6 Steps for Creating a Winning Business Strategy With the Delta Model

Strategy can be defined as thinking about and establishing new ways to reach company goals. Although many examples exist, few models of winning business strategy provide the diversity of tools necessary for actualizing that strategy.

Most readers are aware of the important influence of Michael Porter, author of Competitive Strategy: Techniques for Analyzing Industries and Competitors. However, his model does not necessarily make us take action; rather, it determines what we should be aware of to protect any incremental market share. Another example is The Balanced Scorecard: Translating Strategy Into Action, written by Robert Kaplan and David Norton. However, this book is not a tool for modeling strategy, but rather for measuring the strategic impact of our actions. Although there are many other books about the subject, most do not successfully present a complete strategic model.

While searching for a powerful strategic model to use in my position as a marketing consultant, I discovered MIT Sloan Professor Arnoldo Hax’s The Delta Model: Reinventing Your Business Strategy. The strength of this model is that it puts the customer at the center of the strategy, with the goal of achieving customer bonding. The model is based on the application of the eight competencies of the firm—specific strategies developed by Professor Hax that help us accomplish our final goal of customer bonding. Each of these strategies will work for a particular market segment.

The Delta Model: Six steps for business success

As Director of GENOVESE, a marketing consulting and research company based in Paraguay, some of the industries in which I have applied the Delta Model include automotive, dairy, air conditioning, tea, and meatpacking, among others. Here are the steps I take.

1. Build the extended enterprise

I always work on a “chain” that starts with the manufacturer/importer and ends with the client. It is important to clarify that the client can be a company or a final consumer. I always make two models, one for business-to-business (B2B) and another for business-to-consumer (B2C), so that the company has different tiers for each kind of business.

2. Define the tiers or segmentation dimensions

The model gives me the chance to define the business’s market segments. If you work with market research you will be able to build clusters, or classifications of segments, based on a specific shared driver. If you don’t, your experience with specific business categories and knowledge about your customers will give you the tools to make the segmentation types. The Delta Model establishes five possible ways of segmentation. In my case, I usually consider two that are really powerful and almost always work: segmentation according to different degrees of value added and segmentation according to customer life cycle.

3. Link the strategies with the segmentation dimensions

The model provides a diversity of strategies to use:

• The differentiation strategy—a must, unless you want to work with a commodity
• The low cost strategy—there are a few companies where this is feasible
• Redefining the customer relationship—based on accompanying the customer through his or her life cycle with the product; (I consider this strategy the most important)
• Customer integration—I create a “university,” with courses available to the customer, in the areas in which the client has strong knowledge to share
• Horizontal breadth—if the firm lacks products, I find complementors (other related companies that can give support, expand scope, and increase profitability) with which to form strategic alliances
• Restricted access (also called an exclusive channel)—I determine where significant barriers are in place that make it difficult for competitors to compete for the acquisition of customers

4. Set up the Value Proposition

Once the tiers are defined, I develop and refine the value proposition, focusing on the experiences of the customer, including the first moment of truth (when the customer steps into the store and looks at the products), the second moment of truth (using the product), and at the time when the consumer decides to buy again from the company. A good resource for studying customer experiences is Bernd Schmitt’s Experiential Marketing: How to Get Customers to Sense, Feel, Think, Act and Relate to Your Company and Brands.

5. Time to measure

At this point it is best to use a balanced scorecard to measure the execution.

6. Be creative and passionate

It is difficult to work with the Delta Model if you are not willing to change things and improve. Remember Einstein’s quote, “Problems cannot be solved with the same mindset that created them.”

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This article originally appeared on MIT Sloan Executive Education’s innovation@work blog.