MIT Sloan School professor Arnoldo C. Hax, a well-known strategy expert, thinks companies need a different approach to thinking about strategy.
Most executives have probably, at one point or another, sat through a strategic planning session that focused on their organization’s position in the marketplace — its mission and objectives, its strengths and weaknesses, and the opportunities and threats it faces.
But what if there’s another way entirely of thinking about strategy?
I had an interesting conversation recently with MIT Sloan School professor Arnoldo C. Hax, a well-known strategy expert and one of the authors of the book The Delta Project. We spoke about his approach to strategy, called “The Delta Model” (which, incidentally, is the title of an article he coauthored for MIT Sloan Management Review back in 1999).
Here are a few (edited) highlights of some of Hax’s current thinking about strategy.
Professor Hax, can you tell us a little bit about how the Delta Model differs from traditional strategic planning models?
Conventionally, all of the major frameworks of strategy start by recognizing that the essence of strategy is to achieve superior competitive advantage. That is what everybody adheres to. We found that that as a concept and as a mindset is extremely dangerous, because it puts competitors at the center. And if you do that, then there is a tendency to watch your competitors and try to imitate them.
And that imitation creates sameness. Sameness will never bring greatness, and, even worse, its final result is something which is the worst thing that could ever happen to a business: commoditization. Commoditization means a business in which there is nothing that you can claim that differentiates your offering, and therefore, all you can do is to fight for price. That leads to a very aggressive rivalry. In order for you to win, you have to beat somebody.
It is like strategy as war, and that, as we know very well, is not really the most effective way to manage a business. Wars just create complete devastation; they are the worst thing that could happen to mankind, yet we use that as a simile for management! We felt it was the wrong simile.
Now, if competitors are not at the center of management, then who is at the center? For us, the answer was obvious. The customer is. Therefore, the customer is the driving force. You have to start deeply understanding what the customer’s requirements are and how you can help the customer in the most effective way. This changes completely the way you figure out what actions to do.
Now, instead of trying to imitate somebody, you are trying to separate yourself from the rest of the pack. You try to produce a value proposition which is unique, which is differentiated, which adds value to the customer and expresses a great deal of care and concern for the customer. That value proposition should be based on mutual trust, mutual learning, mutual benefits, and transparency. And, incidentally, strategy now, with all of this advent of new technology, can be made one customer at a time, in what we call a granular way — understanding each individual and providing that individual with a creative value proposition.
Can you imagine the difference in mindset? Instead of strategy as war, the Delta Model tells you to think about strategy as love.
In addition to that, in the concept of the Delta Model, you are not alone. You have to play with what we call the extended enterprise. What is that? It is you. It is your customers. It is your suppliers, and a very important original player that we call the complementors. Who are the complementors? The complementors are firms that are engaged in the delivery of products and services that enhance the delivery of your products and services.
So, that’s what it is, you see, in a nutshell. Forget about imitation, congruency, rivalry. Embrace the customer as a centerpiece of strategy, and play with the extended enterprise. And the Internet facilitates that.
How has your thinking about the Delta Model evolved over time?
It’s interesting. We wrote our first book in 2001. Incidentally, I’m about finished with a new book, where now I am the sole author. In our first book we deliberately tried to just be conceptual. We wanted to present these ideas. We thought the ideas were important enough. But now we have, through the process of consulting and research, developed a lot of phenomenal tools for managers to implement the concepts.
A final comment about a very important trap that many managers fall into: the dangers of commoditization. At the beginning of my work on the Delta Model, I coined a silly statement, thinking it was a joke: “Commodities only exist in the minds of the inept.” It turns out it isn’t a joke. Obviously a product could be a commodity. Take copper. The product cannot be differentiated, which makes it a commodity. I cannot say that the Chilean copper is superior to the American copper. But copper as a business — the way that Siemens uses copper in their power plants, the way that GM uses copper in their cars, the way Carrier uses copper in their air conditioning units – is completely different.
Therefore, commodities don’t really exist. The customers are all different, and if you do not understand that, you are commoditizing something — and believe it, there is so much of that happening in business in America. Typically, when I’m teaching these concepts, I ask the group of executives I teach, “Tell me, among all of you present, how many of you think that a significant percentage of your business comes from commodities?” And invariably, 100 percent of the hands come up, and I know then that they have come to the right place — because they are not thinking correctly.