Revisiting the Trifecta of Market Leadership

Product design, customer intimacy and operational excellence are the trifecta of a successful marketing strategy. A model based on these three "value-disciplines" was proposed by Michael Treacy and Fred Wiersema in their book "The Discipline of Market Leaders". In this blog, I will discuss a few musings on the topic:

To begin with, let's understand the Treacy-Wiersema Model:

Product Excellence: It is a relentless pursuit to innovate and design next generation products and services. Such companies build a culture of innovation and entrepreneurship. They are excellent talent scouts, teamwork and portfolio management. They invest heavily in R&D, are product-centric by definition and excel in creating an unprecedented "product experience". A few examples of market leaders in product design are Apple, Nike and Ferrari.

Operational Excellence: It is optimization of business processes and supply chain to deliver products faster, cheaper and better. They build a culture of cost saving. They are excellent in harmonizing workflows and automation to reduce costs. They invest heavily on creating error free "engines" of profitability. A few examples of market leaders in operational excellence are Southwest Airlines, Ikea and McDonalds.

Customer Intimacy: It involves developing a deep, long-lasting relationship with the customers to offer them the products and services that best matches their needs. They build a culture of developing personal connection with the customer. Thus, they are excellent in aligning the whole company to think 'customer first'. They invest heavily in market research, big data analysis, SEO and digital/social media marketing (in recent times). They are customer-centric by definition and excel in creating an unprecedented "customer experience". A few examples of market leaders in customer intimacy are Amazon, Facebook and Linkedin.

From the attributes that define each value discipline, we can see that to excel in all three value disciplines is rare for any company. The reason for this rarity is the company culture, structure, human resources, processes, facilities and revenue models that are optimized for a value discipline are incompatible to excel in other value discipline.  For instance, a company that is optimized its resources for operational excellence would have limited range of products and production pipelines that will make innovation difficult (please check my blog on corporate entrepreneurship here, wherein I discuss more about balancing innovation and performance). Hence, the company has to make a strategic decision to channel their resources into one of the value disciplines.

The power of the Treacy-Wiersema model is that the value disciplines sets the criteria for competition in the industry. The model states that for any company to be competitive, a minimum threshold of competence is required in all the three value disciplines. However, to be a market leader, it has to excel in just one of the value disciplines. Hence, choosing the value discipline is a strategic decision for every company. However, in my opinion, the choice of value discipline to gain the market leadership will depend upon the nature of industry. For instance, the core of e-commerce industry is to deliver the right products faster, cheaper and better to the customers. Thus, the e-commerce should be aware of the customer needs (hence customer intimacy). In contrast, the heart of biotechnology industry is R&D and they need to develop innovative solutions to cure disease (hence product excellence). Likewise, the minimum fair value for aviation industry is cheap and punctual flights (hence operational excellence). Thus, the type of industry pre-defines the value discipline determinant for market leadership.

Next, I set out to research if we can find any instances wherein a company has been successful in excelling in all three value disciplines and emerge as market leader. Interestingly, I found a couple of examples:

Walkman: This product may not be so well-known in the younger generation. Hence, the history of the Walkman is very interesting to read. Please click here to read more. Briefly, in the 1970s, the concept of portable music player was non-existent. The personal tape players were expensive and heavy. Hence, the customer need was to make the music players portable and affordable. In 1979, under the leadership of Akio Morita, Sony released the Walkman. It was a disruptive innovation at that time. Thus, an example of product excellence. Next, the challenge was to make it affordable to the masses. Sony worked on the operations and manufacturing to bring down the costs. It enjoyed ~50% market share in the music player industry, a huge success. Thus, Walkman became an example that excels in all three value disciplines.

After the Walkman, we witnessed the discmans and MP3 players. While these were innovative products but none enjoyed the success of the Walkman. The only product that rivaled the Walkman is the iPod.

iPod: From a product innovation perspective, iPod (a portable MP3 player) was 3 years late as compared to the MPman - the first portable MP3 player. However, downloading MP3s was time-consuming and the internet bandwith was not fast enough. And unlike the cassettes for a Walkman, one could not purchase the MP3s in retail stores. It was only in 2001, when all the components to download MP3s were in place and then came the iPod. Steve Jobs knew that until the relevant supporting technology is not available, portable MP3s will not be the next Walkman. Thus, launched at the right time, iPod became an icon of product excellence. Next, iPod + iTunes store gave a hassle-free access to millions of songs for 99 cents apiece - an example of customer intimacy. But what about operational excellence? Shouldn't the products deliver by excellent operations be cheaper? (iPod was sold at $399, remember?). But that was exactly Tim Cook's role when Steve Jobs was still leading apple. Tim, COO then, is an expert in operations. Apple redefined operational leadership and took it to the next level (Click here to read how iPod broke all Sony's records and here and also here to read about Apple's operational excellence).

In summary, the Treacy-Wiersema Model is still valid because it is rare to excel in all the three value disciplines. But for those who do, they create history. The people who are crazy enough to think they can change the world, are the ones who do.