The Delta Model_nikunj

The Delta Model Toward a Unified Framework of Strategy

-Nikunj Barnwal

Two fundamental paradigms during the last two decades 

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The Competitive Positioning Framework- Michael Porter The Resources-Based View- C. K. Prahlad and Gary Hamel

The Competitve Positioning Framework 

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Industry- Central focus of strategic direction Two ways to compete- Low Cost or Product Differentiation Two basic determinants of the profitability and strategic agendaStructure of the industry and the competitive position of the business within that industry.

Five Forces which shape Industry Structure 1.

2. 3. 4. 5.

Intensity of rivalry among competitors Threats of new entrants Threat of substitutes Bargaining power of buyers Bargaining power of suppliers

The Framework explaining the profitability

Competitive Positioning

Industry Structure

Strategy Formulation and Implementation

Porter’s Value Chain

Porter’s Winning Formula 

Pick an attractive industry.

(Attractive means one in which a business can achieve as close to a monopolistic position as possible) 

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Achieve sustainable advantages by beating their competitors in as many key activities as possible. So STRATEGY IS WAR!!!

Resources-Based View 

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Value Chain- Central focus of strategic direction Looks for value derived from resources, capabilities and competencies Firm’s development of resources and capabilities- Central focus of competitive advantage

Four Key Components to attain and sustain Competitive Advantage 

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When Resources and Capabilities generate unique core competencies When substitution and imitation is minimized When benefits are retained and not appropriated by competitors When Cost of the resources and capabilities doesn’t offset the resulting benefits

So RBV’s Winning Formula 

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Develop resources and capabilities (unique, valuable and non-tradable) Prevent imitation or substitution Prevent hold-up and slack conditions Cost doesn’t offset the resulting benefits

Where goes the Customer??? 

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The importance of customer missed by both the frameworks. In Porter’s model, customer has been described as one of the five forces whose bargaining power should be resisted/diminished.

The Delta Model  

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∆ stands for transformation/change Bonding- Central focus of strategic direction Bonding with customers as well as complementors

Business Models: Three Distinct Strategic Options System Lock-In

Total Customer Solutions 09/15/09

Asian School of Business

Best Product 13

Best Product  

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Classical form of competition Customer gets attracted by Low Cost or Differentiation Central focus of competition- Competitor Competitive advantage » Product Economics and the Internal Supply Chain Drawback- Minimum customer bonding Most widely adopted and the default position…

Total Customer Solution 

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Deep customer understanding and relationship Coherent composition of products and services aimed at enhancing the customer’s ability to create their own economic value. Instead of competing and imitating, its redefining the ways to capture and serve the customer by corporate capabilities

System Lock-In 

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Complementor- engaged in the delivery of products and services that enhance our own product & service portfolio Identification and incorporation of all the key external players for a full corporate scope Richness and depth of complementors lock our product into the system and lock-out the competition Shift from Supply Chain of one’s products to Overall System Supply Chain By owning or restricting Distribution Channels » Competitors locked-out

Value Creation by Each Strategic Option: Empirical Evidence

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Market Value Added measures mean the difference between a company’s total market value of equity and debt and its book value. Market-to-book ratio» (Expected Future Cashflows)/Investments

The Adaptative Processes- How to Genuinly Link Strategy and Execution 

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John S. Reed » “A CEO has just two jobs, decide what to do and making it happen. And, ninety percent of the job is making it happen…” So three business processes have been identified to capture the essential tasks of execution.

Three Business Processes 1.

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Operational Effectiveness:Responsible for the delivery of products and services to the customer Focus » Producing the most effective cost and asset infrastructure to support the desired strategic position It should expand its external scope to include suppliers, customer and key complementors, thus establishing an extended supply chain

Three Business Processes 1.

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Customer Targeting:It addresses the business-to-customer interface It intends to attract, satisfy, retain customers effectively and to enhance their financial performance either by reducing their costs or by increasing their revenues The ultimate goal is to establish the best revenue infrastructure for the business.

Three Business Processes 1.

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Innovation:Ensures a continuous stream of new products and services to maintain the future visibility of the business. Should not be limited to the pursuit of internal product development, but should extend the sources of Innovation to include suppliers, customers and key complementors.

Role of the Adaptive Processes in Supporting the Strategic Options of the Triangle Best Product

Total Customer Solutions

System Lock-In

O.E.

Internally efficient cost infrastructure

Maximization of the customer value through combined value chain of the firm and its customers

Enhancing the overall system performance by consolidating strong partnerships with complementors

C.T.

Seeks maximum coverage through distribution channels

Developing individual customer bonds

Attempts to consolidate a harmonized system architecture

Innovation

Speedy development of the firm’s products

Development of a composition of customized products jointly with the customer

Develop and appropriate an industry standard,

Delta Model’s Winning Formula 

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Careful segmentation of the customer base and develop as much knowledge as possible of the customer economics (seek customer bonding) Select the most appropriate strategic positioning among the three key optionB. P., T. C. S., I. Define the strategic agenda. Ensure that the three processes are properly aligned Design the proper metrics and rewards to facilitate the strategy development

Comparisons among strategy frameworks Porter’s Framework

RBV Framework

Delta Model Framework

Focus of Strategic Attention

Industry / Business

Corporation

Extended Enterprise

Types of Competitive Advantage

Low cost / Differentiation

Resources Capabilities, Core Competencies

B.P., T.C.S., S.L.I.

Basic Unit of Competitive Advantage

Activities

Core Products, Strategic Architecture

Adaptive Processes: O.E., C.T., I.

Strategy as

Rivalry

Real Estate

Bonding

The Triangle System Lock-in

Total Customer Solutions

Best Product

Mission of the Business •Business Scope •Core Competencies

Industry Structure

Competitive Positioning

•External factors determining industry attractiveness

•Activities that drive profitability

Business The Strategic agenda Innovation

Operational Effectiveness Customer Targeting Adaptive Process Strategic Agenda

References:  

www.12manage.com MIT Sloan School of Management Working Paper 4261-02 September 2002 The Delta Model -- Toward a Unified Framework of Strategy Arnoldo C. Hax and Dean L. Wilde II