The Firm as a Bundle of Competencies

Competencies

 The Triangle:
Options for Strategic Positioning
System Lock-In

Dominant Exchange Proprietary Standard

eBay, Yellow Pages Microsoft, Intel

Exclusive Channel
rural Wal-Mart

Horizontal Breadth Low Cost

Fidelity Southwest Airlines,
Nucor

Total Customer Customer Best Product

Solutions Integration
Redefining the EDS Differentiation
Customer Relationship Sony Wega
Saturn
Delta Model Strategies
Best Product Centered on product economies
Low cost Focus on being the lowest cost
provider in an undifferentiated
product category
Differentiation While maintaining effective
production economies focus on key
differentiation in the product
features and functionalities such
that the products are unique desired
and command price premiums
Positions
Best Product
Low cost
Differentiation
Total Customer Solutions
Redefining the customer
experience
Horizontal Breadth
Customer Integration
System Lock-
Lock-In
Restricted Access
Dominant Exchange
Proprietary Standard
Since there is only one lowest
cost producer, this strategy
leaves very little space as a
competitive position. It also
tends to standardize the product
offering, commoditize the
customer, and intensify rivalry.
The problem with this strategic
position is that as soon as the
differentiated product emerges,
competitors tend to imitate
them. An competitive advantage
is therefore non-sustainable.
Delta Model Strategies
Definition Comments
Centered on product economies
Focus on being the lowest cost provider in an undifferentiated product
product Since
Since there is only one lowest cost producer, this strategy leaves
leaves
category very little
little space as a competitive position. It also tends to
standardize the product offering, commoditize the customer, and
intensify rivalry.
While maintaining effective production economies focus on key The problem with this strategic position is that as soon as the
differentiation in the product features and functionalities such that the differentiated product emerges, competitors tend to imitate them.
them. An
products are uniquely desired and command price premiums competitive advantage is therefore non-
non-sustainable.
Oriented to customer economics
A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of he
point of acquisition through to the complete lifecycle of ownership
ownership of the customer base leading toward an effective customer segmentation
product and a differentiated treatment of the customer tiers.
A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in share of the wallet of the
need are customized and provided. One-
One-stop shopping for a unique customer.
customer.
solution.
solution.
This strategy seeks to effectively substitute for or leverages activit
activities
ies The
The firm is regarded as a bundle of competencies that will be
currently performed by the customer. It is outsourcing in its extr
extreme
eme form and
and brought to the customer to enhance the customer economics.
at least represents a complex web of connections with the customer
customer that
enhance their ability to do business and to use your product.
Focuses on complementor economics
Focuses
barriers are in place that make it difficult for competitors
Significant barriers co petitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for
f or the acquisition of customers. practices tend to be deployed to prevent it.
With this strategy the company provides an interface between buyers and This
This is the most accessible of all of the systems lock-
lock-in options.
mass.
sellers that s very hard to displace once it achieves critical mass. The first mover advantage is critical.
The customer is drawn to your product because of the extensive net
network
work of This option
option is
isnt available in most industries. If it can be achieved
third party complementors that are designed to work with your product. the rewards are enormous.
 Delta Model Strategies

Positions Definiti
Definition Comments

Delta Model Strategies

Best Product Centered on product economi
economies

Low cost Focus on bei

being the lowest cost provider in an undi
undifferenti
erentiated product
product Since there is onl only one lowest cost producer, thithis strategy leaves
eaves
category very littl
ttle space as a competi
competitive posi
position. It al
also tends to
standardi
standardize the product of offeri
fering, commoditi
commoditize the customer, and
intens
ntensify
ify rriivalry.

D ifferenti
erentiati
ati on Whi
W hile mai
maintai
ntaining ef
effecti
fective producti
production economi
economies focus on key didifferenti
erentiati
ation The probl
problem wiwith this strategi
strategic posi
position is that as soon as the
in the product features and functi
functional
onaliti
iti es such that the products
products are unique differenti
ferentiated product emerges, competitors tend to imitate them.
them. An
desi
desired and command price premipremiums competi
competitive advantage is therefore non-
non-sustai
sustainable.

Total Customer Solutions Oriented to customer economics

Redefining the customer
experience
A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of the
point of acquisition through to the complete lifecycle of ownership
ownership of the customer base leading toward an effective customer segmentation
product and a differentiated treatment of the customer tiers.

Horizontal Breadth A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in share of the wallet of the
needs are customized and provided. One-
One-stop shopping for a unique customer.
customer.
solution.
solution.

Customer Integration
This strategy seeks to effectively substitute for or leverages activities
activities currently The
The firm is regarded as a bundle of competencies that will be
performed by the customer. It is outsourcing in its extreme form
form and at least brought to the customer to enhance the customer economics.
represents a complex web of connections with the the customer that enhance
enhance their
ability to do business and to use your product.

System Lock-
Lock-In Focuses on complementor economics
Focuses

Restricted Access Significant barriers are in place that make it difficult for competitors
competitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for the acquisition of customers. practices tend to be deployed to prevent it.

Dominant Exchange With

W ith this strategy the company provides an interface between buyers and This
This is the most accessible of all of the systems lock-
lock-in options. The
sellers that s very hard to displace once it achieves critical mass.
mass. first mover advantage is critical.

Proprietary Standard The customer is drawn to your product because of the extensive network
network of This option isn
isnt available in most industries. If it can be achieved
third party complementors that are designed to work with your product. the rewards are enormous.

Total Customer Oriented to customer economics

Solutions
Redefining the A focus is places on considering the full
customer experience of the customer from the point
experience of acquisition through to the complete
lifecycle of ownership of the product
Horizontal Breadth A complete set of product and service
offerings that fulfill the entire customer
needs are customized and provided.
One-stop shopping for a unique
solution.
Customer This strategy seeks to effectively
Integration substitute for or leverages activities
currently performed by the customer. It is
outsourcing in its extreme form and at
least represents a complex web of
connections with the customer that
enhance their ability to do business and
to use your product.
This positioning is based upon an
intimate knowledge of the customer
base leading toward an effective
customer segmentation and a
differentiated treatment of the
customer tiers.
We are seeking a dominant position
in share of the wallet of the
customer.
The firm is regarded as a bundle of
competencies that will be brought to
the customer to enhance the
customer economics.
 Delta Model Strategies

Delta Model Strategies

Positions Definition Comments

Best Product Centered on product economies

Low cost Focus on being the lowest cost provider in an undifferentiated product
product category Since tther
Since e iis
here one llowest
s only one owest cost producer, this strategy leaves
lea es very
little space as a competitive position. It also tends to standardize
standardize the
product offering, commoditize the customer, and intensify rivalry.
rivalry.

Differentiation While
W hile maintaining effective production economies focus on key differentiation
differentiation in The problem with this strategic position is that as soon as the
the product features and functionalities such that the products are unique differentiated product emerges, competitors tend to imitate them.
them. An
desired and command price premiums competitive advantage is therefore non-
non-sustainable.

Total Customer Solutions Oriented to customer economics

Redefining the customer A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of he customer
customer
experience point of acquisition through to the complete lifecycle of ownership
ownership of the product base leading toward an effective customer segmentation and a
differentiated treatment of the customer tiers.

Horizontal Breadth A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in share of the wallet of the
need are customized and provided.
provid ed. One-
One-stop shopping for a unique solution.
solution. customer.
customer.

Customer Integration This strategy seeks to effectively substitute for or leverages activities currently
activities currently The ffirm
The irm is regarded as a b undle
bundl e of competencies that will be brought
b ought
performed by the customer. It is outsourcing in its extreme form
form and at least to the customer to enhance the customer economics.
represents a complex web of connections with the the customer that enhance
enhance their
ability to do business and to use your product.

System Lock-
Lock-In Focuses on complementor economics

Restricted Access Significant barriers are in place that make it difficult for competitors
competitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for the acquisition of customers. practices tend to be deployed to prevent it.

Dominant Exchange With

W ith this strategy the company provides an interface between buyers and sellers This is the most accessible
acc ess ible of all of the systems lock
lock-in options. The
that is very hard to displace once it achieves critical mass. first mover advantage is critical.

Proprietary Standard The customer is drawn to your product because of the extensive network
network of third This option isn
isnt available in most industries. If it can be achieved the
party complementors that are designed to work with your product. rewards are enormous.

System Lock-In Focuses on complementor economics

Restricted Significant barriers are in place that This is a difficult position to
Access make it difficult for competitors to achieve and to sustain.
even compete for the acquisition of Regulatory practices tend to be
customers. deployed to prevent it.
Dominant With this strategy the company This is the most accessible of all
Exchange provides an interface between of the systems lock-in options.
buyers and sellers that is very hard The first mover advantage is
to displace once it achieves critical critical.
mass.
Proprietary The customer is drawn to your This option isnt available in
Standard product because of the extensive most industries. If it can be
network of third party achieved the rewards are
complementors that are designed to enormous.
work with your product.
McKinsey Organizational Structure

CLIENTELE INDUSTRY
FUNCTIONAL CAPABILITY
SECTORS
GROUPS
Automotive & Assembly
Business Technology Office
Banking & Securities
Corporate Finance
Chemicals
Marketing & Operations Practice Industry Consumer Packaged Goods
Organization Leader Expert Electric Power & Natural Gas
Strategy
High Tech
Insurance
Media & Entertainment
Metals & Mining
Nonprofit
Payer/Provider
ENGAGEMENT
ENGAGEMENT Petroleum
TEAM
TEAM
Pharmaceuticals & Medical Products
Private Equity
Pulp & Paper/Forest Products
GLOBAL OFFICES Retail
Amsterdam Detroit Telecommunications
Antwerp Dublin Travel & Logistics
Athens Du Team Leader
Atlanta Dsseldorf
Auckland Frankfurt
Bangkok Geneva
Barcelona Gothenburg
Beijing Hamburg
Berlin Helsinki Office Manager Client Impact
Team
Bogot
Bogot Hong Kong CUSTOMER
Boston Houston
Brussels Istanbul
Budapest
The Delta Model: Description of McKinseys Competence

Dominant Exchange

Create few industry

standards for private Proprietary Channel
and public sectors
Failed to lock-out
competitors and lock-
Exclusive System Lock-In in complementors
Channel

Decentralized
Horizontal Breadth (local) presence
Alumni Network 1970s-2000s
Clientele industry sectors
Functional groups
Best Product
Strong global presence
Integrated consulting Total Customer
services (one-stop shop)
Solutions
1920s-1960s Differentiation

High-Caliber People
Collaborative Process
Brand & Reputation
Customer Integration High-Level Customer
Redefining Customer Relationship
Relationship Target individual market Knowledge & Expertise
Customer interests come Management Team
Long-term vision first Global Presence
Highest standards of professional Client Impact & Service Privately-owned
conducts Team (CST) Market Share
Customer as a business partner Dynamic Culture
Customized/personalized services Quality
 The Delta Model: Description of Biogens Full Array of
Strategic Positions
The Delta Model: Biogen moving towards TCS
Exclusive Channel
Proprietary Standard
Medicare approval for Avonex
Patient protected products
Advantage with regulators and speed to
market due to clinical trial rep, Co-defendant
in lawsuit
Clinical trial sites best in business - attract
complementors and recruitment SLI
Suppliers on-site reps (strong bonding!) ,
scale economy, Extended to travel, and IT
needs
Horizontal Breadth
Autoimmune
TCS BP
Complementor development
Differentiation
R&D & pipeline - for patients & firms
Indications for specific
disease states
Redefining customer experience Specific Interferon science
Information Exchange point (alliances)
Participation in patient advocacy
Customer Integration
Medical Resource for patients
Bonding through dynamic
investment in personalized Informational resource for
web page physicians

Rahul K. Kdanda, From Biogen to Idec: Strategy evolution from commoditized customers to the Delta Model, 15.902 Student Report
 Schwab - Expanding the Strategic Options

Dominant Exchange Proprietary Channel

Investors can easily access many interfaces for The trading and investing standards are not
advice and trading. But if Schwab was able to proprietary to Schwab
develop a comprehensive and integrated network, it
may be able to function as a dominant exchange

Restricted Access
Access Schwab may be able to achieve
System
first-
first-mover advantage with an
A deep relationship and comprehensive integration Lock-
Lock-In
or entanglement of the customer
customers financial life expanded business scope
would discourage switching
Low cost
Schwab
Schwabs prices are low, but they are not the lowest
Customer Integration cost producer. However, price is not the primary
Schwab has the opportunity to leverage its concern for Validators and Delegators,
Delegators, and they should
technology to gather and use customer information to sub-
sub-segment the Self-
Self-Directed segment and focus on
build customized services and deep relationships those who are more interested in service

Total
Total Best Product
Horizontal Breadth Customer Differentiation
Solutions No firm has figured out how to profitably service the
Schwab hashas a robust product offering for this group,
is adding banking services, and can offer a broader middle market, therefore the market usually has
product line than the discount brokers because of itsits access to a limited range of services and minimal
affiliation with U.S. Trust. Enhancing its capabilities hand-
hand-holding and advice
Redefining Customer Experience
Experience Schwab, with its history of innovation, strong
with technology will further differentiate Schwab.
The middle market investor, especially the technology capability and culture of leveling the
Validator,
Validator, usually cannot access the quality or playing field for the smaller investor, could be the
level of advice she is seeking Schwab could first maybe only firm to develop this capability
develop a truly differentiating capability that
would redefine the customer experience

Source:Lynn
Source:Lynn MacDonald, Charles Schwab: Changing the Rules of the Game
Game, 15.902 Student Report
 Synthes

Dominant Exchange Proprietary Standards

Role of IT in hospitals AO Foundation

Horizontal Breadth Low Cost

Coverage of all Manufacturing
therapeutic areas excellence

Customer Engagement and Differentiation

Customer Integration Continuous New
Role of Consultants Product Development
Education
Intimacy
 Capital Ones Competencies
Restricted access
Increasing barriers to entry from competitors
and exit from customers.

Low cost
Horizontal breadth Lowest charge-off of industry
The widest coverage of the
industry Shut-off the credit
filters

Customer engagement Customer integration Differentiation

Actuarial calculation of customers life The Power of IBS 95% product 2 years
time NPV in real time Stream of new products
Testing for customer acquisition, card Short half-life cycle
utilization and attrition Customized offers
Horizontal accounting (entry and listing
of cohort)
Detecting adverse selection
The organizational capabilities
Entrepreneurial structure and culture
Information Technology know-how (largest Oracle data base - 40 pages
per every American)
Customer service (30 million inquiries per year). Identify the caller after 1
ring with 70% accuracy. The right call routed to the right associate.
Recruiting talent (behavioral interviews, case interviews, standardized
test)
Insights from the Delta Model
Model

1. Think of your firm as a bundle of competencies - Not

merely as an engine for developing, making and
distributing products.
2. Understand deeply your customer needs - Segment
the customer base to differentiate meaningful value
propositions to each customer tier.
3. The key to exploit opportunities for growth and
profitability is to match your competencies with your
customer needs. Try to be creative, bold and fast.