Sustainability: Hax's Delta Model Framework (Examination of Schwab)

The Delta Model was proposed by Arnoldo Hax (MIT Sloan) (Hax.03). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the “Best Product Strategy" (i.e. differentiation or low cost) such as the “Total Customer Solution" and “System Lock." Within the wide range of potential strategies the Delta model points out the potential strategic value of IS/IT as enabling technologies to promote boding (with customers, complementors, partners, etc) and leading to a range of potential strategies such as “redefining the customer experience" (e.g. Saturn, Barnes & Noble, Startbucks iTunes), “customer integration" (Dell, Mathworks), “dominant exchange" (Google, YouTube, Wikipedia, iTunes), “system lock" (Intel, Microsoft). According to the Delta Model strategies based on best product are the most difficult to sustain; strategies based on customer integration, customer boding are a better strategic position, and dominant exchanges and system lock are the most sustainable since they affect the whole system and complementors. Schwab's current position of leadership does not seem to achieve dominant exchange status or system lock. Dominant exchange is achieved when a critical mass of collaborating users has been reached and each new user makes the service more useful (e.g. youTube, Wikipedia). System Lock represent the strongest form of bonding and integration among complete industries around a product (e.g. all the software companies developing Windows specific solutions). It focuses in the entire system economics instead of product-centered economics. The firm success is due primarily to the complementors that create solutions based on the firm's architecture. According to this post-internet strategic framework, Schwab has not achieved a strategic positioning that gives them a significant competitive advantage over its competitors. Consequently, Schwab historical success is not necessarily sustainable, it must rely on continuous innovation, customer bonding, as well as other intangible assets to continue to outperform competitors in the current hypercompetitive changing environment.

Note: This is the last posting in the series of 7 blog entries designed to examine the relationship between Charles Schwab’s Business and IS/IT strategy.

Tags: Delta Model