Competitive Strategy Treacy and Wieresma

Competitive Strategy

Treacy and Wieresma characterize corporate strategy along one of three lines that they term "value disciplines." These are operational excellence, product leadership, and customer intimacy. Operational excellence refers to superb operations and excellence. Product leadership refers to innovation in branding and marketing. Customer intimacy refers to leadership in customer service.

Porter's generic strategies represent another model of organizational strategy. The strategies are outlined on a matrix. There is cost leadership and differentiation, in both the broad (industry-wide) and focused (market segment), giving four potential strategies.

These two theories are both complementary and conflicting. In some ways, Treacy and Wieresma are explaining different means to achieve Porter's generic strategies. Treacy and Weiresma's value disciplines are more specific in nature. For example, if a firm takes a differentiation strategy, they can accomplish this through either product leadership or customer intimacy. But if a firm takes a cost leadership strategy, this can only be accomplished through operational excellence.

Yet there is no point where the generic strategies and the value disciplines are precisely analogous. Operational excellence is generally required for a firm to successfully implement a cost leadership strategy (Wal-Mart, for example). Yet, operational excellence does not necessarily lead to cost leadership, differentiation or focus. In this way, the three value disciplines are more a means by which an organization can pursue a generic strategy.

By the same token, generic strategies merely imply the presence of a value discipline. From an organizational perspective, it is not sufficient to decide which generic strategy to pursue; the organization must understand how they are going to get there. For each of his generic strategies, Porter outlines some of the internal competencies that can help a firm succeed. At times, these hint at the value disciplines more clearly. For cost leadership, Porter specifies that successful firms must "have skill in designing products for efficient manufacturing," "efficient distribution channels" and a high level of "process engineering." Each of these is an essential component of operational excellence.

Both product leadership and customer intimacy can be paths to differentiation. This reflects the reality that differentiation can be achieved in any number of ways. Many of Porter's keys to implementing a differentiation strategy overlap with Treacy and Weiresma's product leadership. Yet Porter also mentions strong marketing as a key. Treacy and Weiresma do not delve into marketing, but do discuss leadership in customer service. In it interesting to note that while the two are completely different functions, they both lead to similar outcomes -- a favorable perception from the customer.

The theories of both Treacy & Weiresma and Porter are clear in that a company must select one strategy/value discipline in which to excel. Companies that do not make such a choice run the risk of being caught in the middle. They may be good at everything, but excel at nothing. In business, however, success comes from developing competitive advantage, in particular sustainable competitive advantage. Firms therefore should focus their limited resources on excellence in one particular area, and be the best in the industry in that area.

In Porter's generic strategies, a firm that is neither a cost leader nor adequately differentiated will be beaten by other firms on both counts. By falling in the middle, the firm essentially condemns itself to failure by virtue of having no source of competitive advantage -- nothing compelling to offer the consumer.

In that respect, Porter agrees completely with Treacy and Weiresma. Their value disciplines also speak directly to what a firm can potential offer to customers, or from where they can derive a competitive advantage. Treacy and Weiresma warn that a firm must excel at one value discipline in order to be successful. They will thus only be "ok" at the other two. If they attempt to excel at more than one discipline, organizational constraints will mean that they cannot excel at any of them. These constraints can be financial or with respect to personnel, but may also be with respect to organizational focus. Treacy and Weiresma are convinced that an organization, collectively, cannot be the best at two different disciplines.