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 Delta Model - Three
Distinct Strategic Options. (Image by Prof. Arnoldo Hax.)
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 � 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 �adaptive processes� � operational effectiveness,
customer targeting, and innovation � are the primary means by which the three
different strategic options can be pursued and executed.
References
http://www.valuebasedmanagement.net/methods_hax_wilde_delta_model.html
http://www.strategy-business.com/press/16635507/03315
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