The Treacy-Wiersema Model

Michael Treacy and Fred Wiersema described a model of business value in their study, "Customer Intimacy and Other Value Disciplines," ^[6] published in the Harvard Business Review, and expanded further in their book, The Discipline of Market Leaders. ^[7] Closely aligned with the balanced scorecard, the Treacy-Wiersema model has three focus areas. The first is customer intimacy, in which the concept of relationship management as a business value is foremost. Customer intimacy is characterized by a harmonious alignment of business values in a chain that interconnects the customer and the business. Product, service, and support are more or less tailored to an individual customer. Many projects, especially in the evolving "e-business" of integrated business systems, are aimed squarely at customer intimacy. The objective of these e-business projects is to provide complementary cross-user functionality and shared workload across the channel, presumably doing the task at the most effective end of the channel at the least or most effective cost. A subtler objective is to raise barriers to exit of the relationship and thereby close out competitors. It is almost axiomatic that the cost of sales to retain and nurture an existing customer is far less than the cost of marketing, selling, and closing a new customer.

The second focus area of the Treacy-Wiersema model is product excellence or superiority. The objective is to be differentiated from competitors and create an "ah-hah!" demand. Obviously, such demand can usually command a price premium. There must be a dedication to innovation, upgrade, and new ideas. Risk taking, at least in product and service development and delivery, is the norm. Naturally, this is a target-rich area for project managers, and the performance measures are typically market share, customer satisfaction, revenues, and profits.

The third area is operational excellence. Internal processes, methods, and procedures are made as "frictionless" as possible. Repetition is exploited to reduce errors and minimize variance to the mean outcome. This area is taken quite broadly and would in most businesses encompass some of the innovation and learning goals from the balanced scorecard. A good example of operational excellence exists in the back-office billing and administration systems. As an example, health-care administrator companies strive to be operationally excellent, providing uniformly the same service to each and all customers.

Treacy and Wiersema make the point that it is difficult, if not out and out inconsistent, to excel in all three areas. Product excellence and operational efficiency may conflict culturally and financially. Customer intimacy may also conflict with operational efficiency. You would not expect customer intimacy from your health-care administrator; you want a frictionless, repeatable experience with a call center if you need help. Operational efficiency could be the mantra of the low-cost commodity provider, and many customers would be quite happy with that. Of course, for commodity providers there are few barriers to exit, and customers vote with their feet and their pocketbook.