Best Total Solution

In our previous posts, we have outlined how choosing specific and compatible components of value to deliver to chosen customers is an important first step in strategy development. Certain components of value, when combined, tend to compliment each other to form a more complete offering that will draw customers. As mentioned in the book The Discipline of Market Leaders, the authors highlight three main categories that will make it easier to choose a value proposition during the strategic planning process. We have already explored the Lowest Total Cost category, and in the next several posts we will dig into the Best Total Solution. (The diagram shows some of the possible components of value associated with this category)

Lowest Total Cost - Real World Examples

Here are some examples of the Lowest Total Cost strategy from my previous post:

Dunkin Donuts (see an earlier post for a complete article outlining their business model). They compete by targeting a specific customer that is looking for good coffee at a low price, delivered fast and conveniently. Their operations are set up differently than other higher-end coffee shops.

Obviously, Wal-mart is an example as they excel at delivering speed, convenience, and low price rolled up in a no-frills shopping experience.

Ikea is another example. They deliver specific components of value such as low price, wide selection, and convenience. A customer can furnish their entire home in this store at a low price, late in the evening , and while putting their kids in the in-store child care facility.

A slightly older example but still a good one is Southwest Airlines. They deliver a no-frills, low-cost, and on-time travel experience.

All of these examples show the importance of differentiating by delivering specific components of value through a focused operating model. Each one focuses on performing internal activities that deliver the Lowest Total Cost value proposition to a chosen and specific customer group.

Lowest Total Cost

We have been discussing the need for businesses to focus on differentiating by delivering specific components of value to a chosen customer group. Certain components of value, when combined, tend to compliment each other to form a more complete offering that will entice customers. In the book, The Discipline of Market Leaders, the authors highlight three main categories that will make it easier to choose a value proposition during the strategic planning process. The first one is referred to as Lowest Total Cost. (The diagram shows some of the possible components of value associated with this category)

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.

The Essence of Strategy

The essence of strategy lies in choosing what NOT to do. If you haven't read my previous post about Dunkin Donuts , then I suggest taking a few minutes to access the article. You will see that Dunkin Donuts has chosen to perform certain activities well and leave other ones out of their focus. They are shooting for a coffee drinker that appreciates no frills, fast service, price, and convenience as opposed to the high-end coffee experience that Starbucks delivers. They have chosen a different customer group and a different value proposition, thereby eliminating direct competition with Starbucks and creating competitive advantage.

During his strategic planning process, Marco has chosen a specific value proposition around delivering the best tasting organic fruits available. As we explore his operating model in upcoming posts, we will see that he chooses to perform certain activities that deliver unmatched value for his chosen customer group. He doesn't muddy his position by performing "best practice" activities that fail to support his value proposition. In selecting his value proposition, he first identified a customer group that was under-served and then began to select components of value that his customer desired.

In the next few posts we will explore how to combine components of value that we outlined in earlier posts. This combination will help to clarify a specific 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.