Competition based upon

system economics:
Complementor lock-in
Competitor lock-out
Proprietary standard

System Lock-In

Total Customer Solutions Best Product

Competition based upon Competition based upon

customer economics: product economics:
Reducing customer costs or Low cost or differentiation
increasing their profits
The framework offers four major contributions:

The triangle, which defines strategic positions that reflect

fundamentally new sources of profitability.

Adaptive processes, which align these options with a firm’s activities

and thus provide strategic direction and execution with the capability
to continually respond to an uncertain environment.

Aggregate metrics, enabling the measurement of success.

Granular metrics, which help discover the drivers of performance in

complex industries.
The Best Product position offers value to the customer through
product attributes which leads to a position of low cost or
differentiation.

When the low cost position is employed, the following attributes,

providing the customer with a price advantage, tend to be success
factors:
•economies of scale
•product or process simplification
•significant product market share

Differentiation, enhancing product attributes in a way that adds value

for the customer for which they are willing to pay a premium,
accomplished through:
•technology
•brand image
•additional features
•special services
The Total Customer Solutions
strategy focus on developing value
propositions that bond with individual
customers and creates economic
value for them (Hax & Wilde, 2001:
10). This is accomplished by a wider
offering of products and services that
satisfies most if not all the customers’
needs. With the focus on customer
economies, customer bonding is
obtained through close proximity to
the client that allows the company to
anticipate needs, work jointly to
develop new products, and enhance
the process by learning and
customisation (Hax & Wilde, 1999:
19). Strategy is not seen as war with
competitors typical of the Best
Product position, but as loving your
customers.
The System Lock-In strategic option
has the widest scope as the company
considers all the meaningful players
in the system that contributes to the
creation of economic value. This
includes customers, suppliers and
complementors. A complementor is
not a competitor, but a provider of
products and services that enhances
a company’s offering. With system
lock-in, the company nurtures,
attracts and retain complementors in
order to gain complementor’s share,
thereby locking out competition and
locking in customers. The highest
goal is to achieve the de facto
proprietary standard for the industry.
 Table 2.1: Value propositions offered by the three strategic options

STRATEGIC OPTION VALUE PROPOSITION TO CUSTOMERS

Best Product The product and product economics, attributes are
independent of the customer
Total Customer Solution Customer economics and profitability, enhanced by
interaction between customer and product which leads to
bonding with existing customers

System Lock-In System economics and profitability, enhanced by

interaction with other customers which leads to bonding
with existing and new customers
The Bonding Continuum
Bonding is central to the achievement of competitive advantage and a
primary element in each of the three strategic options. It is a continuum
that spans from product loyalty on the one end to full locked-in
Proprietary Standards on the other end of the scale.

There are four stages in the Bonding Continuum. The first stage is
dominant design. Here, through first mover advantage, features,
service, and price forms part of either a low cost or differentiation
strategy. The customers are attracted to a product when it excels in
dimensions they care about.

The second stage, Customer Lock-In, offers the first degree of

customer bonding. By establishing barriers to change that follow from
the customer’s use of the product, subsequent learning and
customisation, the customer is locked in. Once acquired, it is very hard
for a customer to switch to alternative competitors.
The next stage is Competitor Lock-out. Here the focus is on creating
significant barriers for competitors to enter your market. There are four
important strengths that help lock out competitors, i.e. distribution
channels, brands, innovation, and patents.

The final and most rewarding stage of bonding is Proprietary Standards.

It is also the most difficult to achieve. A number of requirements need to
be met in order to achieve this stage of bonding. You need a platform or
architecture open to a large number of complementors. The standard
should provide a lock-in with the complementor’s products through an
interface or natural exchange. The standard must be proprietary by
being hard to copy, staying ahead through innovation, or having a
patent.
 1.The Business Strategic Agenda
The strategic agenda is a way of expanding the mission
statement and strategic position into a strategic “To Do List”
which includes four components, i.e. strategic thrusts,
organisational structure, business processes, and business
performance.

Strategic thrusts spell out the mission by dividing it up into

broad objectives.
The organisational structure is used to assign
responsibilities and authorities to the different role players.
Business processes refer to activities that cut across
organisational units and require horizontal coordination.
These processes are described in more detail under
adaptive processes.
Performance refers to the measuring and monitoring of key
indicators as well as the tracking of time-driven events.
 1.Adaptive Processes
Adaptive processes focus on the link between strategy and the execution of the strategy. The triangle determines WHAT to
do, whilst adaptive processes focus on HOW to do it. The core activities of the business have to be aligned to the chosen
strategy in order to ensure a successful strategy implementation.
In this model, the core activities of a business are seen as Operational Effectiveness, Customer Targeting and Innovation.
These core activities are collectively called Adaptive Processes. Operational effectiveness is defined as the production and
delivery of goods and services and needs to produce the most effective cost and asset infrastructure to support the chosen
strategy. Customer targeting is defined as the management of the customer interface and includes the identification and
selection of customers and enhance the customers’ performance by establishing the best revenue infrastructure for the
chosen strategy. Innovation is defined as the process of new product development and should ensure that the business
remain viable through a continuous stream of new products and services
 1.Aggregate Metrics
Aggregate metrics aim to give an overall view of the business and its performance
and serve as guidelines to define strategy performance. It is directly linked to the
adaptive processes and here again, the chosen strategy position, Best Product, Total
Customer Solutions or System Lock-in, determines the metrics applied for each of the
adaptive processes.
Operational effectiveness focuses on cost drivers, customer targeting on profit
drivers, while innovation focuses on renewal drivers (Hax & Wilde, 2001: 10).
1.Granular Metrics
Businesses are complex ever-changing and interdependent systems that cannot be
modelled through linear equations. In the Delta Model, granular metrics are used to
measure the bonding success of the business. By disaggregating average measures,
granular metrics help by revealing nonlinearities and concentrations that serve as
strong indicators of performance drivers.
The granular metrics cycle starts off by selecting performance indictors. The next step
is to detect variability by drilling down to detailed segmentation level and isolating
variability. Once variability is highlighted, it needs to be explained. This is done by
identifying performance drivers and correlating these drivers with variability. When
variability is explained, the cycle continues to include learning from this variability
through hypothesising cause and effect and evaluating outcomes. The last step is to
act from variability by defining a program and structured tests as well as rolling them
out (Hax & Wilde, 2001: 192 - 203).