The Firm as a Bundle of Competencies
Competencies
The Triangle:
Options for Strategic Positioning
System Lock-In
Dominant Exchange
eBay, Yellow Pages
Proprietary Standard
Microsoft, Intel
Exclusive Channel
rural Wal-Mart
Low Cost
Southwest Airlines,
Nucor
Horizontal Breadth
Fidelity
Total Customer
Solutions
Redefining the
Customer Relationship
Saturn
Customer
Integration
EDS
Best Product
Differentiation
Sony Wega
Delta Model Strategies
Delta Model Strategies
Positions
Definition
Best Product
Comments
Centered on product economies
Low cost
Differentiation
Total Customer Solutions
Focus on being the lowest cost provider in an undifferentiated product
product
category
Since
Since there is only one lowest cost producer, this strategy leaves
leaves
very little
little space as a competitive position. It also tends to
standardize the product offering, commoditize the customer, and
intensify rivalry.
While maintaining effective production economies focus on key
differentiation in the product features and functionalities such that the
products are uniquely desired and command price premiums
The problem with this strategic position is that as soon as the
differentiated product emerges, competitors tend to imitate them.
them. An
competitive advantage is therefore nonnon-sustainable.
Oriented to customer economics
Redefining the customer
experience
A focus is places on considering the full experience of the customer
customer from the
point of acquisition through to the complete lifecycle of ownership
ownership of the
product
This positioning is based upon an intimate knowledge of he
customer 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
need are customized and provided. “OneOne-stop shopping for a unique
solution.”
solution.”
We
W e are seeking a dominant position in “share of the wallet of the
customer.”
customer.”
Customer Integration
This strategy seeks to effectively substitute for or leverages activit
ies
activities
currently performed by the customer. It is outsourcing in its extr
extreme
eme form and
and
at least represents a complex web of connections with the customer
customer that
enhance their ability to do business and to use your product.
The
The firm is regarded as a bundle of competencies that will be
brought to the customer to enhance the customer economics.
System LockLock-In
Restricted Access
Focuses
Focuses on complementor economics
Significant barriers
barriers are in place that make it difficult for competitors
co petitors to even
compete for
f or the acquisition of customers.
This is a difficult position to achieve and to sustain. Regulatory
Regulatory
practices tend to be deployed to prevent it.
Dominant Exchange
With this strategy the company provides an interface between buyers and
sellers that s very hard to displace once it achieves critical mass.
mass.
This
This is the most accessible of all of the systems locklock-in options.
The first mover advantage is critical.
Proprietary Standard
The customer is drawn to your product because of the extensive net
network
work of
third party complementors that are designed to work with your product.
This option
option is
isn’’t available in most industries. If it can be achieved
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
production economies focus on key
differentiation in the product
features and functionalities such
that the products are unique desired
and command price premiums
The problem with this strategic
position is that as soon as the
differentiated product emerges,
competitors tend to imitate
them. An competitive advantage
is therefore non-sustainable.
Delta Model Strategies
Positions
Delta Model Strategies
Definiti
Definition
Best Product
Low cost
D ifferenti
erentiati
ati on
Total Customer Solutions
Focus on bei
being the lowest cost provider in an undi
undifferenti
erentiated product
product
category
Since there is onl
only one lowest cost producer, thi
this strategy leaves
eaves
very littl
ttle space as a competi
competitive posi
position. It al
also tends to
standardi
standardize the product of
offeri
fering, commoditi
commoditize the customer, and
intens
ntensify
ify rriivalry.
Whi
W hile mai
maintai
ntaining ef
effecti
fective producti
production economi
economies focus on key di
differenti
erentiati
ation
in the product features and functi
functional
onaliti
iti es such that the products
products are unique
desi
desired and command price premi
premiums
The probl
problem wi
with this strategi
strategic posi
position is that as soon as the
differenti
ferentiated product emerges, competitors tend to imitate them.
them. An
competi
competitive advantage is therefore nonnon-sustai
sustainable.
Oriented to customer economics
Redefining the customer
experience
A focus is places on considering the full experience of the customer
customer from the
point of acquisition through to the complete lifecycle of ownership
ownership of the
product
This positioning is based upon an intimate knowledge of the
customer 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
needs are customized and provided. “OneOne-stop shopping for a unique
solution.”
solution.”
We
W e are seeking a dominant position in “share of the wallet of the
customer.”
customer.”
This strategy seeks to effectively substitute for or leverages activities
activities currently
performed by the customer. It is outsourcing in its extreme form
form and at least
represents a complex web of connections with the
the customer that enhance
enhance their
ability to do business and to use your product.
The
The firm is regarded as a bundle of competencies that will be
brought to the customer to enhance the customer economics.
Customer Integration
System LockLock-In
Restricted Access
Total Customer
Solutions
Comments
Centered on product economi
economies
Focuses
Focuses on complementor economics
Significant barriers are in place that make it difficult for competitors
competitors to even
compete for the acquisition of customers.
This is a difficult position to achieve and to sustain. Regulatory
Regulatory
practices tend to be deployed to prevent it.
Dominant Exchange
With
W ith this strategy the company provides an interface between buyers and
sellers that s very hard to displace once it achieves critical mass.
mass.
This
This is the most accessible of all of the systems locklock-in options. The
first mover advantage is critical.
Proprietary Standard
The customer is drawn to your product because of the extensive network
network of
third party complementors that are designed to work with your product.
This option isn’
isn’t available in most industries. If it can be achieved
the rewards are enormous.
Oriented to customer economics
Redefining the A focus is places on considering the full
customer experience of the customer from the point
experience of acquisition through to the complete
lifecycle of ownership of the product
Horizontal Breadth A complete set of product and service
offerings that fulfill the entire customer
needs are customized and provided.
“One-stop shopping for a unique
solution.”
Customer This strategy seeks to effectively
Integration substitute for or leverages activities
currently performed by the customer. It is
outsourcing in its extreme form and at
least represents a complex web of
connections with the customer that
enhance their ability to do business and
to use your product.
This positioning is based upon an
intimate knowledge of the customer
base leading toward an effective
customer segmentation and a
differentiated treatment of the
customer tiers.
We are seeking a dominant position
in “share of the wallet of the
customer.”
The firm is regarded as a bundle of
competencies that will be brought to
the customer to enhance the
customer economics.
Delta Model Strategies
Delta Model Strategies
Positions
Definition
Best Product
Comments
Centered on product economies
Low cost
Differentiation
Total Customer Solutions
Redefining the customer
experience
Focus on being the lowest cost provider in an undifferentiated product
product category
e iis
Since
here
s only one
owest cost producer, this strategy leaves
Since tther
one llowest
lea es very
little space as a competitive position. It also tends to standardize
standardize the
product offering, commoditize the customer, and intensify rivalry.
rivalry.
While
W hile maintaining effective production economies focus on key differentiation
differentiation in
the product features and functionalities such that the products are unique
desired and command price premiums
The problem with this strategic position is that as soon as the
differentiated product emerges, competitors tend to imitate them.
them. An
competitive advantage is therefore nonnon-sustainable.
Oriented to customer economics
A focus is places on considering the full experience of the customer
customer from the
point of acquisition through to the complete lifecycle of ownership
ownership of the product
This positioning is based upon an intimate knowledge of he customer
customer
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
need are customized and provided.
provid ed. “OneOne-stop shopping for a unique solution.”
solution.”
We
W e are seeking a dominant position in “share of the wallet of the
customer.”
customer.”
Customer Integration
This strategy seeks to effectively substitute for or leverages activities
activities currently
currently
performed by the customer. It is outsourcing in its extreme form
form and at least
represents a complex web of connections with the
the customer that enhance
enhance their
ability to do business and to use your product.
e of competencies that will be brought
The
irm is regarded as a b
undle
The ffirm
bundl
b ought
to the customer to enhance the customer economics.
System LockLock-In
Restricted Access
Focuses on complementor economics
Significant barriers are in place that make it difficult for competitors
competitors to even
compete for the acquisition of customers.
This is a difficult position to achieve and to sustain. Regulatory
Regulatory
practices tend to be deployed to prevent it.
Dominant Exchange
With
W ith this strategy the company provides an interface between buyers and sellers
that is very hard to displace once it achieves critical mass.
This is the most accessible
acc ess ible of all of the systems lock­
lock-in options. The
first mover advantage is critical.
Proprietary Standard
The customer is drawn to your product because of the extensive network
network of third
party complementors that are designed to work with your product.
This option isn’
isn’t available in most industries. If it can be achieved the
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.
McKinsey Organizational Structure
CLIENTELE INDUSTRY
SECTORS
FUNCTIONAL CAPABILITY
GROUPS
Business Technology Office
Corporate Finance
Marketing & Operations
Organization
Strategy
Practice
Leader
Industry
Expert
ENGAGEMENT
ENGAGEMENT
TEAM
TEAM
GLOBAL OFFICES
Amsterdam
Antwerp
Athens
Atlanta
Auckland
Bangkok
Barcelona
Beijing
Berlin
Bogotá
Bogotá
Boston
Brussels
Budapest
Detroit
Dublin
Du
Düsseldorf
Frankfurt
Geneva
Gothenburg
Hamburg
Helsinki
Hong Kong
Houston
Istanbul
Team Leader
Office Manager
Client Impact
Team
Automotive & Assembly
Banking & Securities
Chemicals
Consumer Packaged Goods
Electric Power & Natural Gas
High Tech
Insurance
Media & Entertainment
Metals & Mining
Nonprofit
Payer/Provider
Petroleum
Pharmaceuticals & Medical Products
Private Equity
Pulp & Paper/Forest Products
Retail
Telecommunications
Travel & Logistics
CUSTOMER
The Delta Model: Description of McKinsey’s Competence
Dominant Exchange
Create few industry
standards for private
and public sectors
Proprietary Channel
Exclusive
Channel
Horizontal Breadth
System Lock-In
Decentralized
(local) presence
Alumni Network
Clientele industry sectors
Functional groups
Strong global presence
Integrated consulting
services (one-stop shop)
1970s-2000s
Total Customer
Solutions
Best Product
1920s-1960s
Redefining Customer
Relationship
Long-term vision
Highest standards of professional
conducts
Customer as a business partner
Customized/personalized services
Failed to lock-out
competitors and lockin complementors
Customer Integration
Target individual market
Customer interests come
first
Client Impact & Service
Team (CST)
Differentiation
High-Caliber People
Collaborative Process
Brand & Reputation
High-Level Customer
Relationship
Knowledge & Expertise
Management Team
Global Presence
Privately-owned
Market Share
Dynamic Culture
Quality
The Delta Model: Description of Biogen’s Full Array of
Strategic Positions
The Delta Model: Biogen moving towards TCS
Exclusive Channel
• Medicare approval for Avonex
• Advantage with regulators and speed to
market due to clinical trial rep, Co-defendant
in lawsuit
• Clinical trial sites best in business - attract
complementors and recruitment
• Suppliers on-site reps (strong bonding!) ,
scale economy, Extended to travel, and IT
needs
Horizontal Breadth
• Autoimmune
• Complementor development
• R&D & pipeline - for patients & firms
Customer Integration
• Bonding through dynamic
investment in personalized
web page
Proprietary Standard
• Patient protected products
SLI
TCS
BP
Redefining customer experience
• Information Exchange point
• Participation in patient advocacy
• Medical Resource for patients
• Informational resource for
physicians
Differentiation
• Indications for specific
disease states
• Specific Interferon science
(alliances)
Rahul K. Kdanda, “From Biogen to Idec: Strategy evolution from commoditized customers to the Delta Model”, 15.902 Student Report
Schwab - Expanding the Strategic Options
Dominant Exchange
Proprietary Channel
Investors can easily access many interfaces for
advice and trading. But if Schwab was able to
develop a comprehensive and integrated network, it
may be able to function as a dominant exchange
Restricted Access
Access
The trading and investing standards are not
proprietary to Schwab
Schwab may be able to achieve
firstfirst-mover advantage with an
expanded business scope
System
LockLock-In
A deep relationship and comprehensive integration –
or entanglement – of the customer’
customer’s financial life
would discourage switching
Low cost
Schwab’
Schwab’s prices are low, but they are not the lowest
cost producer. However, price is not the primary
concern for Validators and Delegators,
Delegators, and they should
subsub-segment the SelfSelf-Directed segment and focus on
those who are more interested in service
Customer Integration
Schwab has the opportunity to leverage its
technology to gather and use customer information to
build customized services and deep relationships
Horizontal Breadth
Schwab has
has a robust product offering for this group,
is adding banking services, and can offer a broader
product line than the discount brokers because of its
its
affiliation with U.S. Trust. Enhancing its capabilities
with technology will further differentiate Schwab.
Total
Total
Customer
Solutions
Best Product
Redefining Customer Experience
Experience
The middle market investor, especially the
Validator,
Validator, usually cannot access the quality or
level of advice she is seeking – Schwab could
develop a truly differentiating capability that
would redefine the customer experience
Source:Lynn
Source:Lynn MacDonald, “Charles Schwab: Changing the Rules of the Game”
Game”, 15.902 Student Report
Differentiation
No firm has figured out how to profitably service the
middle market, therefore the market usually has
access to a limited range of services and minimal
handhand-holding and advice
Schwab, with its history of innovation, strong
technology capability and culture of leveling the
playing field for the smaller investor, could be the
first – maybe only – firm to develop this capability
Synthes
Dominant Exchange
• Role of IT in hospitals
Horizontal Breadth
• Coverage of all
therapeutic areas
Customer Engagement and
Customer Integration
• Role of Consultants
• Education
• Intimacy
Proprietary Standards
• AO Foundation
Low Cost
• Manufacturing
excellence
Differentiation
• Continuous New
Product Development
Capital One’s Competencies
Restricted access
Increasing barriers to entry from competitors
and exit from customers.
Low cost
Lowest charge-off of industry
Horizontal breadth
The widest coverage of the
industry “Shut-off the credit
filters”
Customer engagement
• Actuarial calculation of customer’s life­
time NPV in real time
• Testing for customer acquisition, card
utilization and attrition
• Horizontal accounting (entry and listing
of cohort)
• Detecting “adverse selection”
Customer integration
The Power of IBS
Differentiation
2 years
95% product
• Stream of new products
• Short half-life cycle
• Customized offers
The organizational capabilities
• Entrepreneurial structure and culture
• Information Technology know-how (largest Oracle data base - 40 pages
per every American)
• Customer service (30 million inquiries per year). Identify the caller after 1
ring with 70% accuracy. The right call routed to the right associate.
• Recruiting talent (behavioral interviews, case interviews, standardized
test)
Insights from the Delta Model
Model
1. Think of your firm as a bundle of competencies - Not
merely as an engine for developing, making and
distributing products.
2. Understand deeply your customer needs - Segment
the customer base to differentiate meaningful value
propositions to each customer tier.
3. The key to exploit opportunities for growth and
profitability is to match your competencies with your
customer needs. Try to be creative, bold and fast.