1.1. Understanding the Landscape
Yes, the environment in which we operate has changed. Both inside our companies and externally in the marketplace, many of our old working assumptions just don't look the same.
1.1.1. The Internal Landscape
Michael Treacy and Fred Wiersema are leading authorities on business strategy and corporate transformation. In their extensive study of highly successful companies versus those that are less successful, they identified some key differences in strategy setting and operational behavior between industry winners and losers. The value discipline model they developed is an important frame of reference for understanding how changes in the marketplace have affected all businesses and why requirements for success have changed for most, if not all.
Treacy and Wiersema showed that successful companies build their competitive advantage by focusing on and excelling in only one of three basic values: product leadership, customer intimacy, or operational excellence. In addition to having the discipline of maintaining this single focus, companies must be at least adequate in the other two; they cannot be failing (Treacy, et al., 1995). These values are outlined in Figure 1-1.
Figure 1-1. The Value Discipline Model (adapted from Treacy, et al.)
Treacy and Wiersema's business principle still holds true. These three value disciplines form an understandable and actionable model that describes the different ways in which companies can focus their efforts and build success. Understand what differentiates your company, know where your strength and unique value comes from, and maintain your focus. There is no one correct model that all companies must follow to achieve success. According to Treacy and Wiersema, the Value Discipline Model includes these three values, as were shown in Figure 1-1:
Operational excellence involves building business processes that provide the best product quality, best price, and the best purchasing experience, yielding the best total cost to the customer.
Product leadership involves focusing investment and energy into developing the product that is the newest or most revolutionary or most sought after, offering the best product to the customer.
Customer intimacy involves building strong customer relationships, really getting to know your customers so you are sure to really understand their situation, which should yield the best total solution for the customer.
These value disciplines describe the way different companies build relationships with their customers, and they haven't changed. The importance of being able to pick just one to focus on while keeping the other two at an acceptable level also hasn't changed. What has changed is what it takes to be adequate or excel in each of the three disciplines. The Internet hasn't changed everything…but it has changed a lot!
1.1.2. The New (e)Marketplace
At first, we thought that the Internet was going to break all the rules. But painful as it was, it didn't take long to learn that business basics still count. No matter how many sales are made or how much traffic is generated, if a company cannot make money, it will not survive. In fact, no matter how much value a company provides to customers, if its business plan isn't sustainable, it can't continue to provide that value for very long.
We also now know that the Internet didn't destroy all the traditionally successful companies. In fact, it is the solid brick-and-mortar companies that have been able to combine their strong infrastructures with the new tools and capabilities that the Internet offers. These “bricks-and-clicks” companies have turned out to be the real winners.
So, what has changed? Let's take a closer look.
Access: The Internet puts more information in customers' hands, at a faster rate, than was previously possible. Having all of this information at their disposal has given them the opportunity to evaluate alternatives and to make much more intelligent decisions about purchases.
Control: The Internet also gives customers the opportunity to do business when and how they want to do it, not when we choose to be open for business. Customers have more power and control than ever. They aren't about to give any of it back; in fact, they want even more.
Speed: Commerce on the Internet occurs at unheard of speeds. Information can be gathered, options compared, and transactions completed faster than a customer could drive down to the mall or get a call back from a sales rep. These incredible speeds are reshaping customer expectations of how quickly things can and should be done everywhere.
Globalization: The Internet has opened up the entire world as a marketplace to everyone. We are no longer constrained by the neighborhood or even the borders of the country we live in. Companies that have never sold outside of their own region may now have customers all over the globe. These global customers often have very different expectations from those they've always known. Everything from language to product features, from privacy to payment options and more can be (and probably should be) different.
Automation: Finally, and maybe most important, the Internet has eliminated many of your employees (order administrators, call center support reps, sales reps, etc.) from the processes that you have moved online. Historically, human intelligence and knowledge have created a link between many of our internal disconnects. Now, just at the time that customers' expectations have risen regarding how quickly, easily, efficiently, and accurately commerce can take place, the Internet has removed the “glue” that has allowed most companies to mask all of their disconnected processes and systems.
This doesn't mean that an Internet experience has to feel “cold” or mechanical. Stanford University professor Clifford Nass showed that people actually react to computers as if they were human (Reeves and Nass, 1998 ). But computers don't (yet) have the human capability to make intellectual leaps or connect information that is not obviously linked. Computers are logical, but not intelligent.
1.1.3. The Impact
The Internet has affected companies that have chosen to focus on operational excellence in several ways. It has given customers more information and, thus, more control over their buying experiences and has raised customer expectations regarding speed and convenience. The speed at which transactions can take place affects expectations of how fast everything should be done. For many industries, it has leveled the operational playing field, but the level of play is much higher and more competitive! There is less differentiation today and less of a gap between the minimum acceptable experience and the best experience. It's harder to be excellent, and even the minimum standard has been raised.
The impact on customer-intimate companies is equally strong. The single global marketplace serves customers from many different cultures with different expectations and needs. This makes building relationships much harder. Of course, the biggest impact is removing the direct human contact from so many interactions. It's harder to be excellent when you don't understand your customers' expectations (or even their language) and even more so when the human interaction is eliminated.
Product-leadership companies have also been significantly impacted. More control in your customers' hands means less control in yours. With more information available to customers, they can easily compare products and prices and make buying decisions. All the information that's available on the Internet has contributed to another phenomenon in today's marketplace. Many products have become or are becoming commodities, and it's happening very quickly. Customers are better informed and can make better decisions about what they really need (and what they don't need). In addition, the Internet makes it much easier for competitors to access your product information and to quickly develop competitive products. Today, it's difficult to maintain product superiority for very long.
Almost overnight the marketplace has become truly global, and most of us haven't had enough time to learn who our new customers are. Most important, many customer interactions take place without a human being there to smooth out the rough spots and eliminate the disconnects in many of our processes.
Table 1-1 summarizes the Internet changes that have impacted the whole marketplace. You can use tools like this table to track the situation for your own company.
| Internet Effects | Operational Excellence | Product Leadership | Customer Intimacy |
|---|---|---|---|
| Access | Easier to compare and swap | Commoditization | Providing human contact |
| Control | Always on | Broader choice, less differentiation | Interaction preference |
| Speed | Process expectations | Products unique for shorter periods | Efficiency, not loyalty |
| Globalization | Language, localization | Localization of products | Unknown language, culture |
| Automation | Process disconnects | Distance from customer needs | Loss of human memory, connection |
At the end of the chapter in the Questions for Reflection, you can refer back to this table to help you understand the specific impact of the Internet on your company.
1.1.4. The Result
As a result of all these significant changes, many people (including me) believe that customer loyalty is the single most important differentiator for ensuring competitiveness and success into the 21st century.