In their classic book Discipline of the Market Makers, the authors Michael Treacy and Fred Wiersema argued that in order to succeed in their marketplace, companies have to excel at one of three disciplines, while maintaining a competence in the other two:
- product leadership: providing the best product through innovation;
- operational excellence: providing the best price with the most convenience;
- customer intimacy: providing the best service for a particular market sector driven through detailed knowledge of customers' behaviour.
The book was published in 1995 and updated with minor revisions in 1997. Despite its relative age, the book still appears on essential business reading lists.
The companies that seek to differentiate by product leadership are characterised by a leading-edge, must-have product-set.
One of the main changes from when the book was published is that today the increased number of companies that demonstrate product leadership in the technology area.
Companies that fall into this category are Apple (hardware and online services), Sony (electronic devices) and Google (online services). They are categorised by a firm operational focus - usually with a business strategy that can be summarised in one paragraph or less.
They hire the best people and give them the freedom to innovate - they will have differing teams competing internally to produce products that will obsolete their current best-selling lines. In order to do this, the product-leadership company has to have a highly fluid and dynamic internal structure, with overlapping, self-organising teams with little importance attached to job titles.
Companies who seek to excel though operational excellence advertise that they have the total lowest cost compared to their competitors. This cost includes all service costs - including the costs of fixing any mistakes throughout the supply-chain; from the manufacture of the product through to the delivery to the customer. As a result, one of the hallmarks of an operationally-excellent company is the very low process failure rate.
The continued rise of the technology-driven supply-chain management has enabled organisations to build their supply-chains around the world - something that the authors anticipated in 1995 but has now become a reality; where consumers' purchase of stock is now the automatic trigger-point for the entire supply-chain process. The key to enabling the automated ordering and tracking of stock is the interfacing of disparate IT systems linked to bar-scanners, or increasingly, RFID (radio-frequency identifier) chips.
Part of the drive to more operationally-efficient companies is the increased popularity of 'lean' methods, as popularised by Toyota. This has led to companies removing as many waste-activities as possible from their processes and to demand the same from their suppliers - Dell, for example, keeps just two hours' inventory at its factories. Its suppliers have had to build warehouses near the Dell factories in order to meet Dell's demanding contractual delivery terms. By being such a major customer, Dell has had the power to offset the cost of holding inventory from itself to its suppliers.
Operationally-excellent companies also realise that too much customer choice creates inefficient 'lumpy' demand. They seek to smooth demand by creating capacity that is either more flexible, or create new demand in the slack periods. In order to expedite this, the company may choose to concentrate on particular customer niche or demographic, rather than trying to appeal to all customer sectors.
Again, technology has made an impact in this area since the book was written. Tools for storing and analysing customer details are more powerful, as are the tools for segmenting these customers for the purposes of tailored marketing. However, the biggest technological change is the increasing number and sophistication of communication channels through which customers can be contacted. Those companies that lever these new channels most effectively fall into the third category of excellence - that of customer intimacy.
Customer-intimate companies are those that define themselves as not just providing goods or services, but as forming a partnership with their customers. This mind-shift from just being a supplier to being a partner is a core component in this thinking.
The discipline of customer intimacy is the most interesting from a technology viewpoint. Traditionally, detailed personal knowledge of consumer behaviour has been the speciality of small, local businesses dealing with regular customers on a face-to-face basis. In the last decade, this ability to gather customer-intimate knowledge has extended to large organisations by the use of technology, for example, the use of loyalty cards to track consumers' purchases.
While ostensibly of primary benefit to the customer by giving free air-miles, discounts or cash-back, these cards are critical in allowing large companies track the buying habits of their consumers. In effect, customers sell information of their buying habits for discounted goods or services.
Recent advances in technology have extended this capacity to those organisations where customer-intimate relationship has previously been difficult to achieve, namely:
- print-media organisations are moving away from simply publishing readers' letters to soliciting user-submitted opinion pieces and photos, for use both in their print and online versions;
- TV and radio broadcasters are moving away from postal and telephone contact to text, email and to an online presence.
The reason for the drive to customer intimacy is the desire to improve service, by learning the preferences of both existing and potential customers by:
- increased communication effectiveness and intensity;
- blurring the line between uni-directional (broadcast) and multi-directional (dialogue) communication.
The medium driving this increased intimacy is the online presence; most of these organisations solicit opinion pieces, photos and video; furthermore, online contributors can label this material with descriptive tags so that others can search using their own preferences. This creates a feeling of community, leading to an increase in visitor numbers and allows the audience to be selectively targeted through advertising if required.
Online registration to upload and tag such material gives the hosting organisation useful customer-intimate details, but the most valuable information is the content of the submitted material itself and the tracking of what is most popular. The grey oval [see diagram] shows this area of online interaction compared with other communication channels.
As a result, the boundary between content-provider and content-reader is thoroughly blurred. The idea of free content sounds good but inappropriate material will drive people away - in the worst case, legal action can ensue.
For example, copyright of the material is usually surrendered by the person submitting it. If this person does not hold the copyright, or the organisation does not advertise the fact that it will take it over - something that is often insufficiently advertised - the organisation will suffer from the resultant bad publicity.
Copyright aside, there is the issue of the quality of the material. Some of the material submitted will be just plain bad, or at least inappropriate for the brand. The answer to both the copyright and quality issue is the use of careful moderation. Some of this can be automated, but much of the moderation will have to be performed by skilled staff with brand knowledge.
The key conclusion is that now, more than ever, when an organisation decides on which of the three disciplines to excel, it must plan from the start to get the technology right - and the processes surrounding the technology right - as well.