THE DELTA MODEL:

Discovering New Sources of

Growth and Profitability in a
Networked Economy

Arnoldo Hax
Alfred P. Sloan Professor of Management
 The Delta Model –
Three Distinct Strategic Options
System Lock-In
• System Economics
• Market Dominance
• Achieving Complementor Share

Enabled
Through
Effective Use
of Technology

Total Customer Solutions Best Product

• Customer Economics • Product Economics
• Cooperation • Rivalry
• Achieving Customer Share • Achieving Product Share
 The Triangle:
Options for Strategic Positioning
System Lock-In

Dominant Exchange Proprietary Standard

eBay, Yellow Pages Microsoft, Intel

Exclusive Channel Enabled

rural Wal-Mart Through
Effective Use
Low Cost
Horizontal Breadth of Technology Southwest Airlines,
Fidelity
Nucor

Total Customer Customer Best Product

Solutions Integration
Redefining the EDS Differentiation
Customer Relationship Sony Wega
Saturn

Delta Model Strategies
Best Product Centered on product economies
Low cost Focus on being the lowest cost
provider in an undifferentiated
product category
Differentiation While maintaining effective
production economies focus on key
differentiation in the product
features and functionalities such
that the products are unique desired
and command price premiums
Positions
Best Product
Low cost
Differentiation
Total Customer Solutions
Redefining the customer
experience
Horizontal Breadth
Customer Integration
System Lock-
Lock-In
Restricted Access
Dominant Exchange
Proprietary Standard
Since there is only one lowest
cost producer, this strategy
leaves very little space as a
competitive position. It also
tends to standardize the product
offering, commoditize the
customer, and intensify rivalry.
The problem with this strategic
position is that as soon as the
differentiated product emerges,
competitors tend to imitate
them. An competitive advantage
is therefore non-sustainable.
Delta Model Strategies
Definition Comments
Centered on product economies
Focus on being the lowest cost provider in an undifferentiated product
product Since
Since there is only one lowest cost producer, this strategy leaves
leaves
category very little
little space as a competitive position. It also tends to
standardize the product offering, commoditize the customer, and
intensify rivalry.
While maintaining effective production economies focus on key The problem with this strategic position is that as soon as the
differentiation in the product features and functionalities such that the differentiated product emerges, competitors tend to imitate them.
them. An
products are uniquely desired and command price premiums competitive advantage is therefore non-
non-sustainable.
Oriented to customer economics
A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of he
point of acquisition through to the complete lifecycle of ownership
ownership of the customer base leading toward an effective customer segmentation
product and a differentiated treatment of the customer tiers.
A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in “share of the wallet of the
need are customized and provided. “One-
One-stop shopping for a unique customer.”
customer.”
solution.”
solution.”
activities
This strategy seeks to effectively substitute for or leverages activities The
The firm is regarded as a bundle of competencies that will be
currently performed by the customer. It is outsourcing in its extr
extreme
eme form and
and brought to the customer to enhance the customer economics.
at least represents a complex web of connections with the customer
customer that
enhance their ability to do business and to use your product.
Focuses on complementor economics
Focuses
barriers are in place that make it difficult for competitors
Significant barriers co petitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for
f or the acquisition of customers. practices tend to be deployed to prevent it.
With this strategy the company provides an interface between buyers and This
This is the most accessible of all of the systems lock-
lock-in options.
mass.
sellers that s very hard to displace once it achieves critical mass. The first mover advantage is critical.
The customer is drawn to your product because of the extensive net
network
work of This option
option is
isn’’t available in most industries. If it can be achieved
third party complementors that are designed to work with your product. the rewards are enormous.

Positions
Delta Model Strategies
Best Product
Low cost
Differentiation
Total Customer Solutions
Redefining the customer
experience
Horizontal Breadth
Customer Integration
System Lock-
Lock-In
Restricted Access
Dominant Exchange
Proprietary Standard
Total Customer
Oriented to customer economics
Solutions
Redefining the A focus is placed on considering the full This positioning is based upon an
customer experience of the customer from the point of intimate knowledge of the customer
experience acquisition through to the complete lifecycle base leading toward an effective
of ownership of the product customer segmentation and a differen--
tiated treatment of the customer tiers.
Horizontal Breadth A complete set of product and service We are seeking a dominant position in
offerings that fulfill the entire customer “share of the wallet of the customer.”
needs are customized and provided. “One-
stop shopping for a unique solution.”
Customer This strategy seeks to effectively substitute The firm is regarded as a bundle of
Integration for or leverages activities currently competencies that will be brought to
performed by the customer. It is the customer to enhance the customer
outsourcing in its extreme form and at least economics.
represents a complex web of connections
with the customer that enhance their ability
to do business and to use your product.
Delta Model Strategies
Definition Comments
Centered on product economies
Focus on being the lowest cost provider in an undifferentiated product
product Since there is only one lowest cost producer, this strategy leaves
leaves
category very little space as a competitive position. It also tends to
standardize the product offering, commoditize the customer, and
intensify
intens ify rivalry.
While
W hile maintaining effective production economies focus on key differentiation
differentiation The problem with this strategic position is that as soon as the
in the product features and functionalities such that the products
products are unique differentiated product emerges, competitors tend to imitate them.
them. An
desired and command price premiums competitive advantage is therefore non-
non-sustainable.
Oriented to customer economics
A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of the
point of acquisition through to the complete lifecycle of ownership
ownership of the customer base leading toward an effective customer segmentation
product and a differentiated treatment of the customer tiers.
A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in “share of the wallet of the
needs are customized and provided. “One-
One-stop shopping for a unique customer.”
customer.”
solution.”
solution.”
This strategy seeks to effectively substitute for or leverages activities
activities currently The
The firm is regarded as a bundle of competencies that will be
performed by the customer. It is outsourcing in its extreme form
form and at least brought to the customer to enhance the customer economics.
represents a complex web of connections with the the customer that enhance
enhance their
ability to do business and to use your product.
Focuses on complementor economics
Significant barriers are in place that make it difficult for competitors
competitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for the acquisition of customers. practices tend to be deployed to prevent it.
With
W ith this strategy the company provides an interface between buyers and This
This is the most accessible of all of the systems lock-
lock-in options. The
sellers that s very hard to displace once it achieves critical mass.
mass. first mover advantage is critical.
The customer is drawn to your product because of the extensive network
network of This option isn’
isn’t available in most industries. If it can be achieved
third party complementors that are designed to work with your product. the rewards are enormous.

Delta Model Strategies
Positions
Best Product
Low cost
Differentiation
Total Customer Solutions
Redefining the customer
experience
Horizontal Breadth
Customer Integration
System Lock-
Lock-In
Restricted Access
Dominant Exchange
Proprietary Standard
System Lock-In Focuses on complementor economics
Restricted Significant barriers are in place that This is a difficult position to
Access make it difficult for competitors to achieve and to sustain.
even compete for the acquisition of Regulatory practices tend to be
customers. deployed to prevent it.
Dominant With this strategy the company This is the most accessible of all
Exchange provides an interface between of the systems lock-in options.
buyers and sellers that is very hard The first mover advantage is
to displace once it achieves critical critical.
mass.
Proprietary The customer is drawn to your This option isn’t available in
Standard product because of the extensive most industries. If it can be
network of third party achieved the rewards are
complementors that are designed to enormous.
work with your product.
Delta Model Strategies
Definition Comments
Centered on product economies
Focus on being the lowest cost provider in an undifferentiated product
product category Since tther
Since e iis
here one llowest
s only one owest cost producer, this strategy leaves
lea es very
little space as a competitive position. It also tends to standardize
standardize the
product offering, commoditize the customer, and intensify rivalry.
rivalry.
While
W hile maintaining effective production economies focus on key differentiation
differentiation in The problem with this strategic position is that as soon as the
the product features and functionalities such that the products are unique differentiated product emerges, competitors tend to imitate them.
them. An
desired and command price premiums competitive advantage is therefore non-
non-sustainable.
Oriented to customer economics
A focus is places on considering the full experience of the customer
customer from the This positioning is based upon an intimate knowledge of he customer
customer
point of acquisition through to the complete lifecycle of ownership
ownership of the product base leading toward an effective customer segmentation and a
differentiated treatment of the customer tiers.
A complete set of product and service offerings that fulfill the entire customer We
W e are seeking a dominant position in “share of the wallet of the
need are customized and provided.
provid ed. “One-
One-stop shopping for a unique solution.”
solution.” customer.”
customer.”
This strategy seeks to effectively substitute for or leverages activities currently
activities currently The ffirm
The irm is regarded as a b undle
bundl e of competencies that will be brought
b ought
performed by the customer. It is outsourcing in its extreme form
form and at least to the customer to enhance the customer economics.
represents a complex web of connections with the the customer that enhance
enhance their
ability to do business and to use your product.
Focuses on complementor economics
Significant barriers are in place that make it difficult for competitors
competitors to even This is a difficult position to achieve and to sustain. Regulatory
Regulatory
compete for the acquisition of customers. practices tend to be deployed to prevent it.
With
W ith this strategy the company provides an interface between buyers and sellers This is the most accessible
acc ess ible of all of the systems lock-
lock-in options. The
that is very hard to displace once it achieves critical mass. first mover advantage is critical.
The customer is drawn to your product because of the extensive network
network of third This option isn’
isn’t available in most industries. If it can be achieved the
party complementors that are designed to work with your product. rewards are enormous.
The Challenge to
Decommoditization:

Transforming the organization

from best product to total
customer solutions, while seeking
opportunities for System Lock-In.
 Central Lessons

If the heart of strategy is the customer, an appropriate

customer segmentation and a creative value
proposition is often the most important critical step in
strategic thinking. Be creative, be bold, be fast
The winning formula is to have the overall network as
your primary scope. Don’t play the game alone. It is
not just you serving the customer. It is you, your
critical suppliers and the key complementors. In a
large, diversified corporation often the most important
complementors are in your own firm.
From the Customer Segmentation to Strategic
Agenda
Value Proposition

Bundle of Competencies
System
Lock-In

Strategic Positioning
Total Customer Best Product
Solution

1
2 Mission Statement
5 3 6 4
Scope
Customer
“From” “To”
Classification

Strategic Thrusts
Customer Segment
Tier 1: Exclusive Partner
Tra
Tier 2: Strategic/Integrated Partner
Tier 3: Project Solution Seekers
Tier 4: Body Shoppers