Kendall Consulting Group - Innovation Article on Value Discipline Leadership

 

Do You Want To Be A Value Discipline Leader?

Do you want to be the leader in your industry? Do you want to be the best? Do you want to provide the best offering for your customers whether that is the best products, the best solution or the best total cost? Do you want to have the capability to offer your customers better value year after year? Do you want to be the best today and have the capability to sustain your leadership position in the future?

A large division of an American chemical company, the ABC group, was alarmed by its recent industry performance. Although it was profitable, the division was losing market share and long-time customers at an alarming rate. The future was beginning to look bleak. The management of the division did an assessment of their customers and operations, and the results were not good. The division had been trying to be all things to all customers, and as a result, was pleasing few of their customers. Doing nothing was not an acceptable option so management decided to transform the business and reestablish its market leadership through operational excellence. Their next question was “How?”

Is sustained leadership in your market only wishful thinking or can it be a reality for you? In their book, The Discipline of Market Leaders, Michael Treacy and Fred Wiersema introduced the three value disciplines that companies can develop in order to deliver their customers best products, best solutions or best total cost. They are Product Leadership, Customer Intimacy and Operational Excellence, respectively. The authors wrote that it is possible to be an industry leader in only one value discipline at a time and gave numerous examples of companies that have achieved value discipline leadership. The authors emphasized that in addition to their leadership in one discipline, these companies maintained sufficient competency in the other two discipline areas to maintain parity with their competition.

Treacy and Wiersema stated that to be a value discipline leader a company must develop a unique and value driven operating model that enables the leader to deliver products and services that its customers value most. An operating model consists of business processes, organizational structure, information and systems, performance management systems, and cultural norms and practices. Each value discipline has a distinctly different operating model that enables leadership in that discipline. Operating models of leaders in a specific value discipline (e.g., Operational Excellence) are similar regardless of their industry. In addition, operating models are not static. Value discipline leaders must continually improve their operating models to ensure that they meet their customers’ evolving value preferences and stay ahead of their competition.

Getting started

So how does a company go about developing a unique and winning operating model? If each value discipline has a distinctly different operating model, are their blueprints available that can be copied? Can you just go to a value discipline leader that you emulate and copy what you see is that company’s operating model?

Unfortunately, you can’t just copy a value discipline leader’s operating model. Why not? Because your customers will have different needs and values than their customers have. Both groups of customers may value , for instance, Best Total Cost, but their definitions will be different and depend on their specific businesses. For example, both FedEx and Toyota are value discipline leaders in operational excellence but they have dramatically different operating models due to the differences in their customers’ definition of best total cost. Value discipline leadership is all about your chosen customers, knowing how they operate, and understanding what they value most in products and services. Thus, to determine what operating model you need, you must begin by studying your customers.

An in-depth survey of your customers is the right way to begin. It is essential that you understand what your target customers value most before you chose which value discipline you want to pursue. The survey we recommend is not a typical customer satisfaction survey, but is a carefully structured survey aimed at uncovering what existing and prospective customers value most in products and services, and how they do business with their suppliers. The survey needs to be designed to test all three value preferences to see which one the customers prefer. It also needs to uncover how the customers perceive all their suppliers’ (e.g., you and your competitors) relative performance in the areas that matter most to them. Existing customers, past (lost) customers and potential customers should all be surveyed to understand the full spectrum of customer opportunities.

Value Proposition and Performance Targets

Armed with the results of this survey, your management team can analyze the results and decide what value discipline most fits their chosen customers’ preferences. The chosen customers will include current customers and often, potential customers that represent a compelling business opportunity. There should be a clear business case justifying the choice of a value discipline. The management team should communicate its choice in a value proposition with performance targets that will represent the best offering to their customers.

A value propositions is a succinct statement of what customers value, the products and services that will deliver those benefits, and the manner in which you will deliver them. It is a promise or commitment made by a value discipline leader to its customers. It should be a unique and winning proposition. The selected performance targets are the quantifiable measures of performance that will indicate when the promised products and services are being successfully delivered to customers.

Designing the Value-Driven Operating Model

In their book, Treacy and Wiersema wrote, “If the value proposition is the end, the operating model is the means”.(1) . A unique and correctly designed operating model will enable you to deliver on your value proposition. Treacy and Wiersema wrote also, “The operating model is the key to raising and resetting customer expectations. Improving it can make competitors’ offerings look less appealing, or even shatter their position by rendering their value proposition obsolete. The operating model is the market leader’s ultimate weapon in its quest for market domination.”(2)

Few companies get to be value discipline leaders with only minimal improvement to their operating model. Companies are seldom equipped to do business in a manner that their chosen customers value most. Treacy and Wiersema state that a company can’t ‘bolt on’ capabilities to their existing, underperforming operating model in order to achieve value discipline leadership. Bolt-ons, they say, not only don’t work, they actually make the situation worse.(3) Thus, value discipline leadership nearly always requires companies to transform their operations to achieve orders of magnitude improvement in their performance. Only when such transformation is done with “unprecedented focus and discipline”4 can companies leap frog their competitors in providing customers the deal they value most.

Most companies have over the years made improvements in parts of their operations (e.g., functions, departments, plants or offices). Many are quite accomplished at such projects and have optimized single areas. Unfortunately in the process they may have sub-optimized the overall business process and performance as perceived by customers. For example, one company had invested much time and effort to reduce its manufacturing plant’s costs, however, order delivery performance dropped dramatically and the sales force began spending all its time chasing orders and placating customers.

Value discipline leaders have learned that incremental change isn’t sufficient. A myriad of small improvement projects also will not produce sufficient results and will take too long to make a significant impact on performance as perceived by the customers. In addition, the company that takes the small project approach is likely to be surpassed by a nimble competitor that takes a more aggressive approach to developing value discipline leadership.

Business Transformation

Transformation of a business’ operations for value discipline leadership requires redesign of business processes that span geographies, functions and the supply chain. Process redesign begins with the customers’ operations and stretches to the operations of suppliers, distributors and other business partners. The objective is to design and build processes that are optimized from start to finish - from a customer’s need to product and service delivery that satisfies the need. Only when the whole supply chain is performing superbly well and the interfaces among all the participants in the supply chain are seamless will value discipline leaders deliver on their winning value proposition.

How does one begin to transform one’s business? Transformation is challenging and takes effort, creatively and leadership. However, the good news is that many companies have successfully done it before. During the 1990’s many companies reengineered their businesses and achieved dramatic improvement in their performance. From those experiences has come a proven methodology that companies can use when they aspire to be value discipline leaders.

Critical Success Factors of the Methodology

There are eight factors that are critical to the successful transformation of a business in pursuit of value discipline leadership. The following outlines what you would see in a successful transformation initiative.

1. Management sponsorship

As with any major initiative in a business, the first and most important factor in achieving value discipline leadership is active management sponsorship. There is a sufficiently compelling business case to justify committing the company to a value discipline leadership and the transformation it will require. This sponsorship is strong, visible and unrelenting over the months and years. Value discipline leadership is the business strategy and all other initiatives fit within its context. Value discipline leadership is the number one initiative of the business. It does not compete with other initiatives for resources and management attention.

2. Performance and financial targets

Achievement of value discipline leadership requires that every group and individual in the business understands and is motivated to achieve the performance and financial goals that management has set to guide the transformation to value discipline leadership. Each person can explain the performance goals in terms of customer value and tell you how the goals are measured. Individuals also understand how they and their groups contribute to achieving the financial goals of the business. Financial functions usually go to great effort to ‘cascade’ and communicate the financial goals down through the organization, and to develop computer systems to measure and report progress on these goals.

3. Leadership

Usually a team of senior managers is assigned from the organization to lead the transformation. These managers are selected because of their business experience, proven leadership ability and communications skills. Team members are usually the stars of the company and pulling them from their existing jobs is painful to the business. Team members believe in the case for value discipline leadership, understand the specifics of the chosen value discipline, and are passionate in their support of it. The leadership team leads the organization and any sub-teams in the transformation. They are responsible for the achievement of the value proposition and its performance targets.

4. Design teams

Sub-teams are formed to design the new business processes and the underlying operating model (jobs, organization, systems, etc.). It is challenging and exciting work. Each team is staffed with people from across the organization – departments, functions and geographies – so that the team as a whole has a global, cross-business perspective. Team members understand how the business works today and have an interest in making it better. Team members are willing and eager to learn about best practices within and across industries. Only through studying the best practices in business processes and the other parts of the operating model are team members able to envision breakthroughs that will allow their business to achieve value discipline leadership.

5. Contributors and participants

As many key stakeholders as possible are asked to participate in the transformation to value discipline leadership. The stakeholders include most employees and representative customers, suppliers and other partners in the development and delivery of products and services to customers. Time and effort are spent communicating to them and including them in the design process. The design process benefits from their ideas and suggestions, and they develop an understanding of the case for change, the opportunities of value discipline leadership and the new operating model that is being designed.

6. Methodology

To reiterate, there is a methodology that can guide teams doing a transformation. The methodology that the teams would follow has the following features:

• The approach is structured as a change process with lots of opportunities for stakeholders in the business to contribute and guide the design process. Communications to stakeholders is a key job throughout the design process and the implementation. Communications is managed using a stakeholder map and communications professionals brought in to assist the team in developing the communications. Stakeholders are sufficiently communicated to and enrolled in the new operating model so that they will support its implementation.

• Study of the existing operating model is be limited only to the extent that is necessary for team members to have a common understanding of the “as is” business operation. The job of the team is to design a new operating model to replace the existing one so spending time and effort to document the existing process has little to no value. Therefore, design teams control how much time they allocate to this area. ‘Time boxing’ the effort is useful to keep the team on track.

• The design process begins at the highest level and widest scope. It is at this level that breakthrough opportunities will be found. Most companies have found the ‘low hanging fruit’ already. By staying high – global, cross-functional and cross-organizational (to customers and supplier operations), new opportunities for improvement are found. These opportunities can be huge and would not be visible if design was done at a smaller scope and level. For example, rather than building larger customer service and technical service groups, companies are moving their customers to “self serve” when they place orders and get technical information. These companies analyzed the work that was done (often redundant efforts) both by their operations and their customers’ operations, and created a breakthrough for both by changing to self-service.

• Breakthrough thinking is important in redesign. The redesign teams use a number of techniques to help them challenge the status quo, be more creative, and identify performance breakthroughs. These techniques include the greenfield visioning, rules breaking, customer perspectives and information technology enabling. The teams also go on best practice visits to see for themselves better practices in their process areas.

• The design process evolves from high-level design to detail design in which many specifics of the new operating model are decided and written in a blueprint of the operating model. For example, business processes are designed in much detail – who will do the work, when they will do it, how long they will take to do it, and what systems they will require to assist them in their work. These blueprints are used to guide the implementation of the new operating model.

• Quick hits or short-term benefits are gained throughout the design process. Whenever a team encounters an easy fix, the team notes it and assigns the opportunity to a line manager to implement immediately. The team measures the returns from these fixes and communicates them enthusiastically to the sponsors.

• As part of the design process, a road map and business case are developed. The road map recommends an approach to implementation, and the business case outlines the costs, returns and risks that can be expected for each time period during the implementation.

• Teams usually divide up the operating model and design the sections in parallel. For example, a team may be assigned to design a single business process and its supporting operating model. Another team may be assigned to design a process area such as order fulfillment that has many sub-processes including order management as well as logistics, credit and financial settlement processes.

• Team work products are consolidated once all the teams have finished their work. ,A sub-set of the design teams consolidates the work of the teams into an overall operating model that is recommended for the value discipline. This team streamlines the interfaces between processes, resolves any issues and makes sure that all the pieces of the operating model fit together and work as a seamless whole to deliver the value proposition and performance targets.

• Conference room pilots and trials are most useful in testing the design of the new operating model and determining how it will handle the challenging situations that every business faces. Pilots can also be used as a communication event in which stakeholders can observe the new operating model in operation and see how well it works. Time is usually set aside for pilots both during design and at completion of the design process.

7. Schedule and milestones

Designing the new operating model is not be allowed to take an inordinate amount of time. Management sets an aggressive date to complete the work. Teams usually take a few months to complete their design work assuming that team members will not spend 100% of their time of the design work. They spend approximately 80% of their time and no less than 50% of their time on this work. The more time they are able to spend, the better the work product they will produce

After the teams have completed their blueprints, road map and business case, another month is required for a team to consolidate the work products and complete the overall operating model. Additional time may be scheduled for pilots to demonstrate the new operating model and further enroll stakeholders to its design

8. Implementation

The transition from design to implementation of the operating model is critical to achievement of a value discipline. Implementation planning is started before the consolidation of operating model is complete. Leaders of functional departments begin to consider how their departments will implement the new operating model. They begin their detailed planning following the guidelines of the operating model. For example, if the decision has been made to outsource a function such as transportation planning or benefits administration, the head of that function (who was part of the outsourcing decision) would begin searching for service providers and planning the transition to their services. Thus, it is important for the consolidation team to get the functional leaders working on detailed implementation planning in parallel to the consolidation work.

Successful business transformations have no pause for a long management review before approval and funding are given, and implementation begins. If the design work has been lead and done correctly, the management team has already bought into the blueprints for the new operating model and its road map and business case. As soon as the consolidation is done, they will be ready to give their approval and move into implementation.

A final factor for successful implementations is that there is continuity between the designers and the implementers. Experience has shown that the people who have designed the new operating model passionately believe in it and thus, are the best people to lead its implementation. The best implementation teams are staffed with as many of the designers as possible.

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The management team of the ABC group followed the steps in this article when they did their transformation. They began their transformation by surveying their customers and segmenting them by their importance as base, key and strategic. They then studied each group to understand its value preferences. Armed with these insights, they developed a value proposition and performance targets that would serve the preferences of the strategic and key customers. Their value proposition included words such as operational excellence, becoming the standard in the marketplace, and working with speed, simplicity and confidence.

One of the main obstacles to transforming the business was its lack of information systems and good information management practices. Therefore, management decided to drive the business’ transformation with the implementation of a new Enterprise Resource Planning System. After extensive analysis, the Group selected a large integrated system similar to SAP. The system had been developed specifically for chemical operations so would be a good fit. The system would be a source for and driver of best industry practices for the division’s operations.

Management began the transformation process by assigning some of their top leaders to a team that would lead the redesign of the business operations. These leaders came from across the business and had a good understanding of how the business worked. Management devoted time to informing the team members about the state of the business and what had been learned from the customers. Management ensured that the team was fully enrolled and enthusiastically in support of the value proposition and goals.

Redesign teams were staffed for the key process areas and a large meeting was held to launch all the teams together. Once again, management informed the team members of the state of the business, customers’ value preferences and the chosen value proposition and goals. Management answered all questions and promised that their doors would be open to team members if they had further questions and concerns.
The launch meeting also introduced the redesign teams to a methodology and breakthrough thinking techniques that they were to use in their work. Management with the guidance of the leadership team set an aggressive three-month goal for the redesign teams to complete their work. Redesign team members were instructed to spend approximately 80% of their time on this work.

The redesign teams worked vigorously on their assigned process areas. They eagerly searched for best practices in their process areas. They looked both within their industry and across industries for practices that would improve process performance. They were supported by the leadership team members who attended many of their meetings and consultants as needed. When issues arose concerning their authority to challenge the status quo and break rules, the leadership team and/or the management team confirmed their authority. Throughout the redesign process, the management team was vigorous in communicating to the organization the case for transformation and operational excellence. Everyone in the organization heard the ‘voice of the customer’.

The redesign teams, encouraged by the leadership team, involved customers and suppliers in their redesign work sessions. This had never been done before, but the feedback from all participants was excellent. The redesign teams actively involved stakeholders from the business in their redesign work and left their doors open to others to just walk in and look at what was being done. The redesign teams also periodically met together to streamline the interfaces between their process areas.
After approximately a month, the redesign teams held what they called process fairs to show the business the high level designs they had developed for their process areas.

They creatively used pictures and diagrams to show how the new processes would work. They invited all stakeholders and encouraged them to make comments and suggestions. Armed with this feedback, they began their detail design work.
At the end of three months, the redesign teams produced the blueprints and roadmaps for their processes. Each team prepared a mini-business case supporting their process design. The leadership team formed a consolidation team (of representatives from the redesign teams) to meld the work of the redesign teams into an overall blueprint and roadmap for the new operating model.

The leadership team worked to consolidate and refine the business case with the financials supporting the transformation to operational excellence. The team was assisted by the heads of the functional departments who had been involved throughout the redesign. The team was pleased to recognize the ‘quick hit’ savings and performance improvements that had already been identified and implemented during the redesign process.

Because the management team had been involved throughout the redesign process, they were prepared to quickly approve the projects that were identified in the redesign including funding for a multi-million dollar ERP system. Thus, there was no delay before implementation began. The leadership team continued to lead the transformation and the implementation of the roadmap. The management team continued to communicate its vision for leadership in operational excellence and the case for transformation. As performance improved and market share was regained, the whole organization celebrated its success.

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Deciding Whether To Go For Value Discipline Leadership

The decision to work toward value discipline leadership is a strategic business decision and one that should not be taken lightly. Becoming the leader in your industry is no easy task. It will take years of effort, investment of funds and superb leadership by your management. It will likely require a transformation of business as you know it today. However, it can be done successfully if you follow the advice given above, study the lessons of value discipline leaders, and seek the support of people who have done it before. Most importantly, the benefits of successfully achieving value discipline leadership more than justify the effort.
It is useful when you are considering undertaking value discipline leadership to remember the definition of insanity: insanity is doing the same thing over and over and expecting to get a different result. Achieving value discipline leadership requires a new, ‘out of the box’ approach to change. It requires a transformation using a different tool kit, a different methodology and a different way of thinking about your business. Some companies aren’t up to that challenge. Value discipline leaders have proven that they are. Are you?

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