For organizations that want to achieve a leading market position, an understanding of transformational value drivers is essential.
Today’s business environment is characterized by continuous and major changes that place ongoing pressure on organizations to regularly transform as a matter of survival. For organizations that want to go beyond survival and competitiveness and transform in ways that enable them to achieving a leading market position, an understanding of transformational value drivers is essential.
Transformational value drivers consist of the customer preferences and demands that create market value for which firms must compete. They guide the selection of a value discipline and the process of aligning the organization’s structure, systems and culture with this discipline. Value disciplines represent the three main business strategies that can be developed in response to customer needs and value preferences and which have been defined by researchers as operational excellence, customer intimacy and product leadership.
The overall organizational alignment and integration with a single value discipline is what facilitates exemplary business performance and enables a firm to become a market leader. The key features associated with each value discipline each have different implications for organizational structure, culture, processes and systems, which can be used to shape the transformation process for effective pursuit of that value discipline.
For successful organizational transformation it is also crucial to achieve the right balance of art and science. In Schroeder & Schroeder’s Art and Science of Transformation® framework, the “science” of transformation is defined as the use of change management tools and techniques, and the “art” of transformation as the important skills and attributes needed to manage the attitudes and behaviours of people to bring about a successful transformation. Understanding customer value preferences and effectively identifying and implementing the most appropriate value discipline requires the application of the right types of art and science skills, as well as a systematic and holistic approach to transformation.
Value Drivers and the Art and Science of Transformation
Today’s business environment is characterized by continuous and major changes that place ongoing pressure on organizations to regularly transform as a matter of survival. For organizations that want to go beyond survival and competitiveness and transform in ways that enable them to achieving a leading market position, an understanding of transformational value drivers is essential.
Transformational value drivers consist of the customer preferences and demands that create market value for which firms must compete. They guide the selection of a value discipline and the process of aligning the organization’s structure, systems and culture with this discipline. This overall organizational alignment and integration is what facilitates exemplary business performance and enables a firm to become a market leader. Researchers have demonstrated that the most successful companies focus on a single value discipline and pursue this relentlessly in all aspects of their business.
For successful organizational transformation it is also crucial to achieve the right balance of art and science. In Schroeder & Schroeder’s Art and Science of Transformation® framework, the “science” of transformation is defined as the use of change management tools and techniques, and the “art” of transformation as the important skills and attributes needed to manage the attitudes and behaviours of people to bring about a successful transformation.
The Art and Science of Transformation® approach also involves a systematic and a holistic approach to organizational change, which recognizes the inter-relationships between an organization’s structure, culture, systems and processes.
Understanding Customer Value Preferences
The effective use of transformational value drivers for business success first depends on the ability of a firm to understand how its target customers define value, so that it can select the right value discipline to meet their needs and preferences. It can then align all aspects of the organization with the selected value discipline, through a holistic “art and science”-based transformation process.
Value disciplines represent the three main business strategies that can be developed in response to customer needs and value preferences and which have been defined by researchers as operational excellence, customer intimacy and product leadership.
In general, researchers have found that:
• One category of customers is looking for the lowest possible prices and a high level of convenience in the purchasing process. Firms that target these customers adopt the operational excellence value discipline.
• The second group of customers places high value on being able to buy products and services that are closely tailored to their specific needs and characteristics. This is the group targeted by firms that pursue customer intimacy as a value discipline.
• The final main category of customers is keen to buy the latest, leading edge products and services. Firms that pursue product leadership target this group.
The effectively application of art and science skills in customer research is crucial in enabling firms to convert intangible value preferences into the transformational value drivers.
The application of science is important, for example, for the purpose of mapping and segmenting a potential customer market systematically; conducting quantitative monitoring and analysis of market sales data and using social media analytics.
In contrast, art is important in enabling firms to design and implement qualitative research to generate detailed insights into value perceptions and preferences, and to understand the social and emotional dimensions of purchasing decisions.
Aligning the Organization with the Selected Value Discipline
The key features associated with each value discipline each have different implications for organizational structure, culture, processes and systems, that can be used to shape the transformation process for effective pursuit of that value discipline. For example:
Operational Excellence:
• All processes are engineered for integration, efficiency and cost reduction, and automated as far as possible.
• Functions are centralised to ensure standardization of working processes and effective inter-organizational working.
• A command and control style of management is used; employees are not empowered.
• IT is heavily used to support performance monitoring, measurement and business analytics, which are crucial for continuous system improvement.
Customer Intimacy:
• There is flexibility of working systems and processes, which need to be tailored over time to the evolving needs of customers.
• The organization is typically decentralized in a customer-focused team working structure.
• Employees at all levels are often closely involved in the development of a client-centric culture and customer intimacy strategy.
• There is extensive use of multiple online channels and tools for customer interaction and brand/relationship building.
Product Leadership:
• All business and management processes are designed to maximize innovation and speed of commercialization.
• There is typically an organic flexible structure based on cross-functional teams, and organized around particular projects, products or services.
• Creativity is valued, and there is a high tolerance for failure; teams and individuals are often highly empowered, to encourage “out of the box” thinking and experimentation.
• IT and knowledge management systems are heavily used for research and development.
The Art and Science of Transformation for Market Leadership
To effectively implement each of the three value disciplines through transformation requires the application of a distinctive set of art and science skills, either at the leadership or employee level.
For example:
• The art of transforming for operational excellence includes the skillful use of internal communications to effectively convey strategic goals to all employees, and the ability to generate a strong sense of internal identification with the organization and its brand. The science of operational excellence involves a range of technical expertise such as business process engineering, risk management and performance monitoring and measurement.
• Among firms selecting the customer intimacy value discipline, important transformational art skills include the ability to build customer relationships and loyalty, as well as the emotional intelligence important in understanding customer value preferences. The science of customer intimacy includes the ability to develop and utilize systematic market research techniques, including social media analytics.
• Finally, transformation for product leadership involves a range of art skills such as creativity, vision, foresight and the ability to quickly build effective project teams, while the science of product leadership involves skills and knowledge in benchmarking, effective knowledge management, and the various types of technical expertise necessary for continuous product innovation and commercialization.