Enhancing Value Disciplines with the Internet

Enhancing Value Disciplines with the Internet

By Amy Case

A company can be look at from two fundamental perspectives: their internal business operations and their external customer value. The internal view focuses on a company抯 business model: their structure, strategies and processes. The external lens is trained on the company抯 value proposition: What is the benefit the customer experiences?

The relationship between operating model and value proposition is a classic 揷hicken or egg?dilemma. A company cannot define any offer for their customers without a supporting operating model, but they cannot create an operating model without knowing what they should be providing. This is further complicated because a company抯 offer and operations must respond to key marketplace shifts. New technological developments are often the impetus for change, with the Internet being a critical driver in recent years.

Media hype pressured companies to either incorporate the Internet into their business or risk being left behind. In responding, some companies have demonstrated that Internet technology can enable both great improvements in operating models and outstanding new value propositions to customers. On the other hand, myriad companies have learned that (re-) defining business with the Internet is a risky, complicated process.

How can companies best exploit the opportunities the Internet presents? The answer lies in their ability to pinpoint their differential source of customer value and their ability to choose Internet strategies to enhance that value.

Reinforcing Value Disciplines through the Web

In The Discipline of Market Leaders, the authors explain that companies can dominate their industry by developing their value proposition and operating model with a focus on one of three value disciplines: operational excellence, product leadership and customer intimacy. This is not to say companies can ignore the dimensions of value that they choose not to emphasize. Rather, regardless of their focus, they must achieve thresholds of operational competency, product differentiation and customer responsiveness.

Successful companies choose one of these three dimensions as their primary basis for leadership. They understand that, like any other channel, their Internet activities must reflect that choice. Consider the Web sites of three well-known companies that exemplify the different value disciplines.

Operationally Excellent companies must offer the best total cost (in terms of price and convenience) to its customers. Wal-Mart epitomizes Operational Excellence by offering customers 揜ollback Savings?on 揈very Day Low Prices.?Wal-Mart shoppers value the convenience of an all-in-one store over a specialized boutique and consider the price tag on a shirt more important than the name on the label. This emphasis on convenience and cost holds true for www.walmart.com. The Web site gives online shoppers access to the company抯 entire inventory. With 30 departments and 600,000 products, the site boasts more than even most Wal-Mart stores can offer. It is also very convenient, minimizing clickthroughs and sorting items by price to move the user quickly to the virtual cash register.

Customer Intimate businesses succeed by offering their customers the best total solution. In the building materials industry, Home Depot addresses the full set of their customers?needs, including loan assistance on large purchases, remodeling consulting for homeowners and bulk ordering for professional contractors. They even offer complimentary potting with the purchase of new plants. Their Web site, www.homedepot.com, is not only a vehicle for promoting these services, but also a channel for new, distinct value. The site includes an extensive reference center that takes users through the steps of wide-ranging projects from installing plumbing to planting a garden to redecorating a bedroom. This reflects the personalized assistance a customer would receive in a Home Depot store.

Product Leaders deliver the best, most innovative products to their customers. By recruiting famous designers like Paloma Picasso and Elsa Peretti, Tiffany抯 & Co. separates itself from the jewelry business, positioning their product as art. Quality and innovation are the benchmarks by which a product leader is judged, and Tiffany抯 is renown for its world-class jewelry and highly regarded designs. This is reflected in their Web site, www.tiffanys.com. With its slow, gradual animations, it is clear that Tiffany抯 is not concerned with efficiency and speed. Rather, all emphasis is on the product. Each item has its own page; there is no comparison or price-based shopping. It is evident that cost and customer service are not Tiffany抯 main concerns.

Tiffany抯 refuses to sell engagement rings online. After noting that they use diamonds only of the finest color and clarity, the Web site explains that their engagement rings can only be appreciated in person and tells the user to go to a Tiffany抯 store. Once they arrive at Tiffany抯, customers have the pleasure of paying a premium for the 搇ittle blue box.? While most jewelry stores value their diamonds according to industry-set commodity prices, Tiffany抯 charges over 50 percent more for their rings. Tiffany抯 policy of celebrating the product at the expense of speedy service and price reinforces their emphasis on product leadership.

Beyond the Web Sites: Realizing the Internet抯 Potential

Using Web sites to enhance and reinforce a company抯 value discipline is only the tip of the iceberg. The Internet is a powerful business tool, with the potential to influence a company at every level. To this point, we have discussed the Internet only as a way to emphasize a company抯 offering to its customers, but the greatest potential of emerging Internet technologies lies in improving companies?operating models and in creating new customer value. Through the Internet, businesses have the opportunity to effect change in their internal operations, their system relationships and their business boundaries. While a company could potentially use the Internet in all these ways, its value discipline should lead them to favor certain types of strategies.

Reengineering Internal Operations

For operationally excellent companies, price and convenience supercede all other characteristics of their business. The Internet provides operationally excellent companies an opportunity to create a better total cost for their customers.

Consider the number of new Web companies that have emerged with operationally excellent philosophies. Businesses like Travelzoo and My Simon have provided customers with new value by offering innovative ways to make travelling and shopping cheaper and more convenient. The bigger potential, though, is in lowering operating costs.

Operationally excellent companies can use the Internet to do this by:

• Streamlining intracompany functions
• Reducing supply chain inefficiencies
• Easing customer interactions

Staples, Inc. streamlined their business through the Internet. For example, in early 2000, the national chain restricted the use of printed internal reports. Now, all company reports are posted on closed corporate sites, and can be accessed by employees throughout the country. Not only does this give Staples?employees quicker and easier access to information, but it also saves the company the UPS/FedEx shipping charges they incurred with paper reports.

Dell Computer Corporation, the low-cost computer manufacturer and seller, became an industry leader in the 1980s by using a direct-to-consumer sales model and by using electronic data interchanges (EDIs) with vendors to operate at a fraction of the inventory their competitors held. With the advent of the Internet, Dell has evolved their efforts. Shifting a portion of their sales strategy to the Internet has led to better-informed customers and less need for customer service phone representatives. Half of Dell抯 sales now come through their Web site, including orders from over 65,000 regular customers (mostly businesses). Shifting from EDI to Internet-based data gathering has helped Dell control its supply chain even more effectively. For instance, they have created a Web site that allows the company and its suppliers to share information, significantly reducing inventory inefficiencies. Thanks to these efforts, Dell抯 inventory turns every four days, easily the best in their industry.

Automation of services can reduce costs for a company and provide greater convenience to its customers. FedEx, well known for providing customers with detailed information on the status of their shipments, has used the Internet to automate key functions. Now, with the Internet, customers can track their packages more precisely than ever. Through their Web site (or with FedEx抯 InSight software for regular business customers), clients can see what flight or truck their package is on, the distance to its final location and whether or not it is on time.

Redefining Systems Relationships

Customer intimate firms have the interesting challenge of using the seemingly impersonal Internet to create deeper relationships with their customers. They can do so by understanding clients?overall needs and developing more complete solutions, often changing the basis of the relationship in the process.

This could take the form of:

• Changing the basis of customer interactions
• Enabling enhanced connections with customers

Amazon was founded on the idea of using new technology to create new types of customer relationships, and their efforts have made them the number-one Internet e- tailer. Amazon.com tracks customers?purchases and develops a set of preferences for each user. This data is then compared to other customers? shopping patterns at Amazon.com. A customer relationship management (CRM) application can then 搒uggest?products to customers as they browse the site. By investing in technology, Amazon was able change the e-commerce shopping model. While most sites are passive ?customers must search for products ? Amazon can push items likely to be attractive directly in front of users.

Through the Internet, the clothing seller Land抯 End created new types of connections with their customers. The e-commerce experience at www.landsend.com goes above and beyond typical online shopping, providing customers with a remarkable amount of assistance by mimicking in-store shopping support. Land抯 End抯 innovations include a CRM engine that assesses the user抯 fashion preferences and suggests certain items. There is a virtual model based on the user抯 measurements that can 搕ry on?articles of clothing. Land抯 End抯 services also include live interaction via e-mail or instant messaging with customer service. Users can even choose to shop online with a friend by communicating in a private chat room, enhancing the otherwise solitary shopping experience with community.

Redraw Business Boundaries

Product leadership boils down to one thing: innovation. Consistent with that, the Internet enables companies to transcend historic constraints of organization structure and time to redefine their business model.

Product leaders can morph themselves by:

• Creating new products and services based on Internet capabilities
• Accessing information to speed the time-to- market for new ideas

Nike, Inc., a product leader since the advent of their waffle-soled running shoe in the 1970s, has continued to push the envelope of innovation through its Internet efforts. With their line of personalized athletic shoes and apparel, Nike has moved the boundaries of product design out of their R&D department. Web shoppers can create customized sneakers and clothing, including color schemes, team names and even the type of material, and see their results instantaneously on Nike抯 Web site.

Time to market is central to many of General Electric抯 Internet initiatives. As former CEO Jack Welch said in GE抯 1999 annual report, 揟he speed that is the essence of 慹?has accelerated the metabolism of the company? Time [for large-scale business projects] in GE today is measured in days and weeks.?This is evidenced, for example, in their industrial systems division. To speed research and development, industrial systems developed WEB CITY, a virtual Internet environment. WEB CITY eliminates the geographic boundaries that slowed product development in the past, allowing GE engineers across the globe to share ideas, data and other information instantaneously.

Conclusion

The Internet has seemingly infinite applications for businesses, but it is important for companies to remember one thing above all else: the Internet should not change a company抯 basic value to its customers. Instead, it should enhance it. By maintaining focus on best cost, best overall solution or best product and by using emerging Internet technologies to reinforce that choice throughout the entire business, a company can recognize considerable growth.

Amy Case is the founder of Case Strategy, LLC, a strategy consulting firm that delivers breakthrough results to clients with practical application of proprietary analytics, including patent-pending Portfolio of Growth Opportunities technology. Case has 16 years of diverse consulting experience and can be reached at acase@casestrategy.com.