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THE DELTA MODEL

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THE DELTA MODEL Powered By Docstoc
					THE DELTA MODEL:
Discovering New Sources of
Growth and Profitability in a
Networked Economy

                Arnoldo Hax
 Alfred P. Sloan Professor of Management
     The Delta Model –
     Three Distinct Strategic Options
                             System Lock-In
                             • System Economics
                             • Market Dominance
                             • Achieving Complementor Share




                                Enabled
                                Through
                             Effective Use
                             of Technology

Total Customer Solutions                       Best Product
• Customer Economics                           • Product Economics
• Cooperation                                  • Rivalry
• Achieving Customer Share                     • Achieving Product Share
     The Triangle:
     Options for Strategic Positioning
                            System Lock-In

           Dominant Exchange                   Proprietary Standard
            eBay, Yellow Pages                 Microsoft, Intel

      Exclusive Channel        Enabled
           rural Wal-Mart      Through
                            Effective Use
                                                          Low Cost
Horizontal Breadth          of Technology                 Southwest Airlines,
            Fidelity
                                                            Nucor

   Total Customer                 Customer               Best Product
         Solutions               Integration
        Redefining the               EDS             Differentiation
 Customer Relationship                               Sony Wega
                 Saturn
                                                                                                                                               Delta Model Strategies




                                                                      Positions                                                   Definition                                                                               Comments




Delta Model Strategies

                                                              Best Product                                                                                          Centered on product economies



                                                                                  Low cost                                                                    product
                                                                                               Focus on being the lowest cost provider in an undifferentiated product                                                                                       leaves
                                                                                                                                                                                              Since there is only one lowest cost producer, this strategy leaves
                                                                                                                                                                                              Since
                                                                                               category                                                                                       very little space as a competitive position. It also tends to
                                                                                                                                                                                                   little
                                                                                                                                                                                              standardize the product offering, commoditize the customer, and
                                                                                                                                                                                              intensify rivalry.



                                                                             Differentiation   While maintaining effective production economies focus on key                                  The problem with this strategic position is that as soon as the
                                                                                               differentiation in the product features and functionalities such that the                                                                                   them.
                                                                                                                                                                                              differentiated product emerges, competitors tend to imitate them. An
                                                                                               products are uniquely desired and command price premiums                                                                          non-
                                                                                                                                                                                              competitive advantage is therefore non-sustainable.



                                                              Total Customer Solutions                                                                              Oriented to customer economics



                                                                   Redefining the customer                                                                 customer
                                                                                               A focus is places on considering the full experience of the customer from the                  This positioning is based upon an intimate knowledge of he
                                                                                experience                                                               ownership
                                                                                               point of acquisition through to the complete lifecycle of ownership of the                     customer base leading toward an effective customer segmentation
                                                                                               product                                                                                        and a differentiated treatment of the customer tiers.




                                                                        Horizontal Breadth     A complete set of product and service offerings that fulfill the entire customer               We are seeking a dominant position in “share of the wallet of the
                                                                                                                                                                                              We
                                                                                                                                   One-
                                                                                               need are customized and provided. “One-stop shopping for a unique                              customer.”
                                                                                                                                                                                              customer.”
                                                                                               solution.”
                                                                                               solution.”



                                                                      Customer Integration                                                                    activities
                                                                                               This strategy seeks to effectively substitute for or leverages activities                      The firm is regarded as a bundle of competencies that will be
                                                                                                                                                                                              The
                                                                                                                                                              extreme
                                                                                               currently performed by the customer. It is outsourcing in its extr eme form and
                                                                                                                                                                           and                brought to the customer to enhance the customer economics.
                                                                                                                                                             customer
                                                                                               at least represents a complex web of connections with the customer that
                                                                                               enhance their ability to do business and to use your product.




                                                                     Lock-
                                                              System Lock-In                                                                                     Focuses
                                                                                                                                                                 Focuses on complementor economics



                                                                        Restricted Access                  barriers                                         co petitors
                                                                                               Significant barriers are in place that make it difficult for competitors to even                                                                       Regulatory
                                                                                                                                                                                              This is a difficult position to achieve and to sustain. Regulatory
                                                                                               compete for the acquisition of customers.
                                                                                                        f or                                                                                  practices tend to be deployed to prevent it.



                                                                      Dominant Exchange        With this strategy the company provides an interface between buyers and                                                                          lock-
                                                                                                                                                                                              This is the most accessible of all of the systems lock-in options.
                                                                                                                                                                                              This
                                                                                                                                                              mass.
                                                                                               sellers that s very hard to displace once it achieves critical mass.                           The first mover advantage is critical.



                                                                      Proprietary Standard                                                                     network
                                                                                               The customer is drawn to your product because of the extensive network of                            option isn’
                                                                                                                                                                                              This option is ’t available in most industries. If it can be achieved
                                                                                               third party complementors that are designed to work with your product.                         the rewards are enormous.




Best Product                          Centered on product economies
       Low cost Focus on being the lowest cost            Since there is only one lowest
                provider in an undifferentiated           cost producer, this strategy
                product category                          leaves very little space as a
                                                          competitive position. It also
                                                          tends to standardize the product
                                                          offering, commoditize the
                                                          customer, and intensify rivalry.

   Differentiation While maintaining effective            The problem with this strategic
                   production economies focus on key      position is that as soon as the
                   differentiation in the product         differentiated product emerges,
                   features and functionalities such      competitors tend to imitate
                   that the products are unique desired   them. An competitive advantage
                   and command price premiums             is therefore non-sustainable.
                                                                                                                                                       Delta Model Strategies


                                                                                 Positions                                                     Definition                                                                                Comments




  Delta Model Strategies
                                                                        Best Product                                                                                             Centered on product economies



                                                                                              Low cost                                                                    product
                                                                                                           Focus on being the lowest cost provider in an undifferentiated product                                                                                         leaves
                                                                                                                                                                                                            Since there is only one lowest cost producer, this strategy leaves
                                                                                                           category                                                                                         very little space as a competitive position. It also tends to
                                                                                                                                                                                                            standardize the product offering, commoditize the customer, and
                                                                                                                                                                                                            intensify rivalry.
                                                                                                                                                                                                            intens ify



                                                                                         Differentiation                                                                      differentiation
                                                                                                           While maintaining effective production economies focus on key differentiation
                                                                                                           W hile                                                                                           The problem with this strategic position is that as soon as the
                                                                                                                                                                     products
                                                                                                           in the product features and functionalities such that the products are unique                                                                                 them.
                                                                                                                                                                                                            differentiated product emerges, competitors tend to imitate them. An
                                                                                                           desired and command price premiums                                                                                                  non-
                                                                                                                                                                                                            competitive advantage is therefore non-sustainable.



                                                                        Total Customer Solutions                                                                                 Oriented to customer economics



                                                                             Redefining the customer                                                                   customer
                                                                                                           A focus is places on considering the full experience of the customer from the                    This positioning is based upon an intimate knowledge of the
                                                                                          experience                                                                 ownership
                                                                                                           point of acquisition through to the complete lifecycle of ownership of the                       customer base leading toward an effective customer segmentation
                                                                                                           product                                                                                          and a differentiated treatment of the customer tiers.




                                                                                  Horizontal Breadth       A complete set of product and service offerings that fulfill the entire customer                 We are seeking a dominant position in “share of the wallet of the
                                                                                                                                                                                                            We
                                                                                                                                                One-
                                                                                                           needs are customized and provided. “One-stop shopping for a unique                               customer.”
                                                                                                                                                                                                            customer.”
                                                                                                           solution.”
                                                                                                           solution.”



                                                                                Customer Integration                                                                      activities
                                                                                                           This strategy seeks to effectively substitute for or leverages activities currently              The firm is regarded as a bundle of competencies that will be
                                                                                                                                                                                                            The
                                                                                                                                                                         form
                                                                                                           performed by the customer. It is outsourcing in its extreme form and at least                    brought to the customer to enhance the customer economics.
                                                                                                                                                                                enhance
                                                                                                           represents a complex web of connections with the customer that enhance their
                                                                                                                                                             the
                                                                                                           ability to do business and to use your product.




                                                                               Lock-
                                                                        System Lock-In                                                                                        Focuses on complementor economics



                                                                                   Restricted Access                                                                    competitors
                                                                                                           Significant barriers are in place that make it difficult for competitors to even                                                                         Regulatory
                                                                                                                                                                                                            This is a difficult position to achieve and to sustain. Regulatory
                                                                                                           compete for the acquisition of customers.                                                        practices tend to be deployed to prevent it.



                                                                                 Dominant Exchange         With this strategy the company provides an interface between buyers and
                                                                                                           W ith                                                                                            This is the most accessible of all of the systems lock--in options. The
                                                                                                                                                                                                            This                                              lock
                                                                                                                                                                          mass.
                                                                                                           sellers that s very hard to displace once it achieves critical mass.                             first mover advantage is critical.



                                                                                 Proprietary Standard                                                                      network
                                                                                                           The customer is drawn to your product because of the extensive network of                                    isn’
                                                                                                                                                                                                            This option isn’t available in most industries. If it can be achieved
                                                                                                           third party complementors that are designed to work with your product.                           the rewards are enormous.




Total Customer
                                              Oriented to customer economics
Solutions
    Redefining the A focus is placed on considering the full      This positioning is based upon an
        customer experience of the customer from the point of     intimate knowledge of the customer
       experience acquisition through to the complete lifecycle   base leading toward an effective
                   of ownership of the product                    customer segmentation and a differen-   -
                                                                  tiated treatment of the customer tiers.
Horizontal Breadth A complete set of product and service          We are seeking a dominant position in
                   offerings that fulfill the entire customer     “share of the wallet of the customer.”
                   needs are customized and provided. “One-
                   stop shopping for a unique solution.”
        Customer This strategy seeks to effectively substitute    The firm is regarded as a bundle of
       Integration for or leverages activities currently          competencies that will be brought to
                   performed by the customer. It is               the customer to enhance the customer
                   outsourcing in its extreme form and at least   economics.
                   represents a complex web of connections
                   with the customer that enhance their ability
                   to do business and to use your product.
                                                                                                                                                  Delta Model Strategies




 Delta Model Strategies
                                                                      Positions                                                      Definition                                                                                  Comments



                                                             Best Product                                                                                               Centered on product economies



                                                                                   Low cost                                                                    product
                                                                                                Focus on being the lowest cost provider in an undifferentiated product category                    Since there s        one owest
                                                                                                                                                                                                   Since there iis only one llowest cost producer, this strategy leaves very
                                                                                                                                                                                                                                                                 lea es
                                                                                                                                                                                                                                                            standardize
                                                                                                                                                                                                   little space as a competitive position. It also tends to standardize the
                                                                                                                                                                                                                                                                rivalry.
                                                                                                                                                                                                   product offering, commoditize the customer, and intensify rivalry.



                                                                              Differentiation                                                                     differentiation
                                                                                                While maintaining effective production economies focus on key differentiation in
                                                                                                W hile                                                                                             The problem with this strategic position is that as soon as the
                                                                                                the product features and functionalities such that the products are unique                                                                                      them.
                                                                                                                                                                                                   differentiated product emerges, competitors tend to imitate them. An
                                                                                                desired and command price premiums                                                                                                    non-
                                                                                                                                                                                                   competitive advantage is therefore non-sustainable.



                                                             Total Customer Solutions                                                                                   Oriented to customer economics



                                                                   Redefining the customer                                                                  customer
                                                                                                A focus is places on considering the full experience of the customer from the                                                                                 customer
                                                                                                                                                                                                   This positioning is based upon an intimate knowledge of he customer
                                                                                experience                                                                ownership
                                                                                                point of acquisition through to the complete lifecycle of ownership of the product                 base leading toward an effective customer segmentation and a
                                                                                                                                                                                                   differentiated treatment of the customer tiers.



                                                                        Horizontal Breadth      A complete set of product and service offerings that fulfill the entire customer                   We are seeking a dominant position in “share of the wallet of the
                                                                                                                                                                                                   We
                                                                                                                          provid ed. One-                                 solution.”
                                                                                                need are customized and provided. “One-stop shopping for a unique solution.”                       customer.”
                                                                                                                                                                                                   customer.”



                                                                      Customer Integration                                                                     activities currently
                                                                                                This strategy seeks to effectively substitute for or leverages activities currently                The firm                  bundle
                                                                                                                                                                                                   The firm is regarded as a bundle of competencies that will be brought
                                                                                                                                                                                                                                                                 b ought
                                                                                                                                                              form
                                                                                                performed by the customer. It is outsourcing in its extreme form and at least                      to the customer to enhance the customer economics.
                                                                                                                                                                     enhance
                                                                                                represents a complex web of connections with the customer that enhance their
                                                                                                                                                  the
                                                                                                ability to do business and to use your product.



                                                                    Lock-
                                                             System Lock-In                                                                                          Focuses on complementor economics



                                                                         Restricted Access                                                                   competitors
                                                                                                Significant barriers are in place that make it difficult for competitors to even                                                                           Regulatory
                                                                                                                                                                                                   This is a difficult position to achieve and to sustain. Regulatory
                                                                                                compete for the acquisition of customers.                                                          practices tend to be deployed to prevent it.



                                                                       Dominant Exchange        With this strategy the company provides an interface between buyers and sellers
                                                                                                W ith                                                                                              This is the most accessible of all of the systems lock--in options. The
                                                                                                                                                                                                                    acc ess ible                     lock
                                                                                                that is very hard to displace once it achieves critical mass.                                      first mover advantage is critical.



                                                                      Proprietary Standard                                                                     network
                                                                                                The customer is drawn to your product because of the extensive network of third                                isn’
                                                                                                                                                                                                   This option isn’t available in most industries. If it can be achieved the
                                                                                                party complementors that are designed to work with your product.                                   rewards are enormous.




System Lock-In                     Focuses on complementor economics
      Restricted Significant barriers are in place that   This is a difficult position to
        Access make it difficult for competitors to       achieve and to sustain.
                 even compete for the acquisition of      Regulatory practices tend to be
                 customers.                               deployed to prevent it.
      Dominant With this strategy the company             This is the most accessible of all
      Exchange provides an interface between              of the systems lock-in options.
               buyers and sellers that is very hard       The first mover advantage is
               to displace once it achieves critical      critical.
               mass.
     Proprietary The customer is drawn to your            This option isn’t available in
       Standard product because of the extensive          most industries. If it can be
                 network of third party                   achieved the rewards are
                 complementors that are designed to       enormous.
                 work with your product.
The Challenge to
Decommoditization:

Transforming the organization
from best product to total
customer solutions, while seeking
opportunities for System Lock-In.
  Central Lessons

If the heart of strategy is the customer, an appropriate
customer segmentation and a creative value
proposition is often the most important critical step in
strategic thinking. Be creative, be bold, be fast
The winning formula is to have the overall network as
your primary scope. Don’t play the game alone. It is
not just you serving the customer. It is you, your
critical suppliers and the key complementors. In a
large, diversified corporation often the most important
complementors are in your own firm.
From the Customer Segmentation to Strategic
                 Agenda
                                     Value Proposition

                                                                    Bundle of Competencies
                                                                                       System
                                                                                       Lock-In




     Strategic Positioning
                                                                    Total Customer                   Best Product
                                                                       Solution




              1
          2                                                                          Mission Statement
      5       3   6   4
                                                                                                 Scope
        Customer
                                                                                      “From”             “To”
      Classification


                                                                    Strategic Thrusts
                             Customer Segment
                             Tier 1: Exclusive Partner
                             Tra
                             Tier 2: Strategic/Integrated Partner
                             Tier 3: Project Solution Seekers
                             Tier 4: Body Shoppers

				
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