They also distinguished value disciplines from quick fixes. A company noticing a decline in market share might offer special promotions to win some deals that otherwise might be lost, but this is very different than reengineering core processes for lower cost. A CEO might desperately visit some top customers, but this is very different than customer intimacy that is deeply practiced throughout the organization. A company might paper over deep process issues by introducing expediters to speed some customer orders, but this is not a comprehensive process improvement approach leading to operational excellence.
Operational Excellence
Treacy and Wiersema defined operational excellence as “providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.”41 They cited Dell, which at that time had disrupted the PC industry by offering a direct-to-consumer, make-to-order business model. The insight here is that the product itself – an Intel-based PC – was not really differentiated; it was the processes for configuring it, ordering it, paying for it, and taking delivery of it that were reimagined.
The concept of operational excellence can be broadly viewed as addressing process efficiency – doing things right – and process effectiveness – doing the right things. It can be viewed in terms of cost and convenience, but also in terms of all the ways in which processes can be differentiated: higher quality, higher reliability, shorter cycle times, lower risk and variance, greater flexibility. In some cases, internal process changes, such as maximized throughput, can contribute to customer value, such as lower cost.
Also of importance: accountability, transparency, and traceability; supplier employment practices; governance; sustainability, whether green data centers or sustainable forestry; environmental concerns, such as toxins and emissions; safety; social responsibility, such as offering living wages and eliminating child labor; locality, for example, locally grown food; ethics and fairness, such as fair trade coffee; and other values. Concepts like convenience have additional subtleties. In some contexts and for some segments, self-service is more convenient; in others, service delivery is. For some products and services, instant gratification is convenient. For others, such as using a car service to go to the airport, (delayed) synchronization between the firm and the customer process is more “convenient.”
The value of different process metrics often depends on the specific type of process. For example, consider a sales process versus a manufacturing process. Important characteristics of a sales process might be close rate and sales funnel forecast accuracy. Important ones for a manufacturing process might be cycle time, yield, and compliance.
The notion of process excellence can then be further extended to include business effectiveness: greater customer advocacy and engagement in a customer relationship management process; higher revenues or forecast accuracy for a sales process; greater customer satisfaction for a service delivery process; and lower employee turnover for a talent acquisition process. We can extend revenue generation beyond sales, and also consider how existing processes can move from being cost centers to revenue generators by monetizing physical or information byproducts.
It should be noted that operational effectiveness and efficiency are not the same as operational excellence. To excel is to stand out and be the best – in other words, to be differentiated. Having efficient and effective operations is a good goal, but might not be enough to differentiate a firm.
Product Leadership
Treacy and Wiersema defined product leadership as “offering customers leading-edge products and services that consistently enhance the customer's use or application of the product, thereby making rivals' goods obsolete.”42 They offer the examples of Nike, which outran Adidas in footwear, and Johnson & Johnson's Vistakon unit, which clearly saw its way through to beating competitors to market with the first disposable contact lenses. Importantly, it is not just the invention or design of innovative products at which such companies excel, but also rapid product introduction processes, fast decision making, and an ability to experiment and adjust quickly during the product introduction process.
Product leaders, in Treacy and Wiersema's view, are those companies that continuously innovate. They referred to Intel. Today, we would also probably consider Apple as an iconic example of continuous market-disrupting innovation: iTunes, the iPod, the iPhone, the Retina Display, the MacBook Air, the iPad, and the Apple Watch come to mind, and perhaps someday the iCar. They propose that for product leaders, competition is not about price, but about performance. Picture a Lamborghini dealer trying to win a wealthy customer's business from a Ferrari dealer. She will not argue that the Lamborghini costs $20,000 less than the Ferrari nor that it's easier to select trim colors over the web. Instead, she will focus on more exclusive leather seats, a different center of gravity, greater sex appeal, or a faster 0 to 60 time.
Treacy and Wiersema illustrated the concept of product leadership primarily through the leading product manufacturers of the time such as Glaxo, Intel, Johnson & Johnson, Microsoft, Nike, and Sony. But they intended for the concept to apply equally to services, and highlighted companies such as Disney.
Customer Intimacy
Treacy and Wiersema defined customer intimacy as “segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches.”43 Such companies have intimate knowledge of their customers' needs and use that knowledge to flexibly meet those needs. Importantly, such companies focus on relationships and lifetime customer value rather than individual transactions, and thus often segment their customers to provide the best service to their most profitable customers.
Treacy and Wiersema highlighted The Home Depot, Nordstrom, and Four Seasons as exemplifying customer intimacy. Home Depot will provide a personal consultant – a sales clerk wearing an orange apron – for hours, even for the purchase of a 15-cent screw, helping to recommend wood or metal, aluminum or steel, galvanized or not, and so on.
Or consider Nordstrom's legendary return policy: you can return anything. At any time. For any reason. With or without a receipt. Perhaps even if you bought the item somewhere else: one urban legend concerning Nordstrom is that a customer successfully returned tires there, even though Nordstrom doesn't sell tires.44 Whether the story is true or not doesn't really matter; the legend underscores the brand's value proposition around customer service.
Customer-intimate companies, according to Treacy and Wiersema, are not focused on meeting the needs of the “market,” but rather of individual customers. They provide the best customer value, based on best meeting the needs of each customer through greater in-depth knowledge of that customer's needs. Such an approach is clear for, say, a custom home builder or architect, who sits down with the family to better understand their lifestyle and preferences. Does the family want the family room open to the kitchen, encouraging togetherness? Or would Mom or Dad prefer to cook in peace while the kids play video games? A military contractor might use the same approach, better understanding the Army's objective for a new weapons system before designing it or bidding on it. But customer intimacy is not restricted to high-value goods, as the Home Depot example shows.
Importance of Focus
It is possible for a company to participate or excel in more than one discipline at a time, as we'll see with several of the highlighted companies, and in particular in Chapter 17 with GE. However, Treacy and Wiersema observed that straying from