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System Lock-In Total Customer Solutions Best Product Competition based upon system economics: Complementor lock-in Competitor lock-out Proprietary standard Competition based upon customer economics: Reducing customer costs or increasing their profits Competition based upon product economics: Low cost or differentiation

Delta Model

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Page 1: Delta Model

System Lock-In

Total Customer Solutions Best Product

Competition based upon system economics:Complementor lock-inCompetitor lock-outProprietary standard

Competition based upon customer economics:

Reducing customer costs or increasing their profits

Competition based upon product economics:

Low cost or differentiation

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The framework offers four major contributions:

The triangle, which defines strategic positions that reflect fundamentally new sources of profitability.

Adaptive processes, which align these options with a firm’s activities and thus provide strategic direction and execution with the capability to continually respond to an uncertain environment.

Aggregate metrics, enabling the measurement of success.

Granular metrics, which help discover the drivers of performance in complex industries.

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The Best Product position offers value to the customer through product attributes which leads to a position of low cost or differentiation.

When the low cost position is employed, the following attributes, providing the customer with a price advantage, tend to be success factors:•economies of scale•product or process simplification•significant product market share

Differentiation, enhancing product attributes in a way that adds value for the customer for which they are willing to pay a premium, accomplished through:•technology•brand image•additional features•special services

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The Total Customer Solutions strategy focus on developing value propositions that bond with individual customers and creates economic value for them (Hax & Wilde, 2001: 10). This is accomplished by a wider offering of products and services that satisfies most if not all the customers’ needs. With the focus on customer economies, customer bonding is obtained through close proximity to the client that allows the company to anticipate needs, work jointly to develop new products, and enhance the process by learning and customisation (Hax & Wilde, 1999: 19). Strategy is not seen as war with competitors typical of the Best Product position, but as loving your customers.

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The System Lock-In strategic option has the widest scope as the company considers all the meaningful players in the system that contributes to the creation of economic value. This includes customers, suppliers and complementors. A complementor is not a competitor, but a provider of products and services that enhances a company’s offering. With system lock-in, the company nurtures, attracts and retain complementors in order to gain complementor’s share, thereby locking out competition and locking in customers. The highest goal is to achieve the de facto proprietary standard for the industry.

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STRATEGIC OPTION VALUE PROPOSITION TO CUSTOMERS

Best ProductThe product and product economics, attributes are

independent of the customer

Total Customer Solution

Customer economics and profitability, enhanced by

interaction between customer and product which leads to

bonding with existing customers

System Lock-In

System economics and profitability, enhanced by

interaction with other customers which leads to bonding

with existing and new customers

Table 2.1: Value propositions offered by the three strategic options

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The Bonding ContinuumBonding is central to the achievement of competitive advantage and a primary element in each of the three strategic options. It is a continuum that spans from product loyalty on the one end to full locked-in Proprietary Standards on the other end of the scale.

There are four stages in the Bonding Continuum. The first stage is dominant design. Here, through first mover advantage, features, service, and price forms part of either a low cost or differentiation strategy. The customers are attracted to a product when it excels in dimensions they care about.

The second stage, Customer Lock-In, offers the first degree of customer bonding. By establishing barriers to change that follow from the customer’s use of the product, subsequent learning and customisation, the customer is locked in. Once acquired, it is very hard for a customer to switch to alternative competitors.

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The next stage is Competitor Lock-out. Here the focus is on creating significant barriers for competitors to enter your market. There are four important strengths that help lock out competitors, i.e. distribution channels, brands, innovation, and patents. The final and most rewarding stage of bonding is Proprietary Standards. It is also the most difficult to achieve. A number of requirements need to be met in order to achieve this stage of bonding. You need a platform or architecture open to a large number of complementors. The standard should provide a lock-in with the complementor’s products through an interface or natural exchange. The standard must be proprietary by being hard to copy, staying ahead through innovation, or having a patent.

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1.The Business Strategic AgendaThe strategic agenda is a way of expanding the mission statement and strategic position into a strategic “To Do List” which includes four components, i.e. strategic thrusts, organisational structure, business processes, and business performance.

Strategic thrusts spell out the mission by dividing it up into broad objectives. The organisational structure is used to assign responsibilities and authorities to the different role players. Business processes refer to activities that cut across organisational units and require horizontal coordination. These processes are described in more detail under adaptive processes. Performance refers to the measuring and monitoring of key indicators as well as the tracking of time-driven events.

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1.Adaptive ProcessesAdaptive processes focus on the link between strategy and the execution of the strategy. The triangle determines WHAT to do, whilst adaptive processes focus on HOW to do it. The core activities of the business have to be aligned to the chosen strategy in order to ensure a successful strategy implementation. In this model, the core activities of a business are seen as Operational Effectiveness, Customer Targeting and Innovation. These core activities are collectively called Adaptive Processes. Operational effectiveness is defined as the production and delivery of goods and services and needs to produce the most effective cost and asset infrastructure to support the chosen strategy. Customer targeting is defined as the management of the customer interface and includes the identification and selection of customers and enhance the customers’ performance by establishing the best revenue infrastructure for the chosen strategy. Innovation is defined as the process of new product development and should ensure that the business remain viable through a continuous stream of new products and services

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1.Aggregate MetricsAggregate metrics aim to give an overall view of the business and its performance and serve as guidelines to define strategy performance. It is directly linked to the adaptive processes and here again, the chosen strategy position, Best Product, Total Customer Solutions or System Lock-in, determines the metrics applied for each of the adaptive processes. Operational effectiveness focuses on cost drivers, customer targeting on profit drivers, while innovation focuses on renewal drivers (Hax & Wilde, 2001: 10).

1.Granular MetricsBusinesses are complex ever-changing and interdependent systems that cannot be modelled through linear equations. In the Delta Model, granular metrics are used to measure the bonding success of the business. By disaggregating average measures, granular metrics help by revealing nonlinearities and concentrations that serve as strong indicators of performance drivers.The granular metrics cycle starts off by selecting performance indictors. The next step is to detect variability by drilling down to detailed segmentation level and isolating variability. Once variability is highlighted, it needs to be explained. This is done by identifying performance drivers and correlating these drivers with variability. When variability is explained, the cycle continues to include learning from this variability through hypothesising cause and effect and evaluating outcomes. The last step is to act from variability by defining a program and structured tests as well as rolling them out (Hax & Wilde, 2001: 192 - 203).

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