The Delta model places the customer at the center of its operations. From there, the primary options to accomplish customer loyalty are investigated. This model prescribes strategies to engage with and nurture customers. Consequently, it helps managers formulate and execute effective corporate strategies and to attract customers. Show
Hax’s Delta Model is a strategy framework that puts the customer at the heart of management. It looks at the main ways to build bonds with customers and guides strategy and execution by aligning adaptive processes. The Triangle diagram illustrates three different ways to implement the strategies of the Delta Model. The three strategic approaches are:
The emergence of the Internet significantly increased communication possibilities that were previously unavailable. This paradigm spurred technologies related to e-business and e-commerce. Consequently, powerful new tools that were previously inaccessible enabled the viability of whole new business models. Hax Delta Model The Delta Model is an integrated strategy formulation process that gives a fresh perspective on strategic management in response to such emerging contexts. As a result, a new set of strategic positioning alternatives that are based on the idea of customer bonding are required. These possibilities extend beyond a product-centric vision and focus on generating lasting competitive advantage. According to Hector Ruiz, Chairman of the Board, Global Foundries, Inc., and former Chairman, Advanced Micro Devices:
Both, for-profit and non-profit sectors could benefit from the Delta model. According to Hansjoerg Wyss, Chairman and CEO Synthes Inc, The Wyss Foundation, The Southern Utah Wilderness Alliance and the Beyeler Art Museum Foundation:
OriginThe Delta Model was developed by Dean & Company co-founder Dean Wilde, and Arnoldo Hax of the MIT Sloan School of Management to help managers formulate and implement effective corporate and business strategies. It grew from a conviction that the world of business had been experiencing transformations of such magnitude that existing managerial frameworks were either invalid or incomplete. Despite the great proliferation of managerial frameworks in the business strategy literature, two key paradigms emerged in the past decades:
In economic terms, a successful corporation is one that appropriates monopoly rents. In other words, the business becomes the dominant (or single) rival in the industry as a whole or in a section of the industry. This viewpoint led Porter to the inevitable conclusion that there are only two ways to compete, either through:
Cost LeadershipPorter’s taxonomy became recognisable to most managers in the 1980s. Cost leadership is accomplished by aggressively pursuing economies of scale, product and process simplicity, and considerable product market share, which enables organisations to capitalise on experience and learning effects. DifferentiationDifferentiation entails developing a product that the buyer considers as extremely valued and one-of-a-kind. Differentiation strategies may take various forms, such as brand image design, technology, features, customer service, and dealer networks. The Delta ModelHax, on the other hand, created a new strategy framework known as the Delta Model, named after the Greek letter delta, which stands for transition and change. It was believed that new internet technology offered creative and effective methods to connect with customers and the larger organisation, offering up new sources of strategic positioning that should be thoroughly analysed. The Delta Model is widely believed to be capable of complementing the viewpoints of Porter’s frameworks and the Resource-Based View of the Firm and providing the integrative glue that may result in a single unified strategy framework. The Delta model is an acronym of five success factors that are responsible for good contact with customers. All five success factors are needed in the Delta model. When one factor is removed, that affects the remaining four factors and means the balance is lost. Without accessible information, for instance, it will be very difficult to implement this company wide and subsequently use it to make an objective analysis. The five critical success factors are:
Data (information)Accessible and qualitative data in the form of information is a first requirement. The rise of the Internet and technologies regarding e-business and e-commerce allow for a new way to approach target audiences (and therefore customers). Information is essential for conducting analyses. Information provided and gathered by the company must also be complete and consistent to appear reliable. Enterprise OrganisationIt’s important to have a company-wide approach. Irrespective of the size of an organisation, information must be accessible in all regions and hierarchical layers. Additionally, it must be possible to disseminate information quickly and in a way that transcends departments. This means that all employees and departments know what’s going on and what they must take into account in their contact with customers. LeadershipEvery organisation requires leadership, according to the Delta model. Each department must be led; that is the only way to allow for decision making based on facts. It’s the task of the leaders to aim for facts rather than simply make decisions based on intuition. Because the accountability lies with the leader, this allows for structured working, which benefits the service to the customers. TargetsSetting clear targets clarifies to everyone in the organisation what they should be working towards. It’s not all up in the air; a course has been plotted. The most potential value can be identified with a goal in mind. That will lead to success. Of course, sources such as time, money, and employees are just as important. Nevertheless, striving for a good result is impossible without an objective. AnalysesBy means of analyses, an organisation gains knowledge of what they do and whether objectives are achieved. For this purpose, analytical models must be built and maintained. Therefore, it’s necessary to determine beforehand which techniques, algorithms, and models will be used and which are most suitable to address a specific organisational problem. Subsequently, professionals start developing analytical software that can then be used. Strategic TriangleThe Delta Model can be illustrated using the strategic triangle. There are three points:
System Lock-InAt the summit of the Triangle is the most demanding strategic choice, which we call System Lock-In. In this context, we are addressing the entire network as the relevant scope, acquiring complementors’ share as the ultimate goal, and system economics as the driving force. Those who succeed in achieving this position obtain illegitimate market domination, ensuring not just consumer lock-in but also competition lock-out. Once you’ve reached the lock-in point, it’s difficult to get out because of network effects, which form the traditional virtuous circle: buyers want to buy the computer with the most applications, and software developers want to make applications for the machines with the most installed base. Hax and Wilde identified three potential sources of system lock-in:
Restricted accessRestricted access (also called an exclusive channel) determines where significant barriers are in place that make it difficult for competitors to compete for the acquisition of customers. Restricted Access is like your Bloomberg terminal. As a trader, if you don’t have your terminal key, you can’t access Bloomberg’s data, software, and services. For Bloomberg, the embedded advantage is that the company has something their customers really need and are willing to pay to enjoy access. Dominant ExchangeSystem lock-in also benefits from Dominant Exchange, which is commonly understood as Network Effect businesses. Dominant Exchange businesses provide a platform (or marketplace) between buyers and sellers. Companies like eBay and Airbnb rely on Dominant Exchange economics. The most important aspect of these types of businesses is critical mass and first-mover advantage. Hence, companies such as Uber and Lyft spend significant amount of cash to grow their platforms. Subsequently, it is nearly impossible to replace the incumbent in a dominant exchange marketplace. Proprietary StandardsProprietary Standards companies develop a platform or product used by third-party complementors. In other words, it becomes the go-to software, service, etc. Microsoft Windows is a perfect example of a Proprietary Standard. Windows comes standard in every PC on the market. Windows works on any PC (even MacBook). The number of third-party developers that can run on top of the software makes it a no-brainer for computer hardware manufacturers. Microsoft successfully created an entire industry to its benefit in the form of consumers wanting to buy a computer with access to the largest set of applications and software developers (the complements) wanting to write applications for the computers with the largest installed base. Total Customer SolutionsTotal Customers Solutions (TCS), located on the Triangle’s left side, indicates a 180-degree shift from the Best Product positioning. It is the opposite of the Best Product strategy. Instead of selling standardized and isolated products to depersonalized clients, offer solutions that include a portfolio of customized products and services that constitute a distinct value proposition to individualized customers. The goal of this strategy is to capture the most mind and wallet share. Rather of operating alone, enlist the relevant group of partners who comprise the extended enterprise. Rather than participating in a war of attrition with competitors, seek collaboration that results in the desired customer bonding. The relevant overall performance metric becomes the total customer share, whose requirements we strive to meet as completely as feasible.
There are three ways businesses achieve TCR:
Redefining Customer ExperienceThe goal of RCE is to walk with the customer every step of the way in your product’s lifecycle. You want to know how they use your product, how often they use it, and what problems they solve leveraging your product. In short, you want to build a relationship with the customer. To quote from strategy+business[1]:
According to Hax:
The only way you can redefine your customer experience is to know your customer inside and out. Hax advices to know the value chain beyond the commoditized process of exchanging goods or services. Horizontal BreadthThe second way companies can achieve TCS is through Horizontal Breadth. Horizontal Breadth companies offer a complete set of products/services that the customer wants. Think of Walmart and Amazon. They offer the lowest prices on the largest selection of goods possible. This reduces the need for customers to shop elsewhere. Fidelity Asset Management is another example. They offer personalized coaching and a variety of investment services that make complex investment activities affordable. Likewise, IKEA offers all furniture items that people need under one roof. This reduces customer search cost and provides a complete set of what the customer needs. The goal with Horizontal Breadth is to gain the highest wallet share possible. The more you offer your customer the less they have to spend elsewhere. It’s a simple concept with powerful ramifications. Customer IntegrationThe final way companies achieve TCS is through Customer Integration. Hax defines Customer Integration as:
This strategy has another name: switching costs. Companies, such as SAP, Oracle, Microsoft, Bloomberg, Salesforce and Google offer products or services are deeply ingrained in the backend of operations that many organizations can’t live without them. Think of all the gaming apps on your phone that require a Facebook login. Or all the Google integrations you have between Gmail, Google Drive and Maps. Take Oracle software. Imagine how expensive it is to rip out that backend and replace it with something else? Even if that new software is better, faster, and cheaper. You probably wouldn’t do it. Why? Because those services and products are woven into the fabric of a company’s organization. Taking something like that out is like performing open-heart surgery. If you don’t have to, you won’t. Best Product PositioningBest Product Positioning, the strategic choice on the right side of the Triangle, focuses on overall consumer happiness through effective and efficient product creation. There are two approaches to accomplishing the goal:
Cost ReductionThe strategy focuses on product economics or the idea that businesses win through rapid innovation and reduction in production costs. In other words, Best Product Positioning shifts the focus from the customer to the product. From customer bonding to production competition. Based on the current product economics, the position is inward and narrow. The primary strategic driving forces are the development of an efficient supply chain, which ensures low-cost infrastructure, a proven internal capability for new product development, which ensures the proper renewal of the existing product line and the securing of distribution channels, which massively transfer the products to the targeted market segments. Hence, it basically advocates selling standardized and characterized products in order to maximize total consumer satisfaction and beat the competition. There can only be one lowest-cost company. This leaves little room at the top (or bottom, in this case). Businesses in this environment commoditize their customers, standardize their products, and viciously compete for market share. One company that dominates the low-cost producer category is Walmart, which prides itself on offering the lowest prices to consumers. At one point their slogan read:
Wallmart can maintain its cost leadership through distribution and supply scale. The sheer size and volume of sales per Wallmart store allow it to bargain with its suppliers for better prices. This means it pays the least for its inventory, which allows it to turn around and sell it at a profit for a cheaper price than its competitors. Other examples of low-cost producers are Spirit Airlines and Ryanair. These airlines offer no-frills flying experience. Customers only pay for what they want. These airlines pride on low-cost operations, which lets them charge low ticket prices while maintaining profitability. For example Spirit Airlines achieves cost leadership:
Finally, we Costco’s low-cost business model is a case in point. The company operates under razor-thin product margins, which allows it to offer the lowest price to its customers. Product DifferentiationBusinesses that can’t compete on price must find another way to gain market share. They do this through Product Differentiation. There are many ways companies can differentiate their products:
We can group product differentiation into three buckets:
HorizontalHorizontal differentiation deals with commoditized products, like water bottles or ice cream. There’s not much distinction between the two products, so you choose based on other things like branding, etc. A great example of this is Coke vs. Pepsi. At the end of the day, horizontal differentiation is simply personal preference. VerticalVertical differentiation involves the quality of goods and services. In vertical competition, price matters. The more something costs, the higher the perceived quality. This is why people buy Duracell over generic batteries. Or some people buy plain black shirts from J Crew instead of H&M. SimpleSimple differentiation is a combination of vertical and horizontal. There’s more personal preference involved, but that personal preference is based on what you consider quality. Take Apple vs. Android. That’s a simple differentiation problem. People choose Apple because they believe it’s a better product with a simpler UI. Others choose Android because of its functionality, customization and processing abilities. Best Product strategies are the least attractive forms of competitive advantage. Low-cost providers are great businesses, but it’s hard to achieve the scale necessary to offer such low prices. That leaves product differentiation — which is a loser’s game over time. Competitors copy every innovation and differentiation attempt, leaving a commoditized wasteland of low-margin goods (see, PC hardware). Adaptive ProcessesIn Hax’s Delta Model, adaptive processes play a vital role in achieving the strategic options of the triangle that the business chooses to adopt. They entail how the company and its several segments and processes must be aligned with the chosen strategic option. Hax’s Delta Model provides three business adaptive processes to achieve this purpose:
Operational EffectivenessFocuses on establishing an efficient extended supply chain, including customers, suppliers, and key complementors to expand the business’ delivery scope. Its primary focus is on producing the most effective cost and asset infrastructure to support the desired strategic option adopted by the business. Customer TargetingFocuses on developing and executing activities that attract, satisfy, and retain consumer bases. It emphasizes managing customer relationships effectively. Its primary focus is on attracting customer bases and maximizing their financial utility and satisfaction. InnovationFocuses on ensuring a continuous stream of new products and services by innovation. It emphasizes mobilizing all creative resources available, i.e., technical resources + production resources + marketing capabilities, etc., to encourage and introduce innovation in the business. It helps the business keep their game up and always maintain an upper hand over the competition. Case Study – CastrolCastrol is one of the world’s leading lubricant companies. They concluded that the Best Product approach was doomed since the business was becoming commoditized and differentiation through premium items was not creating long-term competitive advantage. Selling lubricants by the gallon was not an appealing prospect. They were introduced to the Triangle at the time and opted to focus their efforts on pursuing a Total Customer Solutions strategy. They began by carefully segmenting their customer base. Castrol accomplished this by identifying the primary business application clusters: cement, sugar, pulp and paper, textile, food and beverage, wood, mining, and glass. But it wasn’t enough. Castrol’s smart next move was to identify which clients to target with various degrees of priority within each market segment. They accomplished this goal by recognizing the clients’ views toward accepting a full Total Customer Solutions strategy.They considered three Tiers. Primary Target Segment: Productivity Conscious Customers. These customers are eager to receive support that will enhance their productivity, reduce total costs, and promote higher sales Secondary Target Segment: Cost Conscious Customers. These customers are concerned about total costs but they believe new production does not necessarily yield higher sales or economies of scale The Least Desirable Segment: Price Conscious Customers. These customers are basically buying from the supplier that offers the lowest price This level of client segmentation is essential since you cannot and should not treat all customers identically. Not all clients are equally open to a method that demands additional effort on both sides while potentially yielding far larger advantages. Castrol’s value proposition for the primary targeted customers was as follows:
HaxiomsHax is known for the Delta Model. But he opines a set of principles (he calls Haxioms) for organizations to follow:
Summary The Delta model is a strategic framework that can assist managers with formulating and implementing effective company strategies to the advantage of their customers. It is a pro-consumer approach toward the implementation of effective management and corporate business strategies in an organization. In other words, it is a consumer-centric strategy framework, with business strategies and managerial frameworks catering to the needs of the consumer. The workings of Hax’s Delta Model are accurately described through a diagrammatic representation called _The Strategic Triangle_ that describes three alternative ways to put into effect the Delta Model’s business management strategies. The three strategic methods are Best Product Positioning, Total Customer Solutions, and System Lock-In. APAMLAHarvardVancouverChicagoIEEE Think Insights (January 4, 2023) Delta Model. Retrieved from https://thinkinsights.net/strategy/delta-model/. "Delta Model." Think Insights - January 4, 2023, https://thinkinsights.net/strategy/delta-model/ Think Insights July 2, 2022 Delta Model., viewed January 4, 2023,<https://thinkinsights.net/strategy/delta-model/> Think Insights - Delta Model. [Internet]. [Accessed January 4, 2023]. Available from: https://thinkinsights.net/strategy/delta-model/ "Delta Model." Think Insights - Accessed January 4, 2023. https://thinkinsights.net/strategy/delta-model/ "Delta Model." Think Insights [Online]. Available: https://thinkinsights.net/strategy/delta-model/. [Accessed: January 4, 2023] References[+] References↑1[Redefining customer experience: Connecting in the time of COVID-19](https://www.strategy-business.com/blog/Redefining-customer-experience-Connecting-in-the-time-of-COVID-19 Which technique or tool is used to analyze data for business intelligence purposes?Online analytical processing (OLAP)
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