February 29th, 2012 The Delta Model
The Delta Model is a strategy (organizing) framework that was developed by Dean Wilde, along with other members of Dean & Company, and Arnoldo Hax of the MIT/Sloan School of Management. It is aimed at assisting managers in the articulation and implementation of effective corporate and business strategies.
The emergence of the Internet, with the previously unimagined potentials for communication, and the technologies surrounding e-business and e-commerce, made available some new options tools that allowed the feasibility of new business approaches. Hax and Wilde II integrate the Competitive Advantage and Value Chain frameworks from Porter with the Resource-Based View on the Firm and complement those with new Extended Enterprise perspectives and with offering Total Customer Solutions.
The Delta Model Contains the Following Elements:
1. Strategic Triangle: used for defining strategic positions that reflect fundamentally new sources of profitability (three strategic options: best product, customer solutions, and system lock-in),
2. Aligning these strategic options with a firm's activities and provides congruency between strategic direction and execution (three fundamental processes are always present and are the repository of key strategic tasks: operational effectiveness, customer targeting, and innovation), and
3. Adaptive processes: core processes of the company must be aligned to the chosen strategy in order to make progress against the strategic agenda and avoid a commodity-like outcome. The Delta Model identifies the core processes of the business and provides a guide for how they need to function differently to achieve different strategic positions capable of continually responding to an uncertain environment.
4. Metrics (Aggregate Metrics that should be supplemented with Granular Metrics).
Hax and Wilde believe a firm owes itself to its customers. They are the ultimate repository of all the firm's activities. At the heart of management and, certainly, at the heart of strategy, resides the customer. We have to serve the customer in a distinctive way if we expect to enjoy superior performance. The name of the game is to attract, to satisfy, and to retain the customer.
The intimacy and connectivity of the networked economy offer opportunities to create competitive positions based upon the structure of the customer relationship.
A business can establish an unbreakable link, deep knowledge, and close relationship that we refer to as customer bonding. These bonds can be directly formed with the customer, or indirectly formed through the complementors that the customer wishes to access.
Both are powerful sources of margin and sustainability. The bonds represent investments made by customers and complementors in and around the business product.
The Strategy Delta
Arnoldo C. Hax and Dean L. Wilde II, The Delta Model Toward a Unified Framework of Strategy, MIT Sloan School of Management Working Paper Number 4261-02.
What is the fundamental unit of strategy? Michael Porter's hugely influential work seeks to make sense of strategy within the bounds of particular industries, whether the Swiss watch industry or the Dutch flower industry. Another approach is propounded by Gary Hamel and C.K. Prahalad. This theoretical school sees the company as the basic strategic unit. A company's strategy is regarded as a function of its resources human and otherwise. Over the last decade, a great deal of intellectual energy has been expended on refining these two world views, merging them, or coming up with coherent alternatives.
Entering this theoretical fray are Arnoldo C. Hax, the Alfred P. Sloan Professor of Management at MIT's Sloan School of Management, and Dean L. Wilde II, chairman and founder of strategy consultants Dean & Company. The Delta Model developed by Professor Hax and Mr. Wilde puts forward three strategic options that can lead to what they call customer bonding. These are best product, total customer solutions, and system lock-in.
The best-product strategy is built on having a low-cost or differentiated product. However, this option is limited because it does not build substantial customer bonding. The business-to-business total customer solutions strategy is based on reducing customer costs and increasing customer profits. Companies compete on the basis of customer economics. Finally, system lock-in embraces others in the supply chain customers, suppliers, and complementors. Complementors are firms that produce products or services that enhance a company's own product and service portfolio. Proprietary computer standards is one example of how a complementor can execute system lock-in. More than 100,000 applications are designed to work with Microsoft's Windows operating system, whereas only one-quarter of that number of applications exist for Apple's Macintosh system, according to the authors.
The Hax and Wilde team add some compelling financial performance data to the discussion about customer-centered strategy. Their research looked at more than 100 major companies whose strategic positions clearly fitted one of the three categories ï¿½ system lock-in, best product, or total customer solution. Those that competed on the basis of system lock-in were substantially more successful in terms of market value added (MVA) and market-to-book value. For example, companies with a system lock-in had a mean MVA of 57.15, compared with 14.26 for companies competing on the basis of having a best product and 22.38 for those competing on the basis of a total customer solution.
The authors argue that three daptive processes namely, operational effectiveness, customer targeting, and innovation are the primary means by which the three different strategic options can be pursued and executed.