Diagrammo Management theories explained

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3C Model by Kenichi Ohmae

3C Model

The 3C Model by Kenichi Ohmae, a famous Japanese business strategist, is a business model to determine strategy by looking at three success factors:
• The Customer
• The Corporation
• The Competition

By integrating the three C’s (Customer, Competitor and Company) a sustainable competitive advantage can exist. Ohmae refers to these three factors as the strategic triangle.

The Customer

Clients are the basis of any business strategy according to Kenichi Ohmae. Without a doubt, it should be the main objective of a company to represent the interests of its customers. It is important to be genuinely interested in the needs and wants, demands, buying motives and values of the customer. If a company can interest the customer, it can interest its investors. The customer-based strategies are:

  • Segmenting by objectives. Differentiation is done in terms of the different ways that different customers use the product. For example, coffee. Some people drink it for waking up or staying alert, while others view it as a way to socialize (coffee breaks).
  • Segmenting by customer coverage. This segmentation emerges from trading off costs versus coverage. The corporation’s task is to optimize its range of market coverage. Be it channel or geographical.
  • Resegmenting the market. In a competitive market, over time the effectiveness of initial segmentation will tend to decline. In this situation it is useful to segment the market again.

The Corporation

The aim here is to maximise the corporation’s strengths relative to the competitors in functional areas. The corporate-based strategies are:

  • Selectivity and sequencing. In order to win, a decisive edge in one key function can lead to a significant advantage. By pulling ahead of the competition, other functions than the key function may now become better than mediocre.
  • A case of make or buy. If wage costs rise, it becomes a critical decision for a company to subcontract a major share of its assembly operations. Its competitors may not be able to shift the production as rapidly, resulting in a cost advantage.
  • Improving cost-effectiveness. There are three basic methods to improve the cost effectiveness. The first one is reducing basic costs much more effectively than the competitors. The second method is to exercise greater selectivity in product offerings, terms of orders accepted or functions to be performed. The third method is sharing key functions and resources with other companies.

The Competition

According to Kenichi Ohmae the competitive strategies can be constructed by looking at the potential differentiation opportunities in components such as purchasing, design, engineering, sales and service. The competitor-based strategies are:

  • The power of an image. Both Sony and Honda sell more for example, because they invest more in public relations and advertising than their competitors.
  • Capitalizing on profit and cost structure effectiveness. Differences in ratio and source of profit might be exploited strategically. A company with lower fixed cost can lower prices in a fixed market.
  • Tactics for flyweights. Small businesses should calculate its incentives based on a gradual percentage basis, rather than absolute volume. By making incentives variable, the dealer receives a larger percentage of each extra unit sold. The big three market players would erode their profit by copying this strategy because of the franchise structure.
  • Hito-Kane-Mono. This Japanese phrase refers to people, money en things. When these these three critical resources are in balance, there is no waste. Therefor the corporate management is effectively streamlined. The corporation should first allocate the management talent (hito) based on the available resources (mono) like machinery, know-how and functionality. Once the people have developed ideas, the money (kane) should be allocated to specific areas and programs.

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