team, and our values are colored by some of these ideas, and I thought it would be nice to share a few.

In 1993 Michael Treacy and Fred Wiersema published a seminal article on marketing in The Harvard Business Review, “Customer Intimacy and Other Value Disciplines.” This article laid out a new (at that time) framework and argued that the best-run, and most successful businesses tended to follow one of three strategic approaches: Customer Intimacy, Operational Excellence, or Product Leadership. The authors defined the three approaches and illustrated how, in any industry, the market leader had changed the definition of how value was delivered to customers and how customer’s expectations were, as a direct result, re-aligned. If we look at market leaders in any industry, it can easily be demonstrated how that particular company has gained its leadership by being the best at one of these three value disciplines.

Operational Excellence describes a strategy companies pursue to produce and deliver its products to its customers. In order to lead their “industry in price and convenience” companies like Toyota are relentless in their quest for efficiency in manufacturing processes, distribution, and cost control. Toyota’s legendary mission was all about empowering workers to improve processes; working with partners to reduce inventory and delivery times; and streamlining their logistics and distribution chain to increase customer convenience and reduce cost. Toyota organized its entire business around these goals and defined itself as the trend-setter in its industry, offering high quality products at competitive prices in a way that, while widely emulated and oft-imitated, could not be matched by its competitors.

Customer Intimacy is a very different strategy, with companies focused on providing products and services which reflect an exhaustive knowledge of their customer’s expectations and desires. Companies that practice this value discipline strive for continuous improvement and iteration, build feedback loops and create customer support structures, and endeavor to build customer loyalty as a barrier to competition. An example of this is Zappos, the internet retail shoe giant that is celebrated for their customer service and their continual efforts to “surprise and delight” the customer. Zappos is not the cheapest place to buy shoes, but their product selection, return policies, and innovations such as free return shipping have made the company a potent force and a market leader in a relatively short time.

Product Leadership describes a set of tactics centered around producing the very best products and delivering those to customers. Companies that choose this discipline are focused on creating a “continuous stream of state-of-the-art products” and services. These companies constantly innovate, leverage technology, and tend to be the leading creative force in their industry. In pursuing this approach, companies must have the ability to bring new products to market quickly and to identify and solve their customer’s problems through their new offerings. A good example of this approach is Apple, a company that introduces new products which, as often as not, redefine the market itself. It could be argued that Apple is its own biggest competitor, and its continued focus on improving its own ground-breaking products (and its ability to market these) is its greatest strength.

And crowdSPRING? We model ourselves after Zappos and other practitioners of the Customer Intimacy approach. We listen closely to our users and work hard to constantly iterate, add features, improve performance, and provide the best possible user experience. I would love to hear from other small business folks about their own strategic approaches. How would you define your value discipline? Which of these three approaches makes the most sense in your market? How do you boil one of these strategies down to specific tactics?

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