Why Great Companies Lead and The Average Follow

In 2008, Sandie Andersen, a barista at Starbucks developed a relationship with Annamarie Ausnes, a regular at Starbucks for the past three years. The two talked about almost everything, but Ausnes never once mentioned her failing health to Sandie. 

You see Ausnes was diagnosed with a genetic disorder which causes numerous cysts on her kidneys, which can ultimately lead to kidney failure. When her health suddenly began to decline, and her kidneys were functioning at only 15 percent, she knew she needed a transplant. Ausnes mention her situation to Sandie, who offered one of her Kidney to her loyal customer and friend. 

 At the heart of Starbucks success is customer intimacy, a strategy that focuses squarely on building a long-term relationship with their customers by tailoring their products and services to fit their customer’s needs. Starbucks prides itself on developing and growing relationship with their customers, as a matter of fact, Howard Schultz inspires his company by their emphasis on values and the fact that Starbucks is not in the coffee business serving people but in the people business serving coffee.

The company created a place for consumers to stop between work and home and formed concepts for physical locations that provide customers a relaxed atmosphere and overall experience. The tactic has great success, and this is reflected by Starbucks' 2016 revenue of nearly $21.3 billion. Although the company is facing fierce competition from McDonalds and Dunkin Donuts, Starbucks maintain their position as the leader in the coffee business. 

 According to Michael Treacy and Fred Wierseman, companies that have taken leadership positions in their industries in the last decade typically have done so by narrowing their business focus, not broadening it. They have focused on delivering superior customer value in line with one of three value disciplines—operational excellence, customer intimacy, or product leadership. They have become champions in one of these disciplines while meeting industry standards in the other two. 

These companies built powerful, cohesive business systems that deliver more value to their customers than their competitors. By doing so, they raised customers’ expectations beyond the competition’s reach. These industry leaders changed what customers valued and how it was delivered, then boosted the level of value that customers expected.

Although this strategy is not new, it continues to define many companies dominance in their industry and in the process allowed these companies to lead while the average follow.  Let explore the three value discipline in detail and also let's look at the key organizational capabilities needed to ensure the company maximizes the value of each discipline since it will allow the company to become a leader in their industry. 

 Operational Excellence 

Core Organizational Capability 

Providing reliable products or services at competitive prices. Delivered with minimal difficulty and inconvenience. 

 According to Michael Treacy and Fred Wierseman the term “operational excellence” describes a specific strategic approach to the production and delivery of products and services. The objective of a company following this strategy is to lead its industry in price and convenience. Companies pursuing operational excellence are indefatigable in seeking ways to minimize overhead costs, to eliminate intermediate production steps, to reduce transaction and other “friction” costs, and to optimize business processes across functional and organizational boundaries. 

 They focus on delivering their products or services to customers at competitive prices and with minimal inconvenience. Because they build their entire businesses around these goals, these organizations do not look or operate like other companies pursuing other value disciplines.

Walmart, for example, has one of the leanest operations in the retailing business, and every aspect of their activities are measured to ensure their cost is kept to a minimum. This strategy is used to ensure Walmart delivers on their purpose. Sam Walton, the founder of Walmart, had a firm conviction that a retailer could help people save money and live better. According to Walmart website, It's their purpose. 

Now, to ensure that their strategy is successful, the company created an organizational culture aligned to their strategy to deliver on their purpose. If you worked at Walmart, you would have a specific job description; waste is not tolerated, and the environment is very process driven. A strategy of operational excellence is ideal for markets where customers value cost over choice, which is often the case for mature, commoditized markets where cost leadership provides a vehicle for continued growth.

 Leaders in the area of operational excellence are strongly centralized, with strong organizational discipline and a standardized, rule-based operation. Measuring the performance of key processes and benchmarking costs comprise an integral part of the operations of these companies who relentlessly seek to streamline their processes to eradicate errors. 

Product Leadership 

Core Organizational Capability 

Providing leading edge products and services, consistently enhancing the use of the product/service –making rivals’ goods obsolete. 

 Companies that pursue the third discipline, product leadership, strive to produce a continuous stream of state-of-the-art products and services. Reaching that goal requires them to challenge themselves in three ways. First, they must be creative. More than anything else, being creative means recognizing and embracing ideas that usually originate outside the company. Second, such innovative companies must commercialize their ideas quickly. 

 To do so, all their business and management processes have to be engineered for speed. Third and most important, product leaders must relentlessly pursue new solutions to the problems that their own latest product or service has just solved. If anyone is going to render their technology obsolete, they prefer to do it themselves. Product leaders do not stop for self-congratulation; they are too busy raising the bar.

Recently Samsung S9 came out; I said to myself I really can’t keep up. Samsung launched the S8 just last year, but I have to remind myself that the smartphone market is fiercely competitive and if you want to be the product leader, you must consistently innovate, because your competition is not resting on their laurels. 

It is important to note that companies adopting this dominant strategy have a very flexible culture. According to Michael Treacy and Fred Wierseman product leaders create and maintain an environment that encourages employees to bring ideas into the company and, just as important, they listen to and consider these ideas, however unconventional and regardless of the source. “Not invented here” is not a part of their vocabularies. 

In addition, product leaders continually scan the landscape for new product or service possibilities; where others see glitches in their marketing plans or threats to their product lines, companies that focus on product leadership see opportunity and rush to capitalize on it.

Product leaders avoid bureaucracy at all costs because it slows commercialization of their ideas. Managers make decisions quickly since, in a product leadership company, it is often better to make a wrong decision than to make one late or not all. That is why these companies are prepared to decide today, then implement tomorrow. 

Customer Intimacy 

Core Organizational Capability 

Segmenting and targeting markets precisely, and tailoring offerings to match the demands of those niches. Customer sensitivity and flexibility.

While companies pursuing operational excellence concentrate on making their operations lean and efficient, those seeking a strategy of customer intimacy continually tailor and shape products and services to fit an increasingly fine definition of the customer.  This can be expensive, but customer-intimate companies are willing to spend now to build customer loyalty for the long term.

They typically look at the customer’s lifetime value to the company, not the value of any single transaction. This is why employees in these companies will do almost anything—with little regard for initial cost—to make sure that each customer gets exactly what he or she really wants.

Launched in 1995 in the United States as an online bookshop, Amazon has grown into an international e-commerce company with separate retail websites in North America for the United States and Canada. In Europe, the United Kingdom, France, Germany, Italy and Spain all have their own Amazon sites, as do Australia, Brazil, Japan, China, India, and Mexico. 

As a result, Amazon’s audience reach in selected global markets is substantial. Amazon amassed over 150 billion revenue in 2017 and continued their dominance in the e-commerce industry. Jeff Bozz said in an interview recently "We have a relentless focus on customer service. That's even more important online than in the physical world. If you make a customer unhappy in the physical world, they will tell five people. Online they can tell 5000. 

 heir focus on improving and exceeding their customer expectation is well known and the company will spare no cost to ensure their customers are “wow” beyond belief. 

 How do you maintain dominance in your industry? How do you ensure your company remains an industry leader? Two words: 

 Discipline and focus 

 Companies that have taken leadership positions in their industries in the last decade typically have done so by narrowing their business focus, not broadening it. Larry Page and Sergey Brin did just that with the creation of Alphabet that allowed this new company to focus on the extraordinary opportunities they have inside of Google. 

 They have focused on delivering superior customer value in line with one of three value disciplines— product leadership while meeting industry standards in the other two. The alignment between their purpose, Vision, strategy, and culture must be observed because if you have a misalignment, your entire company will descend into chaos and no amount of personnel changes will help if this alignment does not take place. 

Just imagine a company like Google, Apple, Facebook, etc adopting an operational excellence strategy, it will stifle all aspect of the company creativity while confusing the hell out of their employees. Companies that sustain value leadership within their industries will be run by executives who not only understand the importance of focusing the business on its value discipline but also push relentlessly to advance the organization’s operating model. 

 They will personally lead the company’s drive to develop new capabilities and to change the embedded work habits, processes, and attitudes that prevent them from achieving excellence in the discipline they have chosen. By leading the effort to transform their organizations, these individuals will be preparing their companies to set new industry standards, to redefine what is possible, and to change the terms of competition forever.