BUS501-CB: The Delta Model | Saylor University

This presentation explains the Delta Model as a tool for competitive advantage by identifying business competencies in three different areas: system lock-in, total customer solutions, and best product. The primary focus for using this tool is the customer. Consider the value the customer places on the product or service and how your organization plans to meet those expectations.

Discovering New Sources of Growth and Profitability in a Networked Economy

The Delta Model

the delta model

Three distinct strategic options:

1. System Lock-in:

System economics
Market dominance
Achieving complementor share

2. Total Customer Solutions:

Customer economics
Cooperation
Achieving customer share

3. Best Product

Product economics
Rivalry
Achieving product share

The Triangle

the triangle

Options for strategic positioning:

Dominant Exchange: eBay, Yellow Pages

Proprietary Standard: Microsoft, Intel

Exclusive Channel: rural Wal-Mart

Horizontal Breadth: Fidelity

Low Cost: Southwest Airlines, Nucor

Redefining the Customer Relationship: Saturn

Customer Integration: EDS

Differentiation: Sony Wega

Delta Model Strategies

Best Product – Centered on Product Economics
Strategy	Description	Challenge/Limitations
Low Cost	Focus on being the lowest cost provider in an undifferentiated product category.	Since there is only one lowest-cost producer, this strategy leaves very little space as a competitive position. It also tends to standardize the product offering, commoditize the customer, and intensify rivalry.
Differentiation	While maintaining effective production economics, focus on key differentiation in product features and functionalities so that the products are unique, desired, and command price premiums.	The problem with this strategic position is that as soon as the differentiated product emerges, competitors tend to imitate them. A competitive advantage is therefore non-sustainable.

Total Customer Solutions – Oriented to Customer Economics
Strategy	Description	Benefit
Redefining the Customer Experience	Focus is placed on considering the full experience of the customer from the point of acquisition through to the complete lifecycle of ownership of the product.	This positioning is based upon an intimate knowledge of the customer base leading toward an effective customer segmentation and a differentiated treatment of the customer tiers.
Horizontal Breadth	A complete set of product and service offerings that fulfill the entire customer needs are customized and provided. "One-stop shopping for a unique solution."	We are seeking a dominant position in "share of the wallet of the customer."
Customer Integration	This strategy seeks to effectively substitute for or leverage activities currently performed by the customer. It is outsourcing in its extreme form and represents a complex web of connections with the customer that enhance their ability to do business and use your product.	The firm is regarded as a bundle of competencies that will be brought to the customer to enhance customer economics.

System Lock-In – Focused on Complementor Economics
Strategy	Description	Challenge/Key Note
Restricted Access	Significant barriers are in place that make it difficult for competitors to compete for the acquisition of customers.	This is a difficult position to achieve and to sustain. Regulatory practices tend to be deployed to prevent it.
Dominant Exchange	The company provides an interface between buyers and sellers that is very hard to displace once it achieves critical mass.	This is the most accessible of all of the system lock-in options. The first mover advantage is critical.
Proprietary Standard	The customer is drawn to your product because of the extensive network of third-party complementors that are designed to work with your product.	This option isn't available in most industries. If it can be achieved, the rewards are enormous.

The Challenge to Decommoditization

Transforming the organization from best product to total customer solutions, while seeking opportunities for System Lock-In.

Central Lessons

If the heart of strategy is the customer, an appropriate customer segmentation and a creative value proposition is often the most important critical step in strategic thinking. Be creative, be bold, be fast.

The winning formula is to have the overall network as your primary scope. Don't play the game alone. It is not just you serving the customer. It is you, your critical suppliers and the key complementors. In a large, diversified corporation often the most important complementors are in your own firm.

From the Customer Segmentation to Strategic Agenda

Value Proposition

Value Proposition Scope and Elements
Scope	Elements
Customer Products Service Channels End Users Complementors Unique Competencies	Experience we provide Value delivery system needed Value gained by the customer, by us, by both

Bundle of Competencies
Mission Statement
(Scope, From, To)
Strategic Thrusts
Customers Segment
Customer Classification
Tier 1: Exclusive Partner
Tier 2: Strategic/Integrated Partner
Tier 3: Project Solution Seekers
Tier 4: Body Shoppers
Strategic positioning

strategic agenda

Source: Arnoldo Hax, http://ocw.mit.edu/courses/sloan-school-of-management/15-902-strategic-management-i-fall-2006/lecture-notes/deltamodel.pdf
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