Value disciplines: choose where you excel and what it asks of your organisation

Many firms promise three things at once: the lowest price, a personal approach and the newest product. Inside the business those promises pull against each other. Low prices need standard processes and few exceptions, a personal approach needs room to adapt, and new products need experiments that sometimes fail. The value disciplines of Michael Treacy and Fred Wiersema explain why a firm that tries all three usually ends up average at each, and what to do instead.

Their argument appeared in Harvard Business Review in January 1993: market leaders choose one kind of customer value to excel in and organise the whole company around it. That is easy to say and hard to do, because it changes processes, systems, culture and the people you hire.

What did Treacy and Wiersema find?

The article rests on a study of over 40 companies (source: Harvard Business Review, January 1993), including Dell Computer, Home Depot and Nike. The leaders had not broadened their business; they had narrowed their focus to one value discipline and aligned their entire operating model with it. The authors worked the idea out in The Discipline of Market Leaders (Addison-Wesley, 1995).

The three value disciplines

Operational excellence

You offer the best total cost and the least hassle: reliable, fast and simple, at a price others struggle to match. Think of discount grocers, low-cost airlines or online wholesalers with a limited range. The customer wants a smooth transaction, not choice or advice.

Customer intimacy

You offer the best total solution to customers you know well. You serve fewer customers in more depth and adapt your offer to their situation, like an engineering firm that runs a client's maintenance planning, or an accountant who knows a family business inside out. Customer intimacy is not the same as friendly service: it means tailoring for a chosen group, and turning away customers who want something else.

Product leadership

You offer the best product, and you replace your own products before a competitor does. Think of medical device makers, specialist software firms or sports brands that sell on performance. Customers pay for being first or best, not for the lowest price.

Excel in one, meet the threshold in the others

Thresholds move. What once counted as excellent service becomes the minimum customers expect, so check your thresholds every year, for example by asking lost customers why they left.

What each value discipline asks of your organisation

A chosen discipline that does not show in these four columns stays a slogan. The seven-S framework from McKinsey helps you check whether structure, systems, skills and style point the same way.

How do you choose a value discipline?

1. 01

   Choose your customers

   Decide which group you want to serve best, and which not, based on a market and customer analysis.

2. 02

   Find out what they weigh most

   Price and convenience, a solution that fits, or the best performance? Ask customers, and study the deals you lost.

3. 03

   Choose where you can excel

   Match what customers value with what you are already good at; core competences and VRIO show which strengths are hard to copy.

4. 04

   Set the thresholds

   For each of the other two dimensions, define the minimum customers expect, in measurable terms.

5. 05

   Align the operating model

   Plan the changes to processes, systems, people and rewards, including what you will stop doing.

Value disciplines compared with Porter's generic strategies

Operational excellence comes close to cost leadership, and product leadership to differentiation. Customer intimacy has no direct counterpart in Porter's generic strategies: it is differentiation built on relationships, often for a focused segment.

Criticism, research and pitfalls

• A thin evidence base: the model grew out of case studies of successful firms. Firms that chose a discipline and still failed are not in the picture, so the choice may get more credit than it deserves.
• Partial support: Zacharias, Nijssen and Stock, in Journal of Business Research (2016), confirmed the three strategies and clear trade-offs in how firms create value, but found no such trade-offs in how firms capture value.
• No revenue model: the disciplines say how you create value, not how you earn from it. Work that out with the Business Model Canvas.
• A label without consequences: a discipline announced without changes to processes or incentives is what Richard Rumelt calls fluff: words that sound like strategy and change nothing (see what good strategy is).

Worked example: an accounting firm chooses

A 35-person accounting firm had grown three half-strategies: cheap online bookkeeping packages, advice for family businesses in its region and finance dashboards for anyone who asked.

The online packages compete with software firms built on operational excellence, the dashboards with specialist product leaders. Only the family-business advice clearly wins. The partners choose customer intimacy for family businesses in their region.

Fictitious Firmfocus example. Operating profit after allocating overheads to each service line. The logic works in any currency.

If the advisory line keeps its 22.0% margin and grows by a quarter, to €2,000,000, it earns €440,000 on its own: more than the whole firm earned with three lines.

Small business vs larger organisation

Self-test: which value discipline fits you?

Score each statement from one (not true) to five (fully true) and add up the scores per discipline.

The value disciplines sit next to Porter's generic strategies and the value proposition and jobs to be done in strategic choices, part of the strategy overview.