The Three Disciplines of Business Models

A successful business strategy delivers its objectives. That means the revenue it generates must be profitable. In fact, revenue, growth, and market share are irrelevant if your strategy does not achieve profitability. There are three disciplines of operating or business models1. You must clearly lead in one discipline and be competitive in the other two.

Operational Excellence

  • Reasonable quality at a very low price
  • Streamlined operations—no frills
  • Focus on supply chain and volume
  • Needs a “Six Sigma” mindset

Product/Technology

  • High performance products with high margins
  • Development, design, fast to market
  • Dynamic markets
  • Needs a “Superior Innovation” mindset

Customer Intimacy

  • Tailored products with large variation
  • Reliability, relationships, CRM
  • Focus on solutions, delivery, and lifetime value
  • Needs a “Market Orientation” mindset

The company that is focused on operational excellence is focused on eliminating costs and keeping the product simple. The company that is focused on product/technology focuses on the product. The company that that focuses on customer intimacy focuses on the customers’ experience.

Let’s take, for example, three manufacturers of polymers: Dow, DuPont, and General Electric (GE). Dow is an operational excellence-focused company. Their message would be “Whatever you want, we have it cheaper.” DuPont is a product/technology-focused company. Their message would be “We have a better product than what you’re using now.” GE is a customer-focused company. Their message would be “However you want the product, we’ll make it work for you.”

Key Elements of Business Model Development

There are four key elements of business model development:

1. Customer selection

  • To which customers can I add real value?
  • Which customers will allow me to profit?
  • Which customers do I not want to serve?

2. Value capture

  • How do I capture, as profit, the value I created for customers?
  • What is my profit model?

3. Differentiation—Strategic Control

  • Why do my chosen customers buy from me?
  • What makes my value proposition unique or differentiated compared to other competitors?
  • What strategic control points can counterbalance customer or competitor power?

4. Scope

  • What products, services, and solutions do I want to sell?
  • Which activities or functions do I want to perform in-house?
  • Which activities or functions do I want to subcontract, outsource, or work with a business partner to provide?

Learn more about developing a winning business model. Download our white paper, “Develop Your Go-to-Market Business Strategy.”

1Michael Treacy, The Disciplines of Market Leaders

About the Author

Ronald E. SullivanRon Sullivan is a Senior Partner at Breakthrough Marketing Technology. He has worked with many businesses on innovation, new product development processes, strategy, building new business models, channels and distribution, and pricing optimization. He has significant expertise in study design, data analysis, and market intelligence.

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