mÖbius presentation: value chain thinking at the heart of your strategy
DESCRIPTION
Get inspired by how value chain thinking impacts your bottom-line performance. Learn from the views of Arnoldo C. Hax on how to put value chains at the heart of your strategy. Value chains are key in customer bonding. Customer bonding is key in improving your bottom-line performance. Learn from the views of Kaplan & Norton on how to translate strategies into actions. Get a premium from strategy execution. Engage the debate and share your thoughts with your peers. For more information, contact Prof. Dr. Bram Desmet (0497.58.28.60)TRANSCRIPT
Value Chain Thinking at the Heart of Your Strategy
Prof.dr. Bram Desmet [email protected]
+32 (0)497.58.28.60
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1980 Compete on: – Low Cost – Differentiation
Strategy is war Focus on competitors
1995 Compete on: – Operational Excellence – Product Leadership – Customer Intimacy
Choose 1 dimension and be the best!
2010 System Lock-In
Total Customer Solutions
Best Product
Proprietory Standard (Microsoft)
Low Cost (Ryanair)
Dominant Exchange (eBay)
Restricted Access (Eandis)
Horizontal Breadth (IBM)
Customer Integration
(Axima) ???
Redefining The Customer
(Apple)
Differentiation (Apple)
Customer Bonding
Compete on Customer Bonding: – Best Product Offering – Total Customer Solution – System Lock-In
Choose 1 dimension per segment! Customer = Center.
Strategy is love. Competitive advantage comes from customer bonding, not beating competition.
Michael Porter
Treacy & Wiersema
Arnoldo Hax
Strategy has become more
complex
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2010
System Lock-In
Total Customer Solutions
Best Product
Proprietory Standard
(Microsoft)
Low Cost (Ryanair)
Dominant Exchange
(eBay)
Restricted Access
(Utilities)
Horizontal Breadth
(IBM)
Customer Integration
(ABB)
Redefining Customer Relationship
(Apple)
Differentiation (Sony)
Customer Bonding
Arnoldo Hax
Low Cost – e.g. Ryanair, Colruyt – Lowest Price, Hassle-Free Service,
= “Operational Excellence”
Differentiation – E.g. Sony – Always first on the market. Highest
specs. =“Product Leadership” – Early adopters & niches. – Get a price premium.
= “Product Leadership”
Horizontal Breadth – e.g. IBM for IS – “One Stop Shop” – Satisfy all customer needs
Customer Integration – e.g. ABB – We no longer sell robots ...
we sell “uptime” for “automation”
– Transfer knowledge to the customer to enhance its performance
Redefining Customer Relationship
– e.g. Apple (i-everything) – Unique experience
throughout complete cycle of ownership
Proprietory Standard – e.g. Microsoft – + network of complementors
improving your product
Dominant Exchange – E.g. eBay – An interface between buyers and
sellers that is very hard to displace once it achieves critical mass
Restricted Access – E.g. Utilities – Significant barriers in place to
make it hard for competitors to access the customer
The “Delta Model” of Arnoldo Hax
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System Lock-In
Total Customer Solutions
Best Product
Proprietory Standard
Low Cost
Dominant Exchange
Restricted Access
Horizontal Breadth
Customer Integration
Redefining Customer Relationship
Differentiation
Customer Bonding Low Cost
Lowest Price, Hassle-Free Service
Horizontal Breadth “One Stop Shop” Satisfy all customer needs
Restricted Access Significant barriers in place to make it hard for competitors to access the customer
Dominant Exchange An interface between buyers and sellers that is very hard to displace once it achieves critical mass
Proprietory Standard Capture an extensive network of complementors that improve our product performance
Customer Integration Transfer knowledge to the customer to enhance its performance
Redefining Customer Relationship Unique experience throughout complete cycle of ownership
Differentiation Development of features and functionalities that make the product unique and command a price premium
The “Delta Model” of Arnoldo Hax
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System Lock-In
Total Customer Solutions
Best Product
Customer Bonding
Castrol = leading lubricant company • Best Product Strategy was going nowhere
• Differentiation through premium products easily copied by competitors after 6 months
• Fast commoditization • Differentiate by adding services (Total Customer Solutions)
• Build on accumulated knowledge about plant maintenance (lubricant is used to improve the productivity of machinery and equipment)
• Rather than use this knowledge strictly for developing new products, transfer that knowledge to selected customers
• In the fight against commoditization services can more easily be customized in comparison to products
The Case of Castrol (Lubricants)
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System Lock-In
Total Customer Solutions
Best Product
Customer Bonding
The Case of Castrol (Lubricants)
Tier 1 Relationship
Tier 2 Support
Tier 3 Transaction
Productivity Conscious Customers These customer are eager to receive support that will enhance their productivity, reduce total costs, and promote higher sales.
= Primary Target Segment
Cost Conscious These customers are concerned about total costs but they believe new production does not necessarily yield higher sales or economies of scale
= Secondary Target Segment
Price Conscious These customers are basically buying from the supplier that has a recent quality level at a good price
= Least Desirable Segment
Customer Integration Transfer knowledge to the customer to enhance its performance
Redefining Customer Relationship Unique experience throughout complete cycle of ownership
Differentiation Development of features and functionalities that make the product unique and command a price premium over commodities
Market Segments Vs Customer Segments Often, companies segment markets by identifying major clusters of business applications. For instance for Castrol market segments are “cement”, “sugar”, “pulp & paper”, “textile”, “food & beverage”, “wood”, “mining” and “glass”. The brilliant next step for Castrol was to identify, within each market segment, which customers to target with varying degrees of priorities.
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System Lock-In
Total Customer Solutions
Best Product
Customer Bonding
A Case from Retail Banking
Customer Integration
Redefining Customer
Relationship
Differentiation
Tier 3: Matured Investor Succesful Individual with significant personal holdings Needs premium attention and customized services including complete estate planning, with emphasis on retirement assets The creation of strong bonding based upon trust, transparency, and mutual benefits is established
Tier 4: Accomplished Investor Typically a successful professional, at a middle career stage and promising future Begins to accumulate some wealth Requires advice on the selection of a more sophisticated financial portfolio, with clear understanding of risk/return tradeoffs The seeds for a long-term relationship are planted, if value added can be demonstrated
Tier 5: Basic Investor Typically a young person at the beginning of his/her professional career Demands basic quality services with low-cost transactions Needs guidance on simple investment choices Potential for long-term relationship
Market Segments Vs Customer Segments Traditional segmentation is based on the amount of the financial assets, e.g. - From 0,1Mi – 0,5Mi - From 0,5Mi – 5Mi - From 5Mi – 50Mi - More than 50Mi This segmentation is a snapshot that ignores the evolution of the customer. The tiers defined below recognize the potential evolution of clients.
Dominant Exchange
Restricted Access
Horizontal Breadth
Tier 2: Wealthy Individual An extremely accomplished individual with impressive financial assets Needs a CFO kind of relationship, meaning a person who will be a fully trusted advisor on every financial decision Advisory service applied to a complex tailor-made portfolio Long-term relationship is assured, hopefully generating an exclusive partnership
Tier 1: Family Office The client is composed of all the members of an exceedingly wealthy family including multiple generations Family holdings are financial as well as non-financial assets, comprising a complex porftolio The family office is run by a team of experts which manages these complex assets through a web of financial intermediaries
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Tier Solutions we provide Benefits client Benefits for us
(1) Family Office Outsourcing of Family Office Mgmt Comprehensive CFO-type services (including structuring, consolidations, ...)
Comprehensive CFO services outsourced Complete access to all FIC customized products and services
System lock-in possible through management of all financial intermediary relationships Potential investment banking relationship
(2) Wealthy Individual
Some CFO-type services (e.g. Risk management, exclusive product access) Structuring and management of complex financial solutions Consolidation of total financial picture
Access to global and institutional/alternative products, and structuring of complex solutions Long-term relationship Potential for highly personlized CFO service
High margin products Cemented long-term relationship Potential to maximize “share of wallet” Potential next generation Family Office (dominant exchange and system lock-in)
(3) Matured Investor
Consolidation of total financial picture Some structuring and management of complex financial solutions Risk and product appetite profiling
Access to global and institutional/alternative products and structuring of complex solutions Long-term relationship
High margin products Cemented long-term relationship Potential to increase “share of wallet” with IRC
(4) Accomplished Investor
Some structuring and management of complex financial solutions Risk and product appetite profiling Products, access to products and transactional support
Access to best-in-class products Competitive pricing for wealth management services Long-term relationship with access to additional resources
Client beginning to develop taste for higher margin products Potential to cement long-term relationship with more activist advisory services by CRM
(5) Basic Investor
Risk and product appetite profiling Products, access to products and transactional support
Access to best-in-class products Competitive pricing for wealth management services
Potential to establish long-term relationship
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System Lock-In
Total Customer Solutions
Best Product
Proprietory Standard
Low Cost
Dominant Exchange
Restricted Access
Horizontal Breadth
Customer Integration
Redefining Customer Relationship
Differentiation
Customer Bonding Low Cost
Lowest Price, Hassle-Free Service
Horizontal Breadth “One Stop Shop” Satisfy all customer needs
Restricted Access Significant barriers in place to make it hard for competitors to access the customer
Dominant Exchange An interface between buyers and sellers that is very hard to displace once it achieves critical mass
Proprietory Standard Capture an extensive network of complementors that improve our product performance
Customer Integration Transfer knowledge to the customer to enhance its performance
Redefining Customer Relationship Unique experience throughout complete cycle of ownership
Differentiation Development of features and functionalities that make the product unique and command a price premium
Your Company Think about 3 key customers / customer groups in a given market segment ... Where would you map them on the Hax Model?
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1. Develop the Strategy • Mission, Values, Vision • Strategic Analysis • Strategy Formulation
2. Plan the Strategy • Strategy map/themes • Measures/targets • Initiative portfolios • Funding/STRATEX
3. Align the Organization • Business units • Support units • Employees
4. Plan Operations • Key process improvement • Sales planning • Resource capacity plan • Budgeting
5. Monitor and learn • Strategy reviews • Operating reviews
6. Test and Adapt • Profitability analysis • Strategy correlations • Emerging strategies
Strategic Plan • Strategy map • Balanced scorecard • STRATEX
Operating Plan • Dashboards • Sales forecast • Resources rqts • Budgets
Execution • Process • Initiative
2008 Kaplan & Norton
Too many companies are (too) good in strategy formulation but (too) bad in (a disciplined) strategy implementation!
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2004 Kaplan & Norton
A strategy map tries to describe the way the organization intends to create value for its stakeholders
Operations Mgmt Processes • Supply • Produce • Distribute • Manage Risk
Customer Mgmt Processes • Select customers • Acquire new
customers • Retain customers • Grow business with
customers
Innovation Processes • Identify new
opportunities • Select the R&D
portfolio • Design and dvlp • Launch
Regulatory and Social Processes • Environment • Safety and Health • Employment • Community
Human Capital
Information Capital
Organization Capital
Leadership Culture Alignment Teamwork
Customer Value Proposition
Price Quality Availability Functionality Partnership Brand Selection Service
Product/Service Attributes Relationship Image
Productivity Strategy Growth Strategy Long-Term Shareholder Value
Improve Cost Structure
Improve Asset Utilization
New Revenue Sources
Increase Customer Value
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2004 Kaplan & Norton
Operations Mgmt Processes • Supply • Produce • Distribute • Manage Risk
Customer Mgmt Processes • Select customers • Acquire new
customers • Retain customers • Grow business with
customers
Innovation Processes • Identify new
opportunities • Select the R&D
portfolio • Design and dvlp • Launch
Regulatory and Social Processes • Environment • Safety and Health • Employment • Community
Human Capital
Information Capital
Organization Capital
Leadership Culture Alignment Teamwork
Customer Value Proposition
Price Quality Availability Functionality Partnership Brand Selection Service
Product/Service Attributes Relationship Image
Productivity Strategy Growth Strategy Long-Term Shareholder Value
Improve Cost Structure
Improve Asset Utilization
New Revenue Sources
Increase Customer Value
E.g. Strategic Theme: Earn higher customer loyalty from innovative offerings
Stable and High-Talent Workforce
World-Class Internal Product Development
Innovative Products
Extra Revenue from New Products
Extra Revenue by Increasing Share of Wallet
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2004 Kaplan & Norton
Operations Mgmt Processes • Supply • Produce • Distribute • Manage Risk
Customer Mgmt Processes • Select customers • Acquire new
customers • Retain customers • Grow business with
customers
Innovation Processes • Identify new
opportunities • Select the R&D
portfolio • Design and dvlp • Launch
Regulatory and Social Processes • Environment • Safety and Health • Employment • Community
Human Capital
Information Capital
Organization Capital
Leadership Culture Alignment Teamwork
Customer Value Proposition
Price Quality Availability Functionality Partnership Brand Selection Service
Product/Service Attributes Relationship Image
Productivity Strategy Growth Strategy Long-Term Shareholder Value
Improve Cost Structure
Improve Asset Utilization
New Revenue Sources
Increase Customer Value
Corresponding KPI’s, Targets + Initiatives
Stable and High-Talent Workforce
World-Class Internal Product Development
Innovative Products
Extra Revenue from New Products
Extra Revenue by Increasing Share of Wallet
Measures Target Initiatives Specialized Competency Available 100% Competency Model New Hiring Program Key Staff Retention 95% Supervisory Training Benefits Program
Measures Target Initiatives First To Market 75% Annual industry show program Time To Market 9 months Development cycle time engineering
Measures Target Initiatives Customer Retention 80% Relationship Mgmt Program Share of Account 40% Gain-Sharing Program
Measures Target Initiatives Annual Revenue Growth +25% xx Percent Revenues from new products 30% xx
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1. Develop the Strategy • Mission, Values, Vision • Strategic Analysis • Strategy Formulation
2. Plan the Strategy • Strategy map/themes • Measures/targets • Initiative portfolios • Funding/STRATEX
3. Align the Organization • Business units • Support units • Employees
4. Plan Operations • Key process improvement • Sales planning • Resource capacity plan • Budgeting
5. Monitor and learn • Strategy reviews • Operating reviews
6. Test and Adapt • Profitability analysis • Strategy correlations • Emerging strategies
Strategic Plan • Strategy map • Balanced scorecard • STRATEX
Operating Plan • Dashboards • Sales forecast • Resources rqts • Budgets
Execution • Process • Initiative
2008 Kaplan & Norton
Too many companies are (too) good in strategy formulation but (too) bad in (a disciplined) strategy implementation!
“The Fresh Connection” gives a real life value chain experience within a simulated environment:
• SCM is not only the responsibility of one function or manager, it is
cross-functional teamwork
• Coordinated decision making is critical
• A strategy is necessary to have a common direction
• How to translate strategy into action
• The quality of the supply chain has a big impact on the company
profitability
• The right management information is very important;
• Internal and external collaboration is key to success.
TFC : The Value Chain Experience
The Fresh Connection configurations
• The business simulation is highly configurable
• Experience the importance of internal collaboration
• Experience the importance of a clear strategy
• Learn to translate a strategy into action
• Experience the difference between target and plan
• …
• A number of simulations is available off the shelf
• Simulations can also be customer specific by including or
excluding content elements or events
What is the impact of such a strategic choice at tactical level in The Fresh Connection?