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
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.
Segmentation:
The Key to Superior Strategy and Management
Segment everything, but most important segment your
customers and consumers (e.g. Unilever Asia).
Consumers
Tier 1. Modern Trade. Established
Systems and Business Scale, often
International Reaction and Conflict
Anticipation and Collaboration
Consumers
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
Tier 2. The middle LSM focused on
cash driven, largely local Shape and Win 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,
Solutions and services,
Geographical areas,
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