Cloud

Defying the Discipline of Market Leaders via the Cloud

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In 1997, management consultants Michael Treacy and Fred Wiersema co-authored a book entitled, “The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market,” which asserted that companies could only aspire to become leaders in their industry by focusing on one of the following differentiating characteristics: 

  1. Product leadership
  2. Operational excellence
  3. Customer intimacy 

At the time, Treacy and Wiersema believed the cost and effort involved in achieving superiority in each of these areas was so significant that no company could win in more than one of these corporate disciplines. They pointed to companies like Wal-Mart, Dell, Southwest Airlines, Cott, Airborne Express, Atlantic Richfield, Home Depot, Intel and Sony as examples of companies that succeeded in becoming market leaders in one of the three categories but were unable to achieve the same level of proficiency in the other disciplines. 

Although it does take a concerted effort and significant investment to become expert in each of these disciplines, a growing number of cloud companies are proving that these disciplines are no longer mutually exclusive. 

The most prominent example of today’s ability to succeed in all three areas simultaneously is Salesforce.com. It has certainly achieved a product leadership position by helping to pioneer the Software-as-a-Service (SaaS) delivery model. It continues to be a product innovator, pumping out new service capabilities on a quarterly basis that have set a standard for success across the cloud industry. 

The very nature of the multitenant SaaS/cloud service delivery model also enabled Salesforce.com to become a market leader when it comes to operational excellence. This approach enabled Salesforce.com to grow at a faster rate than any software company in history while continuously expanding its product portfolio and functional capabilities. 

And despite becoming a massive company with a global account base, Salesforce.com has also been able to retain an enviable level of customer intimacy that has produced very high customer satisfaction scores, renewal rates and add-on business. Salesforce.com has made the “land-and-expand” market-penetration strategy an industry best practice. 

As a result of winning in all three disciplines, Salesforce.com sits well atop the SaaS/cloud marketplace from a revenue standpoint and disregards the “law of big numbers” by racking up substantial revenue growth while accumulating a larger installed base of customers. 

Of course, Salesforce.com isn’t alone in proving Treacy and Wiersema’s theory wrong in the cloud marketplace. Every category leader in the cloud industry emulates Salesforce.com’s model for success, including Workday, ServiceNow and NetSuite, among others. Even the channel companies that decided to move to the cloud discover they can achieve success across all three dimensions. 

Given the growing number of successful cloud companies, I think the inverse of Treacy and Wiersema’s theory is quickly becoming the critical path to success. In order to win in the cloud marketplace, companies must become proficient in all three disciplines of product leadership, operational excellence and customer intimacy simultaneously. 

Jeff Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Cloud Innovators Summit executive forum series. He can be reached at jkaplan@thinkstrategies.com. 

Comments

By Rob Leavitt

Thanks Jeff, the bar keeps getting higher! Salesforce is indeed a good example of leadership in all three areas, as you say, although profitability remains a concern from an overall business perspective. I’m not sure too many other cloud companies have achieved the same degree of leadership, though, even if they are emulating the model. Still, as you say, leadership in one of three dimension is probably not enough anymore, especially as the land and expand model becomes ever more central to strategy.

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