The Delta Model

Toward a Unified Framework of Strategy

-Nikunj Barnwal

Two fundamental paradigms during the last two decades

The Competitive Positioning Framework- Michael Porter

The Resources-Based View- C. K. Prahlad and Gary Hamel

The Competitve Positioning Framework

Industry- Central focus of strategic direction

Two ways to compete- Low Cost or Product Differentiation

Two basic determinants of the profitability and strategic agenda- Structure of the industry and the competitive position of the business within that industry.

Five Forces which shape Industry Structure

1. Intensity of rivalry among competitors

2. Threats of new entrants3. Threat of substitutes4. Bargaining power of buyers5. Bargaining power of suppliers

The Framework explaining the profitability

Competitive Positioning Industry Structure

Strategy Formulationand Implementation

Porter’s Value Chain

Porter’s Winning Formula

Pick an attractive industry.(Attractive means one in which a business can achieve as close to a monopolistic position as possible)

Achieve sustainable advantages by beating their competitors in as many key activities as possible.

So STRATEGY IS WAR!!!

Resources-Based View

Value Chain- Central focus of strategic direction

Looks for value derived from resources, capabilities and competencies

Firm’s development of resources and capabilities- Central focus of competitive advantage

Four Key Components to attain and sustain Competitive Advantage

When Resources and Capabilities generate unique core competencies

When substitution and imitation is minimized

When benefits are retained and not appropriated by competitors

When Cost of the resources and capabilities doesn’t offset the resulting benefits

So RBV’s Winning Formula

Develop resources and capabilities (unique, valuable and non-tradable)

Prevent imitation or substitution Prevent hold-up and slack conditions Cost doesn’t offset the resulting

benefits

Where goes the Customer???

The importance of customer missed by both the frameworks.

In Porter’s model, customer has been described as one of the five forces whose bargaining power should be resisted/diminished.

The Delta Model

∆ stands for transformation/change Bonding- Central focus of strategic

direction Bonding with customers as well as

complementors

04/08/23 Asian School of Business 13

System Lock-In

Best ProductTotal CustomerSolutions

Business Models: Three Distinct Strategic Options

Best Product Classical form of competition Customer gets attracted by Low Cost or

Differentiation Central focus of competition- Competitor Competitive advantage » Product

Economics and the Internal Supply Chain Drawback- Minimum customer bonding Most widely adopted and the default

position…

Total Customer Solution Deep customer understanding and

relationship Coherent composition of products and

services aimed at enhancing the customer’s ability to create their own economic value.

Instead of competing and imitating, its redefining the ways to capture and serve the customer by corporate capabilities

System Lock-In Complementor- engaged in the delivery of products

and services that enhance our own product & service portfolio

Identification and incorporation of all the key external players for a full corporate scope

Richness and depth of complementors lock our product into the system and lock-out the competition

Shift from Supply Chain of one’s products to Overall System Supply Chain

By owning or restricting Distribution Channels » Competitors locked-out

Value Creation by Each Strategic Option: Empirical Evidence

Market Value Added measures mean the difference between a company’s total market value of equity and debt and its book value.

Market-to-book ratio» (Expected Future Cashflows)/Investments

The Adaptative Processes- How to Genuinly Link Strategy and Execution

John S. Reed » “A CEO has just two jobs, decide what to do and making it happen. And, ninety percent of the job is making it happen…”

So three business processes have been identified to capture the essential tasks of execution.

Three Business Processes

1. Operational Effectiveness:-

Responsible for the delivery of products and services to the customer

Focus » Producing the most effective cost and asset infrastructure to support the desired strategic position

It should expand its external scope to include suppliers, customer and key complementors, thus establishing an extended supply chain

2. Customer Targeting:-

It addresses the business-to-customer interface

It intends to attract, satisfy, retain customers effectively and to enhance their financial performance either by reducing their costs or by increasing their revenues

The ultimate goal is to establish the best revenue infrastructure for the business.

Three Business Processes

3. Innovation:-

Ensures a continuous stream of new products and services to maintain the future visibility of the business.

Should not be limited to the pursuit of internal product development, but should extend the sources of Innovation to include suppliers, customers and key complementors.

Three Business Processes

Role of the Adaptive Processes in Supporting the Strategic Options of the Triangle

Best Product Total Customer Solutions

System Lock-In

O.E. Internally efficient cost infrastructure

Maximization of the customer value through combined value chain of the firm and its customers

Enhancing the overall system performance by consolidating strong partnerships with complementors

C.T. Seeks maximum coverage through distribution channels

Developing individual customer bonds

Attempts to consolidate a harmonized system architecture

Innovation Speedy development of the firm’s products

Development of a composition of customized products jointly with the customer

Develop and appropriate an industry standard,

Careful segmentation of the customer base and develop as much knowledge as possible of the customer economics (seek customer bonding)

Select the most appropriate strategic positioning among the three key option-

B. P., T. C. S., I. Define the strategic agenda. Ensure that

the three processes are properly aligned Design the proper metrics and rewards to

facilitate the strategy development

Delta Model’s Winning Formula

Comparisons among strategy frameworks

Porter’s Framework

RBV Framework

Delta Model Framework

Focus of Strategic Attention

Industry / Business

Corporation Extended Enterprise

Types of Competitive Advantage

Low cost / Differentiation

Resources Capabilities, Core Competencies

B.P., T.C.S., S.L.I.

Basic Unit of Competitive Advantage

Activities Core Products, Strategic Architecture

Adaptive Processes: O.E., C.T., I.

Strategy as Rivalry Real Estate Bonding

Mission of the Business

•Business Scope•Core Competencies

Competitive Positioning

•Activities that drive profitability

Competitive Positioning

•Activities that drive profitability

The Triangle

Best Product Total Customer Solutions

Industry Structure

•External factors determining industry attractiveness

Business

The Strategic agenda

Innovation Operational Effectiveness

Customer Targeting

Adaptive Process

Strategic Agenda

System Lock-in

References: www.12manage.com MIT Sloan School of Management Working Paper 4261-02 September 2002 The Delta Model -- Toward a

Unified Framework of Strategy Arnoldo C. Hax and Dean L. Wilde II