Examples of Best Product/Service Organizations

Here are a couple of examples that highlight my previous post about organizations that choose to compete by offering their customers the best product or service in their market. My favorite example, which I have posted about before, is Starbucks. Yes, their stock price has dropped significantly over the past year. However, they will continue to lead the marketplace over the long range by delivering a superior experience (aka - Best Product). They are investing in new high-end espresso machines for their stores that are designed to create the best coffee drinks available. They have also intensified their focus on Fair Trade coffees in Africa that produce the best coffee beans...period.

Another example is Apple. Need I say more? They dominate their space by constantly innovating and producing the latest and greatest tech gadgets and computers.

Both of these examples provide a classic look at organizations that choose to differentiate by offering the Best Product/Service.

Choosing how you create value for your customers drives your entire strategy and strategic planning process.

Click here to start at the beginning of this blog.

Take a Shower!

In Geoffrey Moore's book, Living on the Fault Line, he discusses value propositions and how they lead to sustainable competitive advantage. Geoffrey talks about delivering certain components of value (see previous posts for a description of "components of value") in a superior way and the other components in a reasonable and adequate way. In other words, if you are going to differentiate on convenience, speed, and hassle-free service, then you still have to deliver innovation, cutting-edge performance, and customization reasonably and adequately.

Marco differentiates his fruit stand by providing the best-tasting organic fruits (product leadership) through cutting-edge agriculture and farming methods. However, he also knows that he must deliver on price, selection, and speedy service in ways that will meet the basic standards of the customer. In other words, he must deliver on those non-differentiating components of value reasonably and adequately.

Geoffrey Moore defines these non-core components of value as "hygiene." Essentially, most of us take a shower every day, but we don't get extra credit for it. We must have "reasonable and adequate" hygiene to wander around in society, but nobody pats our backs for it. This is the same with customer value creation. Organizations must deliver two or three components of value in a way that makes them stand out and only maintain "hygiene" standards in the remaining components of value creation.

This can be challenging in the strategic planning process as entrepreneurs and executive teams struggle to keep their decision-making and operational planning aligned with the chosen value proposition.

Dunkin Donuts

Regarding the concepts discussed so far in my blog, don't take my word for it. As you can probably tell, I will use examples pulled from real companies to support the fruit stand concepts. Here is a link to an excellent article from New York Magazine. The article highlights a clear value proposition created by Dunkin Donuts. You will see the different customer value they are targeting.

http://nymag.com/nymetro/news/bizfinance/biz/features/15139/

All Things to All People

"All things to all people" is not a new statement by any stretch. There is nothing groundbreaking about it. However, this concept seems to take over business strategy and is the enemy to success.

Ray, our second fruit stand owner, seems to have put together a solid business. He focuses on many good things, and at a glance we are tempted to agree he is on the right track. However, if you look at the components of value we outlined in our previous posting, you will see he is spreading his approach too thin. He is attempting to try to deliver differentiated value in multiple areas such as low price, product leadership, intimate service, etc. This is a losing game that will result in a net loss business model.

Redesign your business to deliver focused value to select customers.

Why is the Value Proposition so Important

Why is a Value Proposition considered STEP ONE in strategic planning? Our take is simple. How well an organization creates value for a chosen customer is the number one reason for bottom-line success. A value proposition is NOT a marketing term. It is not something the biz dev, marketing, and sales guys/gals should be exclusively in charge of. The value proposition surpasses everything else inside the firm as the single most important element to driving shareholder value. Without this crucial element in place, how can the customer be expected to select your offering over others? Without this crucial element in place, how can your employees possibly know how to execute?

A value proposition shapes decisions that managers make: budgets, channels, and corporate culture. Executive teams spend weeks discussing the mission and vision of the company without touching on the most vital of all elements. Why? Our experience has shown that customer value propositions become marketing ploys. They change constantly any time a competitor does something new. Also, executive managers don't understand the value proposition concept as a key step in strategic planning. Many managers will put in place an operating initiative such as reengineering or Six Sigma and believe those concepts will create a sustainable advantage. The only sustainable advantage is decided by the customer. Market leaders don't change their fundamental customer value. They continue to improve it.

Honing the Value Proposition

In most of our strategy workshops, when we ask if businesses can be great at all of those components of value, we get a number of responses. We usually hear several answers that suggest you have to try to be great at all of them, and sometimes we hear answers that suggest lumping several of them together to focus on. The answer that we're looking for is the latter one. However, you have to be careful about which components you select to focus on. Some of the components, when you analyze them, are impossible to deliver together in a way that differentiates. In other words, it is very difficult to be great at offering a low price and delivering customization at the same time. Customization requires internal resources that cost money. This additional cost creates value for the customer that should be reflected in the price.

Of the components of value listed below, which ones might you be able to combine to offer to your customer in a differentiated way? In other words, which ones can you excel at?

Image
Time (Speed or Time Saved)
Price
Relationships
Performance
Convenience
Specific Solutions
Results
Hassle-Free Service
Ease-of-Use
Customization
Quality

Components of Value

As a part of STEP ONE, it is a good idea to separate many of the possible ways to create customer value. These can be referred to as components of value. Here are a few to consider:

Image
Time (Speed or Time Saved)
Price
Relationships
Performance
Convenience
Specific Solutions
Results
Hassle-Free Service
Ease-of-Use
Customization
Quality

Can a business be great at all of these? Can a business differentiate in all of these areas?

Before You Do Anything!

Before you do anything else inside your organization, define specifically, clearly, and with a rigorous approach your firm's value proposition.

This is STEP ONE in strategic planning. If you are working on a strategy and haven't completed this vital step, then you are setting yourself up for mediocrity. Yes, mediocrity. I wouldn't say failure, but to most shareholders, mediocrity is considered failure.

The first step in STEP ONE is to do some looking around. For example, look at your favorite websites, visit your favorite places to eat, and research market leaders in other industries. Look at how they create value and hone in on who their target customer is. Then look at how they are set up to deliver that value. Zappos.com, a leading online shoe store, creates value by offering low-priced shoes, huge selection, and hassle-free service. Their operating model is set up to deliver those "components of value" in a way that could be classified as excellent.

Anybody care to guess what STEP TWO is?

So, what's the problem?

So, if you read my last post on September 11th, you might be saying, "Ray's fruit stand sounds pretty good. He is doing some pretty good stuff." My quick answer to that questions is, yes, he is. However, where does he excel? As we explore both fruit stands further, we will outline the differences between the two, and you will see the fundamental problem with Ray's stand.

3 Value Strategies

A number of best-selling authors, including Michael Porter, have talked about 2 or 3 general value propositions organizations can choose to focus on delivering to their customers. These should be the foundation of any complete strategy or strategic planning process.

Value Strategies:

1. Lowest Total Cost. 2. Best Total Solution. 3. Best Product/Service.

These Value Strategies encompass two elements:

1. The Value Proposition. 2. The Operating Model

Let's take look at an example:

Staples, the office supply store. What's their tag line? I'll tell ya..."that was easy." They build their marketing around the "EASY BUTTON." So, their value proposition is to deliver ease-of-use, convenience, and speed. Therefore, their operating model must be designed to implement and deliver those components of value in a way that makes them different and keeps the promise to the customer of making it easy.

Does this sound obvious? I bet it does. So why do companies fail to stay true to their value strategy and constantly slip into creating an operating model that looks like any generic company?

Introduction to the Fruitstand Concept - the strategic plan

There is a recent article in a major business magazine about how strategy has never been more important. The article goes on to say that even though it's more important than ever, Strategy discussion and planning is often avoided at the senior executive level. Why? My feeling is that strategy is avoided because most managers and executives don't understand how to approach creating a strategy that is easily explained and understood by all employees.

Accounting professionals have a generally accepted methodology for managing the financial aspect of a company called GAAP (Generally Accepted Accounting Principles). However, managers and executives don't have such a widely used and accepted process for planning their strategies.

This Blog will set out to explore and discuss how organizations can create advantange through strategic planning. I will hammer out the process I have used for years that combines bits and pieces of concepts from well-known strategists and authors such as Geoffrey Moore (Crossing the Chasm), Micheal Treacy (Discipline of Market Leaders), Norton and Kaplan (The Balanced Scorecard), and many more.

Frequently, I will refer to a fictional set of businesses (fruit stands) to outline the process. The goal of using the fruit stands example is to emphasize the simplicity of the strategic planning process. Every business, whether a fruit stand, dry cleaner, web designer or billion-dollar retail chain, must have a strategy that is understood by its employees. The strategy must clearly highlight how the product or service creates customer value and how that value will be delivered. Additionally, I will consistently and continuously refer to the three rules I have refined for successful organizations:

1. Selectively choose your clients and/or customers.
2. Organize the business around delivering a specific type of value to your select customer.
3. Discipline yourself and your management to stick to the first two rules.