How Digital Technology and Innovation are Disrupting Traditional Business Thinking and Acclaimed Academic Research
Introduction
Conventional business thinking commands executives to have a laser-like focus on one of three core competencies contained in the Value Disciplines Model proposed by Treacy and Wiersema, in the book, “The Discipline of Market Leaders: Choose your customers, Narrow Your Focus, Dominate Your Market.” This belief is self-evident in all facets of the strategic planning process within most Fortune 500 organizations today.
However, digital technology and innovation have upended many long-held business theories. In this post, I focus on the Value Disciplines Model — a very popular business theory that has grown increasingly irrelevant (in my opinion, false) over the last 10-15 years. My aim is not to discredit acclaimed business school professors or dispute with company executives, rather I hope to inspire debate about the necessity to revisit how we think about business strategy in the digital age.
The quote (above) best describes the need to continuously refine and adapt our thinking to successfully navigate the massive change that is currently underway in the business world, or else established organizations will be “fully equipped” to deal with customers that no longer exist.
The Value Disciplines Model
Treacy and Wiersema found that, in order for a company to be successful, it must have a minimum degree of competence (based on industry standards) in all three fundamental corporate disciplines, but must be the best (e.g. market leader) in only one of the three disciplines if it has any chance at success.
Sidebar: A Summary of the Value Disciplines Model
A logical depiction of the Value Disciplines Model demonstrates that each “Leg” of the model (shown above) has a distinct and incompatible value-creating discipline or core competencies. For example…
Product Leadership:
which is characterized by best-in-class products that enabled by a very strong culture of innovation and emphasis on brand marketing.
The typical focus areas for these companies (e.g., Apple) are on product innovation, design, time-to-market, and capturing high-margins within limited time-frames.
Operational Excellence
which is characterized by decent products with the lowest prices made possible by leveraging economies of scale and systems/ process that enable efficiency and the reduce waste.
The typical focus areas for these companies (e.g., Wal-Mart) are on supply chain management competencies and streamlining operations to enhance overall cost efficiency.
Customer Intimacy
which is characterized by intense focus/ obsession on specific customer segments with detailed understanding of individual preferences.
The typical focus areas for these companies (e.g., Amazon) are on customer relationship management (CRM) competencies, understanding and catering to customer expectations to ensure relevance and an emotional connection that encourages loyalty and repeat business.
The Hypothesis
Alex Matthew of The Enterprise Advocate writes, “ Treacy and Wiersema further propose that an enterprise cannot excel in all three disciplines because the basic enterprise culture, structures, people, facilities, processes and business models that lead to excellence in any one discipline are incompatible with achieving excellence in the others.”
I must agree that in traditional business models, there are underlying trade-offs that exist. For example, a decision to lead the industry in operational excellence prescribes a company’s core capabilities around supply chain management, and will invariably affect the company’s focus and ability to simultaneously create and sustain a pipeline of the most innovative and industry-leading products.
Treacy and Wiersema’s research suggests that enterprises which sought to simultaneously be the best (e.g. market leader) at more than one of these three disciplines actually reduced their overall competitiveness, and resulted in loss of market share and profit.
Contradictory Observations
Common sense logic agrees that if one focuses intensely on a single subject, he or she will master it. On the contrary, a study of a multitude of subjects will result in a little knowledge of many different subjects. In essence, one would become a “Jack of all trades,” and that profile does not lend itself to communicating or delivering a clear value proposition in the market.
However, digital technology and innovation has fundamentally disrupted that thinking, and the whole notion of the Value Disciplines Model because it changes the dynamics of the following characteristics about competition:
Enterprise Economics is disrupted because technology changes the nature of transaction unit costs and upsets revenue and cost models. This disruption is most utilized in “Freemium” business models in companies like Skype.
Cost leadership (on it’s own) is no longer a sustainable, long-term strategy and operational excellence is now “Table Stakes” in many industries like Wireless Telecommunications and Retail Banking.
Access Disruptions occur because technology changes the relationships between how customers, suppliers, intermediaries and others connect and interact — the result is disintermediation.
For example, Amazon’s digital provisioning of eBooks on the Kindle disintermediated traditional book stores like Borders. There is a necessity for all companies to be “customer-obsessed” and always “in tune” with consumers and their changing expectations. In the near future (for many industries), it will no longer be acceptable to provide mass market products/ services as consumers increasingly expect a higher degree of personalization from companies they do business with.
Performance Disruptions occur because technology delivers breakthroughs in product performance and effectiveness, which causes legacy and incumbent technology to be (or to be perceived as) obsolete.
For example, the digital camera in the 1st gen Apple iPhone was so advanced that it has caused a material decline in “Point and Shoot” camera sales. Additionally, the app store ecosystem continues to enhance the iPhone’s value proposition for amateur photographers (i.e., teens looking to snap selfies) with with apps like Instagram and Facebook.
In a digital future, innovation and product leadership must be a core competency for all companies, or else they risk the chance of becoming obsolete. Additionally, there is pressure to further enhance the value of an already innovative product by creating or integrating with an ecosystem, if one hopes to remain relevant to increasingly demanding consumers.
Final Thought
Digital technology and innovation has raised the competitive bar, but has simultaneously enabled the possibility for companies to actually be market leaders in all three “Value Disciplines.”
In fact, the very nature of competition in the digital age requires it.
References:
The Digital Edge eBook, Mark MacDonald and Andy Roswell-Jones
The Enterprise Advocate Blog, Alex Matthew
