THE DELTA MODEL: Discovering New Sources of Profitability in a Networked Economy Arnoldo Hax Alfred P. Sloan Professor of Management

The Tenets of Strategy 1.The creation of economic value 2. The development of customer bonding 3. The achievement of the Spirit of Success

The Delta Model – Three Distinct Strategic Options

The Triangle: Options for Strategic Positioning

The Challenge to Decommoditization: Transforming the organization from best product to total customer solutions

Transforming the Organization Change your mindset The transformation is not straight forward The case of Codelco and the International Copper Association

Transforming the Organization Redefine the game you are playing Transforming the CSN Organization Decommoditize your customer The case of Castrol

What is Castrol Logic? A customized lubrication solution involving products and services that results in documented: Cost Reductions & Productivity Improvements Productivity Improvements

Transforming the Organization Rethink the customer engagement process

The Best Product Positioning is not necessarily the most profitable or the best way to serve your customer. The Best Product Positioning is not necessarily the most profitable or the best way to serve your customer.

Segmentation: The Key to Superior Strategy and Management Segment everything, but most important segment your customers and consumers (e.g. Unilever Asia). ConsumersConsumers Tier 1. Modern Trade. Established Systems and Business Scale, often International Reaction and Conflict Anticipation and Collaboration Tier 1. The affluent high LSM (Life style management) across Asia focusing on Aging, Single/Working Women, and Teenagers Satisfy their needs and vitality, Quality Time, Customized Product, and Solutions Tier 2. Modern Trade. Smaller, more cash driven, largely local Shape and Win Tier 2. The middle LSM focused on upward mobility and social migration Upgradation to higher aspirational brands and affordable price Tier 3. Including Retailers, Wholesalers, Drugstores, Small Retailers System Lock-In by being only Supplier to produce ECR (Efficiency Customer Response) principles. Tier 3. Lower (but not bottom) LSM, less affluent emerging consumers in developing parts of the region Purchasing basket primarily of essentials.

Transforming the Organization Prevent the customer from commoditizing you The case of Eastman Chemicals Coating business Channels are essential, they own the customers The case of Hindustan Lever and Unilever de Mexico

The Paint and Coating Industry

The Food Service Industry

Transforming the Organization Use technology wisely: This is a very hard task The case of Advanced Micro Devices

Transforming the Organization Beware of the organizational structure implications You have to change dramatically the way you: manage, assign responsibilities, reward people, monitor the business progress, and most important, the way you sell The transformation has to be accomplished by a change in both the front--end as well as the back-end of the organizational structure.

Transforming the Organization Beware of the organizational structure implications The back-end should be segmented according to the way we segmented Products and Technologies: Administration functions, Supply chain functions, New product development technologies, Process technologies, Information technologies, Functional activities related to product marketing

Transforming the Organization Beware of the organizational structure implications The front-end should be segmented according to the way in which we segment the markets: Clients, End-users, End-users, Solutions and services, Solutions and services, Geographical areas, Geographical areas, Functional activities related to customer marketing Functional activities related to customer marketing

Transforming the Organization Seek System Lock-In Opportunities This is very hard to accomplish; however if successful the rewards are enormous

ACHIEVING YOUR POTENTIAL The way to win is not to beat your competitor but to bond with your customers