Customer intimacy, product leadership, or operational excellence?

“The essence of strategy is choosing what not to do,” said Michael Porter, one of the great gurus of business leadership. I couldn’t agree more. When I started my business, my “strategy” was “say yes.” That worked OK to get my newborn business off the ground, but now, almost 14 years later, believe me there are plenty of opportunities I turn down. I even wrote a whole book about curating your life by saying no to what doesn’t suit you. 

But how do you figure out what is worth investing in? 

When I was a brand-new consultant in 2004, I heard a very interesting presentation by another business guru, Fred Wiersema. Wiersema’s thesis was that there were three ways in which a business can differentiate itself and become a market leader: customer intimacy, product leadership, and operational excellence.

What will you be best at: customer intimacy, product leadership, or operational excellence?

Customer intimacy refers to a deep understanding of your customers. It means focusing your efforts on providing a superb customer experience. Customer-intimate companies often provide a high level of customization of their services and products, tailoring their offerings to different customer segments. When customers interact with these companies, they feel important and well cared for. Wiersema cited Nordstrom as an example of a customer-intimate company; I would put high-end cruise lines in this category.

Product leadership refers to innovation. These companies are future-oriented, constantly improving their products or services and also coming up with disruptive new ideas that change the market landscape. Apple was Wiersema’s example. For me it’s Dyson — almost every time I dry my hands in a public washroom I’m reminded of its novel ways of propelling hot air.

Operational excellence has to do with efficient, seamless delivery. Operationally excellent companies can often offer lower prices because their processes are so well-designed. In 2004, the example was Walmart. Today I see Amazon as the gold standard for operational excellence.

Why we can’t succeed at all 3 differentiators

In order to succeed, a business has to maintain acceptable standards in all three areas. But it’s highly unlikely that you can be great in all three. Think about it: High-end cruise lines are probably not the most innovative companies in the world. Highly innovative companies often have operational challenges as they keep changing what they’re doing and how. And while I certainly admire Amazon’s efficiency, I don’t find the experience particularly intimate. 

Wiersema’s triad of ways that a company can differentiate itself has held up well. At your next strategic planning meeting, think about which one your company is doing best and whether that approach will drive success.

For more insight into high-powered strategic planning, get in touch with me.