2nd February 2018

Customer Intimacy Alternatives: Operational Excellence and Product Leadership

5 Minute Read

Takeaway: Each of the three competitive advantage strategies comes with benefits and downsides which must be taken into account to find out which is right for your organization.

Are there alternatives to Customer Intimacy?

customer intimacy alternativesWhen looking at a future business direction and deciding on a competitive difference, there are two customer intimacy alternatives to consider: Product Leadership and Operational Excellence.

Customer Intimacy Alternatives: Produce Leadership Strategy

A Product Leadership (e.g. Apple, Lego) strategy revolves around creating the best product in the market, products that continuously raise the bar, leading the market with new ideas.

The Product Leading organisation need to ensure a continuous stream of innovative, creative and market-leading products/services, the organisation must be designed with these outputs front of mind.

Customer Intimacy Alternatives: Operational Excellence Strategy

An Operational Excellence (e.g. Ikea, EasyJet) strategy is to lead in price and convenience. Operationally Excellent organizations focus on minimizing overhead costs, eliminating unnecessary production steps, reduce transaction costs and optimizing business processes. The overall goal is delivering their standardised products/services at competitive prices.

An organization must pick one of the three as a primary choice. Failing to select one or trying to compete with more than one will confuse both the organization and its customers, and ultimately lead to failure.

What is your organization trying to be in the marketplace?

Each of the three competitive advantage strategies comes with benefits and downsides which must be taken into account to find out which is right for your organization.

Customer Intimacy allows an organization to get closer to customers offering solutions other organizations can’t. The organization gains an increased understanding of its customers through more granular segmentation, accurately predicting future needs and responding to requirements that the customer hadn’t even realised that they had.

The organization fosters innovation and empowers employees by placing the decision about how to respond to a customer as close to the customer as possible. There are however pitfalls to be aware of, if customer experiences are not managed consistently markets will notice these differences and customers in specific markets may become unwilling to pay for what they no longer see as a premium experience.

Consistently delivering a Customer Intimate strategy is resource intensive and therefore more expensive, Customer Intimacy requires a delicate balance of providing a service which customers are willing to pay more for in exchange for a bespoke, intimate experience. This balance and ensuring strong customer loyalty are essential when overcoming price.

Product Leadership has an emphasis on innovation and the constant development of products/services, this is what the customers are prepared to a pay a premium for. To do this R&D investments are needed and a work structure designed where functional expertise and specialists are set up for creativity, and innovation is encouraged. Reacting quickly to opportunities is a significant competitive advantage for product leadership organisations.

However, with the constant development of new products, a pitfall to watch out for is that customers can lose interest or become unable to differentiate between product/services. When it comes to design, a structure which encourages coordination and cross-functional teams working together across the entire value stream is its key to success.

An Operationally Excellent organization aims to provide the best value for money to its customers for its products/services. Operational Excellence strives for standardisation and any variations in work are eliminated driving efficiency increases through cost reduction. This, in turn, will drive down the market price and influence customer perception and buying behaviour.

A common mistake with an operational excellence model is organizing people by expertise and therefore functionally, when this is managed poorly it will fragment the value stream and introduce costly variation into the way that work is done. Organizations also need to be aware that through their strategic focus on efficiency and innovation the customers’ needs can be neglected in favour of operational cost reduction, leading to customer dissatisfaction with the product/service offer.

Each choice provides a business with a specific competitive advantage and requires very different operating model designs. It is critical your organisation knows how it is going to compete in its marketplace before starting to design the operating model.

Josh Jones was a Consultant and Project Lead at ON THE MARK.

To learn more about redesigning an organization, contact OTM.

ON THE MARK is the leader in organization design services. We are a global boutique consultancy with offices in the USA and UK. OTM owns the industry’s most integrated, comprehensive and holistic solution. The team at ON THE MARK also enables clients to realize their future ambitions.

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