2.1.2 Value Proposition: Business Excellence – What it Means, What it Looks Like, How it is Achieved

2.1.2 The Value Proposition, supported by prioritised value disciplines, will keep companies away from being “trapped in the middle”

Sitting in a my first marketing theory and practice tutorial, the first concept I heard from the animated lecturer was to avoid being “trapped in the middle”. My first reaction was to ask, "In the middle of what?" because the meaning was not immediately obvious to me. In simple terms it means not having anything outstanding or unique that is attractive to a specific group of customers. For example, how often have you seen advertisements or heard promises along the lines of, "We cater for all “tastes", or "We offer a wide range of products to suit any needs", or ... I'm sure you can fill in many more examples. Sounds silly, doesn’t it? However in desperation and ignorance, companies will try and sell everything to everyone, and then wonder why their sales patterns are unmanageable and unpredictable.

The early proponent of structuring for competitive advantage was Michael Port[1] who proposed three generic strategies based on either differentiation or cost leaderships; and, communicating with potential customers either via a broadcast or a narrow (niche) focus. One of his quotes I use often is, “… if a firm is to attain a competitive advantage, it must make a choice … being “all things to all people” is a recipe for strategic mediocrity …”. Once that “choice” is made, it then needs to be "hardwired" to a delivery structure, which Porter describes as the Value Chain for creating sustainable margin generation.

In the mid 90s, Treacy and Weisema published, “The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market”, which as the title suggests, takes Michael Porter’s original model to the next level of sophistication. The discipline in developing this approach is to take and own a position in the market, which Porter called competitive advantage. The starting point is identifying the company's unique Value Proposition, and then analysing and defining products and services, in terms of attributes, in terms of who buys it, and, in terms of what makes it unique. At this point, many companies mess it up. They allow subjectivity and exceptions to dilute the focus and discipline, and take on an attribution mindset, which is where managers create a self-limiting mindset of a tendency to downplay the competitors' and customers' attributes of others, and enhance the attributes of one self. This is called attribution bias, and while it might result in the creation of a "common enemy" to deride, it will also to sub-optimising the needed focus and discipline until it is too late.

Once a tight Value Proposition is defined, the supporting “value disciplines” need to be defined and prioritised. The value disciplines are:

1.      Operational Excellence: sometimes referred to as cost leadership; it is about offering the best value (not necessarily the cheapest price) products and services. A good example would be McDonalds. While I’m a vegetarian, the value McDonalds offered me when I was “on the road” as a young medical representative, was ample parking, clean rest rooms, air conditioned premises, reasonable coffee, and a stay-as-long-as-you-like attitude to customers. The key characteristics are high focus on process discipline, minimising the range of product offerings, which are virtually identical around the World, and effectively getting to a very large audience though a huge geographic coverage.

2.      Product Leadership: this refers to striving to produce the best product … full stop! A good example is Apple. It is a quality product inside and out, the software “just works”, it has a medium breadth of offerings, and commands a higher price for their products. Their focus is on innovation and creating a moderate number of offerings to a specific audience.

3.      Customer Intimacy: this is not to be confused with a customer-centric focus. Customer Intimacy means that the company is striving to produce a product of one per customer. Examples of companies in this space are bridge and construction companies, consulting firms, and the Morgan Motor Company. The products that these companies make are genuinely unique per customer or situation, and it may never get produced in that form ever again. Their focus is on a small number of customers who are after something very specific and are willing to pay very high prices.

Similar to Porter, the company must focus on one discipline, but it must also have a baseline proficiency in the other two disciplines. A good example is Singapore Airlines[2], which is focused on Customer Intimacy, with a second focus of Operational Excellence, and a baseline proficiency in Product Leadership.

Most people remember well 9/11 for the obvious reason, but there was also another big catastrophe that occurred in my life that same week. I was in Auckland and trying to figure out whether I was going to be able to get a flight home after 9/11, when I received the news that my preferred carrier, Ansett Airlines, had suddenly ceased trading. Apart from losing more than a million frequent-flier points, I was stuck in Auckland indefinitely.

The details behind the collapse are complex and still opaque. For me however, Ansett were fantastic, being as Customer Intimate as any airline at that time, but apparently with a fundamental flaw in their Operational Excellence capability, especially at a time when many low-cost airlines were starting to make inroads into the industry. The lesson is that focus on one discipline is critical, but the other two have to have at least baseline proficiency.

Once the Value Discipline priority has been decided, the organisation then needs to line up behind it. Singapore Airlines has a 4-3-3 principle – annual spending is 40% training, 30% revising process and procedures, and 30% on creating new products and services – so you could say their value discipline priority is 1-2-2. This fits neatly into the Oliver Wight model of People and Behaviours, Processes, and Tools, which need to be specifically aligned to the Value Discipline priorities.

If you are thinking that this is a bit too simplistic, consider a few companies. Let’s go back to McDonalds and Apple. Imagine going into both stores and paralleling what you see. Look at the store layout, look at the people and what they are doing, listen to what they saying and what types of questions they ask. Then think about the type of processes or ways of working they need in place, to go from sourcing raw materials to having finished products in store, and then what type of tools they would need to facilitate those processes. Usually when I think about “tools” I instantly think technology, but it could also include the counters and display stands, the payment registers, the furnishings, etc, as well as the "backroom" services of logistics and warehousing, finance, and advisory services. When I do this exercise, I can not think of any two more contrasting views, but both are successful and great at what they do, but it is just in different ways. Why so different? Because one ahs an Operational Excellence focus, the other Product Leadership, and that is how they win in their respective markets.

Turning to a bigger-picture perspective, what is found in markets is that the Pareto rule is alive and well. There are always exception markets, such as as monopolistic, or duopolistic, or even oligopolistic, but the vast majority of markets have a dominant number one player, an almost-as-dominant number two player, a significant number three player, and then a plethora of smaller businesses making up the rest. One of the reasons is likely to be that with three focus strategies, once you get beyond three companies, the next line of companies just squabble over what’s left. I am not sure that Jack Welsch had this in mind when he said, “We are going to be number one or two in each of our categories or get out”, but it sure makes sense. Avis even used this as an advertising slogan, “We know we’re number two; that is why we try harder.” Anything less than an absolute value discipline focus, will mean eventually finding yourself “stuck in the middle”. 

Thinking about your company, is your value proposition and value discipline clear? Are the characteristics of people and behaviour, process, and tools, aligned and being continually improved to more effectively hold that position? In conclusion, the alternative to a clear focus, is succinctly defined by another Jack Welsch quote, “… buy or bury the competition …”,  so if you don't want to be bought or buried, then get cracking on you value discipline and focus.

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Thanks for reading, and I look forward to next week, where I’ll explore how to stop doing things -- the key ingredient in developing focus.

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[1] PORTER, MICHAEL E. “Competitive Advantage, (1985), The Free Press

[2] HERACLEOUS, L. (2010), “Singapore Airlines Balancing Act”, Harvard Business Review.