The Value Disciplines Model was created by Michael Treacy and Fred Wiersema in their book “The Discipline of Market Leaders.” This model explains three value disciplines that an organization can use to create value and stay ahead of the competition.
Businesses of all sizes, shapes, and belonging to any sector can use this model.
What is the Value Disciplines Model?
Treacy and Wiersema described three Value Disciplines:
- Customer Intimacy
- Product Leadership
- Operational Excellence
The philosophies of each discipline are:
- Customer Intimacy – Deliver what customers want
- Product Leadership – Offer innovative products
- Operational Excellence – Lowest price and hassle-free service
According to Michael and Fred, a successful business that wants to achieve its full potential must perform well in all disciplines but excels in one discipline. The organization must communicate the same core value to employees so they can be on the same page. If required, the organization should provide training to employees to enhance their skills, supporting this core value.
Value Discipline 1: Customer Intimacy
Customer intimacy means a good relationship between the company and its customers. In this discipline, businesses focus on fulfilling requirements and ensuring that the customers are happy. This will help fewer dropouts from renewals, fewer cancellations, and higher customer satisfaction.
Here, businesses seek a deep understanding of customer problems and provide tailor-made solutions to meet the needs of their customers.
For example, a client has an issue with many manual activities in their processes. In this case, the business will analyze what manual activities consume time and the solutions to be applied. The business will also see if the applied solution achieves the objectives.
Another example is Amazon, whose amazing customer experience is one of the guiding principles of “Customer Obsession.” They focus on the highest customer satisfaction. This is reflected in their delivery promises and ease of returns. If the item is non-returnable, Amazon might let the customer keep the item with a full refund.
Traits of companies having customer intimacy include:
- The customer comes first, and decisions are in the best interest of the customer
- Long-lasting relationships with customers
- Having a clear-cut understanding of customers’ challenges and coming up with innovative solutions
This discipline is hardest to copy, as it needs time, energy, and constant effort to maintain. Common measures of having excellent customer intimacy are low churn rate and great customer satisfaction.
Value Discipline 2: Product Leadership
Product Leadership means producing cutting-edge future-proof products or services. Firms that engage in this value discipline continue to innovate and stay ahead in the competition. Employees of these firms think creatively and come up with innovative solutions, and their rewards are usually linked to their innovation in launching the products.
An example of Product Leadership value is Apple. They bring cutting-edge products.
Other examples are Tesla (driverless cars), SpaceX (for space transportation), and Neuralink (to connect humans and computers using a transplant).
Traits of companies having product leadership include:
- Creativity and innovation
- Ability to turn innovation into commercial offerings and sell them
With constant changes in customer expectations, the business must be relentless in offering the best experience to customers.
This discipline is easier to copy, so businesses should keep inventing innovative products and invest in R&D to stay ahead of the competition.
Value Discipline 3: Operational Excellence
Business excellence at the operational level provides consumers with the lowest cost products. Their product line is standardized, products are highly reliable, and they come with zero defects. Its focus is on efficiency rather than innovation and value chain to ensure transparency right from production to delivery to the customers.
An example of operational excellence is Walmart, whose concept is everyday low prices. They always ensure that the prices are lower. They guarantee that if customers find a better price at any of its competitors’ outlets, they will match the same price.
Another example is Amazon. Its core principles are Customer Obsession and Being the Earth’s Best Company. Amazon offers free shipping with the shortest delivery time and delivers at the lowest cost compared to its competitors. Each employee working at Amazon is responsible for providing the best service to the customers.
Traits of companies that exhibit operational excellence include:
- A focus on automation
- Lowest price in the market
- A culture of efficiency and transparency
- Not focused on innovation but will be operationally best
To measure the performance of this value discipline, costs are often looked at as a measuring parameter.
Why Not be Great in All Disciplines?
Consider Amazon. It excels at Customer Intimacy and Operational Excellence by focusing on ensuring ease of returns and delivery, but coming to Product Leadership, it tried with products like Fire Phone, but they failed. However, they are still trying innovative products like acquiring IMDB and studios and focusing on Amazon production.
It is challenging to be a leader in all three segments. As per the creators, they recommend leading one segment and being on par with the remaining two. The selected discipline should be well supported by a proper operational model.
Tools for the Value Disciplines Model
- If a business wants to choose a discipline in which to excel, they use Porter’s Five Forces Method to understand where their price stands in the market (to evaluate Operational Excellence).
- Businesses can consider Four Corner Analysis to see where their competitors stand and what discipline competitors are following, and how the business responds.
- Once a business understands its market position and its profit margins and strategizes for long-term and short-term growth, it is recommended to use Porter’s Value Chain model.
- A business might be doing excellent R&D but is unsure of customer focus. To assess the company’s skills and capabilities, they should use the VRIO model.
How Can Business Apply the Value Disciplines Model?
If a business wants to gain a competitive advantage over its peers, it is recommended to be a leader in at least one of the value disciplines. Once a business selects its core discipline, it becomes the company’s core value or guiding principle, and it can be applied across the organization.
To become a leader of one discipline, the business must not neglect the other two disciplines and maintain a threshold. Businesses should compete in all disciplines but should excel in one.
Advantages of Value Disciplines
- Irrespective of the product stage, this model can be applied in any stage
- This model helps you to focus on strategic objectives
- This model is a simple approach to positioning business
Disadvantages of Value Disciplines
- This model is not a thorough approach as it requires help from different approaches
- This model can’t directly predict based on the raw data; it requires other models to function well. For example, Porter’s Five Forces Method gives accurate data on a business’s price strategy.
Alternatives to Value Disciplines
Other models similar to the Value Discipline Model are available to check how businesses place themselves in the marketplace. Some of them are Bowman’s Strategic Clock and Porter’s Generic Strategies. However, these models do not focus on the values of the Value Discipline Model.
Conclusion
The Value Disciplines Model helps businesses determine their position in the marketplace. Regardless of size and industry, any business can use this model to become the market leader in at least one value discipline and maintain thresholds in the other two disciplines.