What’s The Fundamental Question Every Business Must Answer?

Market Discipline Photo from Pinterest

Market Discipline
Photo from Pinterest

“You cannot please everyone.”

How often have you heard this in your life?  Do you believe it?  Do you try to please everyone anyway?  If so, how is that working for you?

In business, we need to make a decision very early on a key question:  Who is our customer?

To answer that question, we need to determine who will want our product or service.   It is essential to discuss how we do (or could) differentiate ourselves from our competitors — what it is that customers receive from us that makes them want to take their money out of their bank accounts and put it into our cash registers.  The answer to this question reveals our Value Proposition.

Generally, there are three types of Value Propositions*:

          1. Lowest total cost
          2. Best total solution
          3. Product or Service Leader

Your Value Proposition is what differentiates your business from your competitors and creates customer expectations. It is your promise to the customer. Your success depends on your organization’s ability to deliver a customer experience that fits your Value Proposition.  For this to happen, the Value Chain (i.e. the work, processes and procedures) must be aligned with the Value Proposition.  The customer experience you create is made up of whatever happens at each touch-point your customer has with your organization, product and service.  Well-aligned work processes, procedures, priorities, and systems actually enable the organization to deliver your Value Proposition as standard operating procedure.  Alignment drives success and profitability because it helps ensure value creating work is being done effectively and efficiently and without requiring people to use unplanned time and resources to work around standard procedures in order to deliver strategic value to the customer.

Many organizations can become misaligned over time. Misalignment can result from company initiatives and programs that are implemented to achieve goals outside of the Value Proposition. Examples can include implementation of Best Practices or popular cost-reduction programs, capital equipment purchases, or training initiatives that achieve purposes that aren’t in sync with your unique business strategy.  It is a good idea to review both strategy and organizational alignment periodically to identify changes that are needed to ensure ongoing competitiveness.

The rule of thumb is:  Deliver all three reasonably and adequately — but differentiate in just one.  Why?   As shown in the chart below, a Value Chain that optimizes an organization’s capability to deliver on one type of Value Proposition can undermine or impede delivery of a different Value Proposition. The chart below demonstrates some key differences between three businesses.

Company:

Riley Printing

Wellington Printing

Stanley Printing

 

Value Proposition:

Lowest Total Cost.

Combination of quality, price, ease of selection, no-hassle purchase   and use

Best Total SolutionTailored and customized to meet specific needs of individual   customers Product or Service LeaderInnovative, unique, cutting edge products and services; latest and   greatest

Processes

Basic, streamlined, optimized for low cost Loose, flexible.  Focus on   helping customers determine what is needed and on managing relationships

Focus on invention, development, market exploitation

Operations Simplified, standardized, tightly controlled, centrally planned,   leaving few decisions to front-line employees Delegates decisions to employees closest to the customer; very little   red tape

Loosely knit, ever-changing, adjusting to entrepreneurial initiatives   and redirections that support working in unexplored territory

Culture

Looks down on waste, rewards efficiency, focuses on optimization,   disciplined teamwork

Embraces specific vs. general solutions, flexibility, mindset of   understanding the customer and thrives on deep, lasting relationships

Encourages individual imagination, accomplishment, out of the box   thinking, mindset driven by desire to create the future

You’ll notice if you look at the selected parts of a Value Chain that there are incompatibilities from one Value Proposition to the next, and that what works best for one conflicts with what works best for another.

Can an organization effectively set up its value chain with structures and processes that support two or all three value propositions?  What impact would these differences have on the way work is done, and the way one function impacts another?

Market Discipline

To be a Market Leader, we need to develop and articulate a powerful Value Proposition, and follow three simple rules (sometimes referred to as having Market Discipline):

      1. Choose your customers
      2. Organize around Value
      3. Have the discipline to stick with the first two rules

Today’s Challenge Questions:  Why do your customers buy from you?  What do you do differently from your competitors that brings your customers to you, that drives them to take money out of their wallets and put it into your cash register?  How well is your organization aligned with the Value Proposition? And, are you following the 3 rules for Market Leaders? Or, are you losing focus (and increasing cost) by trying to please everyone? We welcome your comments and questions and invite you to write on our blog and to contact us using the box below.

*Source:  “The Discipline of Market Leaders”, by Michael Treacy and Fred Wiersema

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