The delta model is a customer-centric approach created by Dean Wilde and Arnoldo Hax which deals with the implementation and management of corporate strategies. The delta model argues that business strategy and management should focus on the needs of the end-user. Indeed, unlike many strategic frameworks based on the competitor or the product, the delta model is based on consumer theory.
Aspect
Explanation
Concept Overview
– The Delta Model is a strategic framework developed by Arnoldo Hax and Dean Wilde II in the late 1990s. It provides an alternative approach to traditional business strategy by focusing on three primary strategic options: Customer Solution, System Lock-In, and Profit Configuration. The Delta Model proposes that organizations can achieve competitive advantage by leveraging these strategic options to create value for both customers and shareholders. It emphasizes the importance of aligning the organization’s activities to deliver superior value to customers and generate sustainable profits.
Key Elements
– The Delta Model comprises three interrelated elements: – Customer Solution: This element emphasizes understanding customer needs deeply and creating innovative solutions that address those needs better than competitors. It involves designing products, services, or experiences that offer unique value and solve customer problems effectively. – System Lock-In: System Lock-In focuses on creating mechanisms that make it difficult for customers to switch to competitors. It involves building strong relationships, networks, and complementary assets that increase the cost or effort of changing suppliers. – Profit Configuration: Profit Configuration refers to designing the organization’s business model, cost structure, and revenue streams in a way that maximizes profits while delivering value to customers. It involves optimizing the balance between costs and pricing to ensure profitability.
Applications
– The Delta Model is applied in various strategic contexts: – Business Strategy: Organizations use the Delta Model to redefine their business strategies, emphasizing customer-centric approaches, value creation, and competitive differentiation. – Marketing and Product Development: It informs marketing strategies and product development efforts by guiding organizations to focus on solving customer problems and enhancing customer relationships. – Ecosystem Building: In industries like technology and platform-based businesses, the model guides the development of ecosystems and network effects that increase System Lock-In. – Pricing and Revenue Models: Profit Configuration principles are applied to optimize pricing strategies, cost structures, and revenue models for sustainable profitability. – Mergers and Acquisitions: The Delta Model informs M&A decisions by assessing the potential for customer solutions, system lock-in, and profit configuration in target companies.
Benefits
– Adopting the Delta Model offers several benefits: – Customer-Centricity: The model encourages organizations to prioritize understanding and meeting customer needs, resulting in higher customer satisfaction and loyalty. – Competitive Differentiation: By focusing on delivering unique customer solutions and building strong relationships, organizations can differentiate themselves from competitors. – Long-Term Profitability: The Delta Model promotes sustainable profitability by optimizing the cost-revenue balance and minimizing customer churn. – Adaptability: It allows organizations to adapt their strategies and business models to changing market conditions and customer preferences. – Value Creation: The model helps organizations create and deliver more value to customers, enhancing their market position and financial performance.
Challenges
– Challenges in applying the Delta Model include the need for deep customer insights, the complexity of building strong customer relationships, and the potential conflict between short-term profitability and long-term value creation. Additionally, adapting existing organizational structures and cultures to the Delta Model’s principles can be challenging.
Prevention and Mitigation
– To address challenges, organizations can: – Invest in Customer Insights: Invest in data analytics and market research to gain deep insights into customer needs, preferences, and pain points. – Customer Relationship Management: Develop effective customer relationship management (CRM) strategies and technologies to build strong and lasting relationships. – Balanced Metrics: Use balanced performance metrics that consider both short-term profitability and long-term value creation to align incentives and decision-making. – Organizational Alignment: Ensure that the organization’s structure, culture, and processes support the principles of the Delta Model, fostering a customer-centric mindset. – Continuous Innovation: Emphasize continuous innovation to stay ahead of changing customer needs and competitive dynamics.
Table of Contents
Understanding the delta model
The creators of the delta model, Dean Wilde and Arnoldo Hax, argue that business management strategies must now cater to modern, consumer-focused markets.
This can be achieved through customer bonding, defined as the process of an organization making connections with its customers.
The delta model triangle
The delta model is named after the triangular representation of three distinct strategic options.
Each option, which guides customer bonding, is described below:
Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.
This competitive advantage can be achieved through cost minimization or product differentiation.
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.
Efficient supply chains, distribution channels, and innovation help the business sell standardized products that maximizing consumer satisfaction and better their rivals.
Apple’s suite of consumer products is a good example of this strategic option.
Total customer solutions
The next strategy focuses on providing solutions to consumers per their unique needs.
Here, customer bonding is facilitated by the business taking a cooperative approach to selling.
There is less emphasis on simply beating the competition.
Amazon is a perfect example of a total customer solution-based organization through customer obsession.
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start by the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.
Disney is another, offering its customers a complete and diversified experience across video games, merchandise, music, theme parks, and television shows.
Here the focus is on systemic economics as opposed to product economics.
There is also a focus on attaining market domination through complementors, or those who have significant influence over the customers of a business through complementary value-adding.
Microsoft was able to attract customers to its platform through partnerships with third-party organizations (complementors) such as Intel.
Over time, the company was able to achieve market domination through the extensive partnering seen in their products and services.
Delta model haxioms
Regardless of the strategy chosen, delta model co-creator Arnoldo Hax created a suite of guiding practices which he called “haxioms”.
Winning is defined as achieving customer bonding and not when the competition is beaten.
Try to understand each customer deeply. Strategy is performed one customer at a time by understanding their unique needs and wants.
Product-centric mentalities are constraining. Customers, suppliers, and complementors should be the key constituents of strategy.
Reject the truism which states that “the customer is always right” – in many cases, the customer does not know what is good for them unless a strong business-customer relationship has been established.
Robust strategic planning involves consensual dialogue among the key executives of the organization.
Key takeaways
The delta model is a customer-focused approach to implementing and then managing strategy.
The delta model defines three core strategies from whence its name is derived: best product positioning, total customer solutions, and system lock-in.
The delta model is underpinned by a set of best practices called haxioms. They remind businesses to focus on the customer and create products and services that will best suit their needs.
Key Highlights
Delta Model Concept: The Delta Model is a strategic framework developed by Dean Wilde and Arnoldo Hax that emphasizes a customer-centric approach to business strategy. It diverges from traditional competitor- or product-focused strategies by placing the customer at the center.
Focus on Consumer-Centric Markets: According to Wilde and Hax, modern business strategies must cater to consumer-focused markets. They stress the importance of customer bonding, which refers to building strong connections between organizations and their customers.
Delta Model Triangle: The Delta Model gets its name from the triangular representation of three distinct strategic options, each guiding customer bonding:
Best Product Positioning: This strategy prioritizes consumer satisfaction through efficient product development, focusing on competitive advantage through cost minimization or product differentiation. Apple’s consumer products exemplify this approach.
Total Customer Solutions: This strategy offers tailored solutions to unique customer needs, focusing on cooperative selling and customer-centricity. Amazon and Disney are examples of organizations employing this approach.
System Lock-In: This strategy concentrates on systemic economics and market domination through complementors, partners who enhance a business’s value proposition. Microsoft’s partnership with Intel illustrates this strategy.
Delta Model Haxioms: Arnoldo Hax, one of the co-creators, introduced guiding principles called “haxioms”:
Customer-Centric Focus: The core of the strategy revolves around the customer.
Winning Defined by Customer Bonding: Winning is achieved through strong customer bonding, not merely by outcompeting rivals.
Deep Understanding of Customers: Understand each customer’s unique needs and wants to tailor strategies effectively.
Shift from Product-Centric Approach: The focus should shift from a product-centric mentality to a customer-, supplier-, and complementor-centric one.
Critical Assessment of “Customer is Always Right”: While customer feedback is important, a strong relationship is needed for customers to truly know what’s best for them.
Consensual Strategic Planning: Strategic planning involves consensus among key executives in the organization.
Key Takeaways:
The Delta Model emphasizes a customer-focused approach to strategy implementation and management.
The model defines three core strategies: best product positioning, total customer solutions, and system lock-in.
Guiding principles, or haxioms, stress focusing on customer needs, building strong relationships, and moving away from product-centric approaches.
AIOps is the application of artificial intelligence to IT operations. It has become particularly useful for modern IT management in hybridized, distributed, and dynamic environments. AIOps has become a key operational component of modern digital-based organizations, built around software and algorithms.
Agile started as a lightweight development method compared to heavyweight software development, which is the core paradigm of the previous decades of software development. By 2001 the Manifesto for Agile Software Development was born as a set of principles that defined the new paradigm for software development as a continuous iteration. This would also influence the way of doing business.
Agile Program Management is a means of managing, planning, and coordinating interrelated work in such a way that value delivery is emphasized for all key stakeholders. Agile Program Management (AgilePgM) is a disciplined yet flexible agile approach to managing transformational change within an organization.
Agile project management (APM) is a strategy that breaks large projects into smaller, more manageable tasks. In the APM methodology, each project is completed in small sections – often referred to as iterations. Each iteration is completed according to its project life cycle, beginning with the initial design and progressing to testing and then quality assurance.
Agile Modeling (AM) is a methodology for modeling and documenting software-based systems. Agile Modeling is critical to the rapid and continuous delivery of software. It is a collection of values, principles, and practices that guide effective, lightweight software modeling.
Agile Business Analysis (AgileBA) is certification in the form of guidance and training for business analysts seeking to work in agile environments. To support this shift, AgileBA also helps the business analyst relate Agile projects to a wider organizational mission or strategy. To ensure that analysts have the necessary skills and expertise, AgileBA certification was developed.
Agile leadership is the embodiment of agile manifesto principles by a manager or management team. Agile leadership impacts two important levels of a business. The structural level defines the roles, responsibilities, and key performance indicators. The behavioral level describes the actions leaders exhibit to others based on agile principles.
The andon system alerts managerial, maintenance, or other staff of a production process problem. The alert itself can be activated manually with a button or pull cord, but it can also be activated automatically by production equipment. Most Andon boards utilize three colored lights similar to a traffic signal: green (no errors), yellow or amber (problem identified, or quality check needed), and red (production stopped due to unidentified issue).
Bimodal Portfolio Management (BimodalPfM) helps an organization manage both agile and traditional portfolios concurrently. Bimodal Portfolio Management – sometimes referred to as bimodal development – was coined by research and advisory company Gartner. The firm argued that many agile organizations still needed to run some aspects of their operations using traditional delivery models.
Business innovation is about creating new opportunities for an organization to reinvent its core offerings, revenue streams, and enhance the value proposition for existing or new customers, thus renewing its whole business model. Business innovation springs by understanding the structure of the market, thus adapting or anticipating those changes.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
A design sprint is a proven five-day process where critical business questions are answered through speedy design and prototyping, focusing on the end-user. A design sprint starts with a weekly challenge that should finish with a prototype, test at the end, and therefore a lesson learned to be iterated.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
DevOps refers to a series of practices performed to perform automated software development processes. It is a conjugation of the term “development” and “operations” to emphasize how functions integrate across IT teams. DevOps strategies promote seamless building, testing, and deployment of products. It aims to bridge a gap between development and operations teams to streamline the development altogether.
Product discovery is a critical part of agile methodologies, as its aim is to ensure that products customers love are built. Product discovery involves learning through a raft of methods, including design thinking, lean start-up, and A/B testing to name a few. Dual Track Agile is an agile methodology containing two separate tracks: the “discovery” track and the “delivery” track.
eXtreme Programming was developed in the late 1990s by Ken Beck, Ron Jeffries, and Ward Cunningham. During this time, the trio was working on the Chrysler Comprehensive Compensation System (C3) to help manage the company payroll system. eXtreme Programming (XP) is a software development methodology. It is designed to improve software quality and the ability of software to adapt to changing customer needs.
Feature-Driven Development is a pragmatic software process that is client and architecture-centric. Feature-Driven Development (FDD) is an agile software development model that organizes workflow according to which features need to be developed next.
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.
GIST Planning is a relatively easy and lightweight agile approach to product planning that favors autonomous working. GIST Planning is a lean and agile methodology that was created by former Google product manager Itamar Gilad. GIST Planning seeks to address this situation by creating lightweight plans that are responsive and adaptable to change. GIST Planning also improves team velocity, autonomy, and alignment by reducing the pervasive influence of management. It consists of four blocks: goals, ideas, step-projects, and tasks.
The ICE Scoring Model is an agile methodology that prioritizes features using data according to three components: impact, confidence, and ease of implementation. The ICE Scoring Model was initially created by author and growth expert Sean Ellis to help companies expand. Today, the model is broadly used to prioritize projects, features, initiatives, and rollouts. It is ideally suited for early-stage product development where there is a continuous flow of ideas and momentum must be maintained.
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
The Agile methodology has been primarily thought of for software development (and other business disciplines have also adopted it). Lean thinking is a process improvement technique where teams prioritize the value streams to improve it continuously. Both methodologies look at the customer as the key driver to improvement and waste reduction. Both methodologies look at improvement as something continuous.
A startup company is a high-tech business that tries to build a scalable business model in tech-driven industries. A startup company usually follows a lean methodology, where continuous innovation, driven by built-in viral loops is the rule. Thus, driving growth and building network effects as a consequence of this strategy.
As pointed out by Eric Ries, a minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort through a cycle of build, measure, learn; that is the foundation of the lean startup methodology.
Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.
Jidoka was first used in 1896 by Sakichi Toyoda, who invented a textile loom that would stop automatically when it encountered a defective thread. Jidoka is a Japanese term used in lean manufacturing. The term describes a scenario where machines cease operating without human intervention when a problem or defect is discovered.
The PDCA (Plan-Do-Check-Act) cycle was first proposed by American physicist and engineer Walter A. Shewhart in the 1920s. The PDCA cycle is a continuous process and product improvement method and an essential component of the lean manufacturing philosophy.
RAD was first introduced by author and consultant James Martin in 1991. Martin recognized and then took advantage of the endless malleability of software in designing development models. Rapid Application Development (RAD) is a methodology focusing on delivering rapidly through continuous feedback and frequent iterations.
Retrospective analyses are held after a project to determine what worked well and what did not. They are also conducted at the end of an iteration in Agile project management. Agile practitioners call these meetings retrospectives or retros. They are an effective way to check the pulse of a project team, reflect on the work performed to date, and reach a consensus on how to tackle the next sprint cycle. These are the five stages of a retrospective analysis for effective Agile project management: set the stage, gather the data, generate insights, decide on the next steps, and close the retrospective.
Scaled Agile Lean Development (ScALeD) helps businesses discover a balanced approach to agile transition and scaling questions. The ScALed approach helps businesses successfully respond to change. Inspired by a combination of lean and agile values, ScALed is practitioner-based and can be completed through various agile frameworks and practices.
The SMED (single minute exchange of die) method is a lean production framework to reduce waste and increase production efficiency. The SMED method is a framework for reducing the time associated with completing an equipment changeover.
The Spotify Model is an autonomous approach to scaling agile, focusing on culture communication, accountability, and quality. The Spotify model was first recognized in 2012 after Henrik Kniberg, and Anders Ivarsson released a white paper detailing how streaming company Spotify approached agility. Therefore, the Spotify model represents an evolution of agile.
As the name suggests, TDD is a test-driven technique for delivering high-quality software rapidly and sustainably. It is an iterative approach based on the idea that a failing test should be written before any code for a feature or function is written. Test-Driven Development (TDD) is an approach to software development that relies on very short development cycles.
Timeboxing is a simple yet powerful time-management technique for improving productivity. Timeboxing describes the process of proactively scheduling a block of time to spend on a task in the future. It was first described by author James Martin in a book about agile software development.
Scrum is a methodology co-created by Ken Schwaber and Jeff Sutherland for effective team collaboration on complex products. Scrum was primarily thought for software development projects to deliver new software capability every 2-4 weeks. It is a sub-group of agile also used in project management to improve startups’ productivity.
Scrumban is a project management framework that is a hybrid of two popular agile methodologies: Scrum and Kanban. Scrumban is a popular approach to helping businesses focus on the right strategic tasks while simultaneously strengthening their processes.
Scrum anti-patterns describe any attractive, easy-to-implement solution that ultimately makes a problem worse. Therefore, these are the practice not to follow to prevent issues from emerging. Some classic examples of scrum anti-patterns comprise absent product owners, pre-assigned tickets (making individuals work in isolation), and discounting retrospectives (where review meetings are not useful to really make improvements).
Scrum at Scale (Scrum@Scale) is a framework that Scrum teams use to address complex problems and deliver high-value products. Scrum at Scale was created through a joint venture between the Scrum Alliance and Scrum Inc. The joint venture was overseen by Jeff Sutherland, a co-creator of Scrum and one of the principal authors of the Agile Manifesto.
Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.
Stretch objectives describe any task an agile team plans to complete without expressly committing to do so. Teams incorporate stretch objectives during a Sprint or Program Increment (PI) as part of Scaled Agile. They are used when the agile team is unsure of its capacity to attain an objective. Therefore, stretch objectives are instead outcomes that, while extremely desirable, are not the difference between the success or failure of each sprint.
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.
The Total Quality Management (TQM) framework is a technique based on the premise that employees continuously work on their ability to provide value to customers. Importantly, the word “total” means that all employees are involved in the process – regardless of whether they work in development, production, or fulfillment.
The waterfall model was first described by Herbert D. Benington in 1956 during a presentation about the software used in radar imaging during the Cold War. Since there were no knowledge-based, creative software development strategies at the time, the waterfall method became standard practice. The waterfall model is a linear and sequential project management framework.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
