Customer Intimacy and Other Value Disciplines

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Table of Contents

Introduction
The problem or opportunity for the organization
The underlying causes of the problems or opportunities
Suggested solutions for the problems or opportunities
Reference

Introduction

This essay is based on an article, Customer Intimacy and Other Value Disciplines by Michael Treacy and Fred Wiersema (1992). The Value Disciples model focuses on three areas, which organizations should act upon in their operations to gain market shares. Treacy and Wiersema (1992) note that an organization should choose one of the value disciplines and concentrate on it constantly and vigorously, but it must also not ignore the other two areas. The two areas must meet the industry standards.

Operational excellence enhances organizational operations through quality services at low prices. Organizations should focus on efficiency, management of the supply chain, and streamline operations.
Product leadership should focus on innovation, product design, development, short time frame, and branding in a highly dynamic market.
Customer intimacy requires organizations to succeed in customer service and attention by tailoring products and services to meet specific needs of customers. In addition, organizations should also concentrate customer relationship management, exceed customers’ expectations in product and service delivery, focus on customer lifetime value, and be reliable and close to customers.

Therefore, according to Treacy and Wiersema (1992), these are the three ways to achieve market leadership.

The problem or opportunity for the organization

Losing market share

Compaq, Home Depot’s competitors, and Adidas lost market shares to their rivals because of the failure to understand and focus on the three ways for achieving market leadership. On the other hand, organizations, such as Compaq, Nike, and Home Depot gained significant market shares from their competitors because they focused on one of the value disciplines.

Firms could lose market shares due to several reasons. For instance, Compaq lost market share to Dell other competitors because of weaknesses in its delivery systems. Dell realized that Compaq and IBM delivery systems were weak. While its competitors concentrated lower prices, Dell developed an efficient operating model that eliminated dealers and distributors. This enhanced operational efficiency and excellence. As a result, Dell was able to acquire a significant market share from its competitors.

Second, organizations lose market shares when they fail in product development. Product development requires creativity, which might be lacking in an organization. Firms that lose market shares have failed to recognize and embrace new ideas from outside. Unlike successful firms, organizations that lose market share fail to develop and commercialize their ideas fast.

This could result from a failure to engineer business and management processes quickly. When organizations fail to pursue new solutions persistently, their products may become obsolete as competitors develop better ones to meet emerging needs of customers. Therefore, product leaders must persistently seek for new solutions and commercialize the resultant products. Johnson & Johnson has been able to get new ideas, develop them quickly, and seek for new solutions.

Third, firms also lose market share due to failure to focus on customer service and related aspects of customer management. There are organizations, which have poor customer service. In most cases, customers tend not to visit such stores again. Such organizations underestimate the value of customers to their business.

It is imperative for organizations to stress the importance of customer service. Home Depot managed to outperform its competitors because it focused on intimate customer service. The company realized that not all customers required similar services. Home Depot ensures that its customers get the right product irrespective of its price. Home Depot employees spend adequate time necessary to ensure that all customers get products that will solve their problems. This is the company’s first priority.

Fourth, changes in the market may also result into a loss of market shares. For instance, when competitors emerged, GE realized that it could no longer rely on the loaded dealer concept to meet its customers’ needs. Consequently, the company had to review its distribution model. The model was expensive for some dealers. Moreover, low-priced competing products from Circuit City emerged to take GE’s market share.

The underlying causes of the problems or opportunities

Distribution channels and competition

Organizations face several challenges during their existence. Some of these challenges could be both internal and external. Irrespective of the sources of the problems, firms should find appropriate solutions for overcoming problems.

One major challenge that Compaq faced in the PC market was in its distribution channel and retail stores. The distribution channel resulted in slow deliveries and inventory movement. On this note, Dell saw an opportunity to conduct direct deliveries of computers to its customers immediately.

The move was so radical that other PC makers did not anticipate it, and the direct delivery was able to enhance efficiency in the operating model as the company sought for operational excellence. At the same time, Dell was able to enhance its production efficiency and meet the market price as it strived to perfect its Web delivery model. Compaq still relied on distributors and retailers despite their delays and costs.

GE had to review its loaded dealer concept as the strategy became expensive and unsustainable for many small retailers. At the same time, the company started to experience effects of competition from City Circuit. Moreover, low-priced products also entered the market. GE was quick to react to such changes, and it did not lose huge segment of its market shares to competitors.

The company embarked on developing high quality products at relatively competitive prices with minimal challenges. Consequently, it had to abandon the dealer concept and focus a new operational strategy. This changed the product manufacturing, selling, and distributing strategies.

In this new distribution model, the Direct Connect System, GE ensured that its retailers and distributors did not have their own inventories. Instead, they used a virtual inventory of GE, which was supported by a computer program. The computer-based logistics model allowed retailers to see the available products at GE and make their orders based on customers’ demands.

Failure to customized products to meet customers’ specific needs

Home Depot was able to acquire market share from its competitors because it listened to its customers. This implies that Home Depot competitors failed to focus on customers’ specific needs. The company ensured that its clerks spent adequate time with customers in order to establish their needs and identify specific products, which could solve their home-repair issues.

Home Depot focused on excellent customer service, which other competitors had ignored. Its first priority was meeting unique needs of customers irrespective of the cost of products.

Home Depot based its business model on customer satisfaction, low prices, and provision of relevant information to customers. However, any customers who only expressed price concerns were not within the core market of the company. While other companies had failed to establish customer intimacy, Home Depot exploited this opportunity to gain its market share.

Other firms, such as Kraft Foods have developed customer intimacy, which has allowed them to segment their services and enhance efficiency. Organizations that focus on customer intimacy have also changed their approaches to meet such requirements in customer intimacy.

For instance, Kraft ensures that its advertisement, products, promotional materials, and operations in a single outlet or in stores in a specific area must appeal to a given customer base within that locality.

The company has concentrated on collecting information from its customers and applying analytical techniques from collected data in order to derive insights for strategic decision-making. Not many companies use data to get insights for decision-making. Moreover, Kraft invested in educating its salespersons so that they could develop merchandise programs for their specific stores in different locations.

Product development

Normally, firms that have failed to develop their products to meet changing needs of customers lose their market share to competitors, which continuously develop new products for dynamic, unique needs of their customers. Thus, failure to develop new products could be an underlying cause of problems in a competitive market.

Organizations that aim to be product leaders must strive to develop latest products and services for customers. However, not many organizations may challenge themselves adequately to attain that goal. This could happen for three reasons. First, creativity is a technical process, which is elusive.

It requires organizations to identify and accommodate ideas that emanate outside the company. Second, organizations must commercialize their ideas fast. However, turning an innovative idea into a revenue-generating venture is a challenging task. It requires investment, collaboration within the entire organization, and the speed to achieve the desired outcomes.

Finally, organizations must engage in constant search for new solutions in order to improve upon their products. This would ensure that their solutions and technologies do not become obsolete in the market due to competition. This is the most critical aspect in product development.

However, product development may face some impediments in an organization. For instance, bureaucracy in a firm slows down product development and its subsequent commercialization. Thus, any bureaucratic organization will fail in the process of developing new innovative products.

Organizations, which seek for product leadership, must eliminate bureaucracy and make quick decisions. Companies that rely on data have enhanced their decision-making abilities as the case of Kraft indicated. Such companies facilitate all processes with urgency.

In addition, they engage in a constant search for new ideas and implementation processes to shorten the product development cycles. For instance, Japanese automobile industry has relied on concurrent development processes to reduce the time it takes to develop products and supply them to the market. Such strategies allow them to evaluate several ideas and adopt only those with favorable outcomes.

Reference

Treacy, M., and Wiersema, F. (1992). Customer Intimacy and Other Value Disciplines. Harvard Business Review, 84-93.

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