The Delta Project

The world is in the midst of what an economic historian of the future is going to call the third industrial revolution (steam being the first and electrification the second). This revolution is based upon technological leaps forward and interactions among six key technologies — microelectronics, computers, telecommunication, new man-made materials, robotics, and biotechnology. In revolutionary periods strategies have to change but, more importantly, the way that firms think about strategies has to change.

The Delta Model encompasses a set of frameworks and methodologies that we have developed in recent years to help managers articulate and implement effective corporate and business strategies. It grew from our conviction that the world of business has been experiencing transformations of such magnitude that the existing managerial frameworks have become either invalid or incomplete. A fundamental force in these transformations has been the emergence of the networked economy. The most obvious manifestation of this networking is the Internet. Networks have enabled a degree of bonding between customers, complementors, and suppliers that has changed the drivers of profitability and, consequently, the landscape of strategy.

An effcctive business model needs to meet two criteria. First, the model should be able to explain how businesses and firms achieve superior financial performance. This is the descriptive side of the model. By observing the actual performance of a collection of businesses and applying the basic concepts implicit in the model, we can understand better the heterogeneity in firm performance. Second, and perhaps more important from a practical point of view, is the normative side of the model. The framework should provide guidelines and tools that will help to create a winning strategy and support the successful implementation of that strategy. The existing business models are at best incomplete in both dimensions.

The Best Product position builds upon the classic forms of competition through Low Cost or Differentiation. In this case the relevant economic drivers are centered on the value chain of the product or service. Products tend to be standardized and unbundled. Companies pursuing this strategy have the primary objective of improving the efficiency of their own supply chain, which is the machine that delivers the product. Customers are likely to be considered faceless and generic and to be served through mass distribution channels. Innovation is focused on the renewal of the product line. In the best case, the firm has a common product platform that supports the rapid development of a stream of products enabling ‘first-to-market’ positions and the establishment of the so-called dominant design.’ Best Product emerged as a strategic position from the industrial era and is the default strategic option for the majority of firms today. Best Product businesses attract customers by the intrinsic characteristics of the product itself. This is the position where a company has the least to do with its customer, hence making the incumbent firms more vulnerable to new entrants. After all, if the customer is attracted by the superiority of your product, then the customer will desert you if a new superior product appears in the marketplace.

The Total Customer Solutiona option is a complete reversal of the Best Product approach It is based upon creating a strong bond with the customer. Rather than supplying faceless Customers through mass distrilbution, Total Customer Solution players learn as much they can about each customer in order to provide customized solutions Rather than leaning on product economics, they thrive by engineering customer economics. Instead of offering independent products, they put torgether a bundle of products and services aimed at solving a wide array of Customer needs.

The System Lock-In position represents the strongest form of bonding and demands that the business addresses the overall architecture of the system. Instead of focusing solely on the product or the customer, we are now concerned with all the important players in the system that contribute to the creation of economic value for a particular customer. Besides the normal industry participants — buyers, suppliers, channels, and potential new entrants — we are especially concerned with nytrturing, attracting, and retaining ‘complementors.’¹ A complementor is not a competitor, or necessarily a supplier; it is a provider of products and services that enhance, directly or indirectly, our own offering. Examples of complementor pairings include computer manufacturers and software producers, high fidelity equipment manufacturers and CD retailers, and video cassette recorders and movie studios.

In the previous chapters we have explained the centrality of the Triangle in making the critical strategic choices for a business and a firm as a whole. We will now put these valuable concepts into a practical setting, by discussing how to develop a comprehensive Strategic Agenda, anchored in the foundations of the Triangle. We will do this within the context of a very exciting case: the repositioning of the semiconductor business of Motorola.

Here is the paradox. People are working harder and more productively than ever before, but executives are worrying more and more about execution. CEOs believe that their organizations cannot effectively carry out new programs. Various pundits have responded to these concerns with a flurry of so-called panaceas. Managers have been bombarded by fad upon fad addressing the perceived need for improved execution. These include total quality management, time-based management, business reengineering, and the seven habits of highly effective managers. We will argue in this chapter that managers are misguided in focusing solely on project execution, instead, they must carefully address the alignment of execution to strategy.

If we were to be faithful to history, the Soviet Union should receive credit for the invention of the Internet. The U.S. Defense Department respouded to Pfesident Eisenhower’s concern over the surprisingly early launch of Sputnik in 1957 by founding the Advanced Research Project Agency (ARPA) in 1958. Their intent was to push American researchers to catch up with and ultimately surpass their Soviet counterparts. And, while the Americans were not as far behind as they had feared, ARPA was successful in moving them sorwarde In eighteen months, ARPA’s scientists had collaborated to develop the first successful U.S. satellite. About six years later, under the direction of Dr J.C.R. Licklider, ARPA¹ turned its attentian to the U.S. military’s use of computers and networks.

In most businesses today managers are hostages to two types of information: average data and anecdotaI data. The averaged information comes in the form or corporate, business unit, product group, or customer sector data identifying revenues, costs, contribution, and assets regarding actual performance and budgets. Perhaps they a1so receive market data segmented the same way on share, growth, and competitive activity. Armed with this information executives are asked to improve underlying performance. But, since this information reflects an average across an entire business product, or customer group, it provides few clues as to what is driving performence. As a consequence, management turns to anecdotes learned from the field. At least this is specific data on a customer or marketing campaign, but it is usually gathered selectively and accompanied by stronghy held beliefs. How can executives objectively isolate the critical cause and effect relationships in a business? Managing by anecdote is no better than managing by averages.

We started this hook with the claim that the two most celebrated and influential business strategy frameworks — Michael Porter’s Competitive Advantage and the Resource-Bssed View of the firm — are fundamentally incomplete, both in expIaining sources of profitability and guiding managers to superior strategic options. Although these frameworks have often been presented as conflicting views, we feel that they share a similar management philosophy. Moreover, it is our strong belief that the Delta Model has the ability to complement the perspectives or both frameworks and provide the intergrative glu]e that may result in one unified strategy framework.