Unveiling the secrets behind market leaders
By Roy Goni
JAKARTA (JP): How should a company continue to hold onto its No. 1 position? Being the best as well as a market leader is the obsession and dream of every single company.
History has shown that the numerous empirical examples of how companies like Walmart, Microsoft, Nike, McDonald's, IBM, Citibank, Sony and an array of the world's elite corporations race to find the appropriate competing edge to enable them to hold on to their superior position.
The competition to be the best seems like a never-ending race. Many formulas for becoming the best have been offered, and one of them, which drew a lot of attention from the business world, was the method initiated by Michael Tracy and Fred Wiersema about five years ago.
From a number of empirical and detailed studies on cases of companies dominant in the world, Tracy and Wiersema endeavored to map and analyze the factors which formed the strength of these market leaders.
They discovered that for any company to become a market leader, it had to have three basic concepts in its foothold.
The first concept is Value Proposition -- a kind of implied promise given by the company to its customers, usually comprising a combination of a number of certain values, such as price, quality, services, practicality, choice and the like.
The second concept is a company must have an Operating Model which is geared by the implicit promises in the Value Proposition, meaning a combination of the operation process, management, company structure as well as culture, enabling it to deliver its promise to customers.
The third concept is called Value Disciplines, which refers to the three ideal ways by which a company can combine its Value Proposition with the Operating Model so that it becomes the best in the eyes of its customers.
Based on these three concepts, Tracy and Wiersema came to the conclusion that to be the best a company must choose a Value Discipline to adhere to.
The Value Disciplines identified by Tracy and Wiersema are as follows:
1. Operational Excellence. Companies utilizing this discipline focus their attention on the operational side of excellence, due to their ability to reduce operational costs to a minimum through reliable products and hassle-free services. Those who adhere to this discipline are not innovators. The key to this discipline is in operational excellence by offering the best products at the best price with the minimum level of hassle.
The Value Proposition is quite simple: Hassle-free services at low prices, such as those demonstrated by Southwest Airlines and Walmart.
2. Product Leadership. Companies using this Value Discipline rely heavily on continuous product innovation as a competitive strength. Intel, Sony, Microsoft and Gillette are some examples of companies who have been very innovative in product development as a pillar of their competitiveness.
3. Customer Intimacy. Companies using this Value Discipline offer a range of products and services specific to the requirements of their customers, because they clearly know the customers' individual needs.
This is also called One-to-One marketing -- a discipline based on the strengths of the customers' database to create the best and most specific solution to customers' requirements. The companies who believe in a "close and intimate relationship" with their customers, among others, are: Citibank and Nordstrom department store.
Adopting a Value Discipline is not as easy as turning over one's hand. It is a fallacy if the top management assumes that a Value Discipline can be easily grafted into the company's existing operational philosophy.
A Value Discipline is central and fundamental, therefore it leaves the company no choice but to reevaluate its entire vision and mission as well as its existing business operation. This is because the Value Discipline chosen will formulate the company's real identity.
An important aspect from Tracy & Wiersema's studies to be underlined is that because the Value Discipline reflects the company's real identity, the top executives must agree on the specific Value Discipline chosen or prioritized to indicate the company's strength in the eyes of their customers.
Will adopting one of the Value Disciplines guarantee a company that it can achieve a market leader position? It is quite possible, but as we know, competition is a never-ending race. Five years ago, for example, Fedex, IBM, Motorola and 3M were the market leader role models, but do not be surprised if many of the old faces have now been kicked out of their top positions only to be replaced with aggressive newcomers.
The intense level of competition has created quite a number of changes. Why? Because each company has to be dynamic as consumers' demands are never static. Consumers' expectations and wishes are continuously changing.
In a study conducted by Fred Wiersema in May 2000 on 5,009 companies new faces were present on the world business stage as new market leaders in a number of categories. Yahoo, AOL Time Warner and Viacom dominated the media and entertainment industry, while the software and IT services industry were held captive by Microsoft, Oracle and Softbank. The automotive industry market leaders were Toyota Motors and BMW and in the telecom services industry NTT DoCoMo sat on top.
The communications products from Cisco and Nokia had now made those companies the market leaders and in the computer industry it was Dell. Pharmaceuticals saw Pfizer as the market leader and in retail it was Home Depot, WalMart and Amazon.com.
What lesson can be derived from the presence of new faces as market leaders? Will the previous market leaders, by adhering to a certain Value Discipline, maintain their top positions?
It seems that the current rapid changes and increasing uncertainty create new questions, such as how companies should adapt to or face them.
According to Wiersema, companies nowadays not only face problems relating to which Value Discipline they are adhering to, but as market leaders they must be ready and capable at all times to face newcomers, who can at any time be more superior. This is the toughest law of competition. An intense level of competition will always force a company to be at its peak in every aspect.
Therefore, Wiersema said market leaders had to understand a number of current realities in the market in order to maintain their leadership position.
Reality No. 1 is the proliferation of competitors. Competition is not limited to a number of certain companies, but new competitors have emerged and each and every company is using similar "outstanding performance" norms.
Reality No. 2 is that nowadays there are no more secrets: "all secrets are open secrets". Every business model has been unabashedly copied. Best business practices spread fast, as fast as the Internet.
Reality No. 3: Innovation has a universal character. The cycle of innovation is revolving at an ever accelerated rate.
Reality No. 4: Current information is in abundance due to the presence of the Internet as one triggering factor. Its abundance is in fact even depreciating the value of information.
Reality No. 5: Growth is not that easy today, due to the unlimited choice available to consumers, which makes companies struggle in the race to reach diminishing customers.
Reality No. 6: Consumers have limited time. The phenomenon of "overchoice" has its own effect in the purchasing process due to the limited time.
All these six realities must be comprehended by the top management of any company so that any Value Discipline chosen does not become wasted.
Now how should a company cope with the current six realities?
For Wiersema, the formula is quite simple: "Customer Focus".
The writer is a marketeer and market observer.