Discovering New Sources of
Profitability in a Networked
Economy
Arnoldo Hax
Alfred P. Sloan Professor of Management

The Tenets of Strategy
1.The creation of economic value
2. The development of customer bonding
3. The achievement of the “Spirit of Success”

The Delta Model –
Three Distinct Strategic Options

The Triangle:
Options for Strategic Positioning

The Challenge to
Decommoditization:
Transforming the organization from best product to total customer solutions

Transforming the Organization
Change your mindset
The transformation is not straight forward
The case of Codelco and the International Copper Association

Transforming the Organization
Redefine the game you are playing
Transforming the CSN Organization
Decommoditize your customer
The case of Castrol

A customized lubrication solution involving products and services that results in documented:
Cost Reductions
&
Productivity Improvements

Transforming the Organization
Rethink the customer engagement process

• The Best Product Positioning is not necessarily the most profitable or the best way to serve your customer.

The Key to Superior Strategy and Management
Segment everything, but most important segment your customers and consumers (e.g. Unilever Asia).
Consumers
Tier 1.
Modern Trade. Established
Systems and Business Scale, often
International Reaction and Conflict
Anticipation and Collaboration
Tier 2.
Modern Trade. Smaller, more cash driven, largely local Shape and Win
Tier 3.
Including Retailers, Wholesalers,
Drugstores, Small Retailers System
Lock-In by being only Supplier to produce ECR (Efficiency Customer
Response) principles.
Consumers
Tier 1.
The affluent high LSM (Life style management) across Asia focusing on
Aging, Single/Working Women, and
Teenagers Satisfy their needs and vitality, Quality Time, Customized
Product, and Solutions
Tier 2.
The middle LSM focused on upward mobility and social migration
Upgradation to higher aspirational brands and affordable price
Tier 3.
Lower (but not bottom) LSM, less affluent emerging consumers in developing parts of the region
Purchasing basket primarily of essentials.

Transforming the Organization
Prevent the customer from commoditizing you
The case of Eastman Chemicals Coating business
Channels are essential, they “own” the customers
The case of Hindustan Lever and Unilever de Mexico

The Paint and Coating Industry

The Food Service Industry

Transforming the Organization
Use technology wisely: This is a very hard task
The case of Advanced Micro Devices

Transforming the Organization
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 transformation has to be accomplished by a change in both the front--end as well as the back-end of the organizational structure.

Transforming the Organization
Beware of the organizational structure implications
The back-end should be segmented according to the way we segmented Products and Technologies:
Administration functions,
Supply chain functions,
New product development technologies,
Process technologies,
Information technologies,
Functional activities related to product marketing

Transforming the Organization
Beware of the organizational structure implications
The front-end should be segmented according to the way in which we segment the markets:
Clients,
End-users,
Solutions and services,
Geographical areas,
Functional activities related to customer marketing

Transforming the Organization
Seek System Lock-In Opportunities
This is very hard to accomplish; however if successful the rewards are enormous

ACHIEVING YOUR POTENTIAL
The way to win is not to beat your competitor but to bond with your customers