Ohmae's 3Cs Model
Bringing Together Different Aspects of Strategic Thinking
How do you start to develop a strategy for your organization? Business leaders and analysts have spent years developing new (often very complex) strategic planning tools, and it can be a challenge to work out the best way forward.
Ohmae's 3Cs Model, however, is a tool that strips strategy down to its essentials. This article explains and explores the simple but powerful theory in more detail.
What Is the 3Cs Model?
The 3Cs Model was devised by strategy guru Dr. Kenichi Ohmae, who presented it in his landmark 1982 book, "The Mind of the Strategist: The Art of Japanese Business."
The model integrates three critical elements, the 3Cs, on which, he argues, any effective business strategy should be based:
- The Customer.
- The Corporation.
- The Competitors.
Each C is important in itself, but each also impacts the others. For example, you might have a new product that meets your customer needs perfectly, but if a competitor launches a similar product that's much cheaper, you'll need to rework your entire corporate strategy.
Collectively, the three Cs can be represented as a triangle, as shown in Figure 1, below.
Figure 1: Ohmae's Strategic Triangle
From "The Mind of the Strategist: The Art of Japanese Business" by Kenichi Ohmae. Reproduced with permission from The McGraw-Hill Companies, Inc.
By assessing strategies related to each C, you can look at how best to integrate them into an overall strategic plan. So, let's review each strategy type.
In Ohmae's model, customer strategies are the foundation of all of the other types of strategy, because your main concern and priority must be serving your customers' needs. Without a solid customer-based strategy, you won't serve shareholders' or other stakeholders' needs.
Ohmae outlines the following four approaches for establishing strong customer-focused strategies:
1. Segmenting by Objectives
Look at the different ways in which customers use your product. As an example, some people may view soaps in a practical way, while others like them to be luxurious. Each of these segments requires a different approach and strategy, and a product adjustment.
Our article, Customer Experience Mapping, offers specific ideas on how to see your business through your customers' eyes, and our article, What is Business Ethnography?, offers advice on redefining your customer relationships.
2. Segmenting by Customer Coverage
Chances are, you'd like to market your product to every potential customer worldwide, but that is rarely practical. So it's important to understand which customers you can target profitably, and how to engage with them in a way that they will value.
After you've operated in a market for a while, you and your competitors will likely approach market segmentation in similar ways.
For example, you all might begin marketing luxury, midrange and economy soaps in the same key geographic regions.
This could hurt your competitive edge, so it's important to think strategically about your segmentation and to find new ways to break up the market. What can you offer a specific group of customers that's unique and different? Could you introduce new products, or offer enhanced customer experiences, for example.
4. Adapting to Changes in the Customer Mix
Sometimes, the market you are in changes significantly, and you need to rethink how you service it. When this happens, your strategic focus needs to be on changing the way you distribute corporate and business resources.
For example, what happens if the luxury soap segment shrinks significantly as people start buying pure, organic products in eco-friendly packaging? How will this impact the way you distribute corporate resources or service the market?
The Ansoff Matrix is a useful strategic tool that can help you to determine which product and market expansion options may be best for you.
Here, the goal is to maximize corporate strengths. Ohmae considers the following three factors:
1. Selectivity and Sequencing
No organization can be the best at everything, so it must choose (with the help of this theory) how and where it can attempt to gain an advantage. Ohmae calls this "selectivity and sequencing."
Here, you choose the one area in which you want to be a leader, and pursue it, developing the competitive edge that you need to be successful.
See our article, Core Competence Analysis, for more guidance on determining where you can develop leadership and advantage in your industry. And our article on USP Analysis can help you to identify your unique mix of strengths.
2. The Decision to Make or Buy
Organizations need to decide where their strengths are in this area. Is there a strategic advantage for you to develop and deliver your own products, or is it better to outsource? How well can your competitors shift production to take advantage of cost savings?
If you can adapt or change your own production systems and processes more successfully, then doing so might provide an advantage.
You can use three main approaches here:
- Reducing basic costs (for example, stationery, rents, cleaning services) more effectively than your competitors.
- Focusing on only the most profitable business lines or units, with the highest margins (for example, eco-friendly soaps), with a view to reducing costs more than you reduce revenue.
- Sharing resources across your organization, or with other businesses, to acquire economies of scale.
Some key tools that can help you to cut costs include Zero Defects, Kaizen, and the Kraljic Portfolio Purchasing Model. And our article on the Product-Process Matrix will help you to consider the most cost-effective way to manufacture a product at a given volume level.
Here, you need to examine how you separate yourself from your competition. This means that the way you choose to do things – like design your product, purchase supplies, or service your customers – must lead to a price, volume or cost advantage.
Ohmae discusses three ways to achieve this:
1. The Power of Image
When your product is very similar to your competitors' products, and you're targeting the same market, then brand and image are key to differentiating yourself. Automobile manufacturers, computer makers, and soft drink companies all rely on brand and image to make their products attractive.
2. Profit and Cost-Structure Differences
Try to create advantage by using different cost formulas. Maybe you could find a way to reduce your fixed costs, or look at how you generate profit and decide to change things.
For instance, to make up for lower volume, a small soap manufacturer must have higher margins than larger competitors. The small manufacturer can then use those margins to find other ways to generate profit.
Look at Porter's Generic Strategies as a complementary tool for deciding how to establish competitive advantage. This model can help you to decide whether the best way to compete is to adopt a cost leadership, differentiation or focus strategy.
This is a Japanese phrase that means "people, money and things." The idea is that you can create a highly efficient business by streamlining these three key resources.
Use workers in the most efficient way, based on their knowledge and resources in the organization. Use money wisely, and allocate it to the people and projects that have the most potential. Also, supply the resources that people need to do their jobs effectively.
Learn how to maximize the effectiveness of your organization's resources with a VRIO Analysis.
Successful strategic planning depends on capitalizing on organizational strengths (using corporate-focused strategies), and matching these strengths to market needs (using customer-based strategies) to outperform the competition (using competitor-based strategies).
Ohmae's 3Cs Model brings these three critical elements into one framework, which then provides a valuable perspective on strategic thinking.
Look at your organization's strategy from a holistic perspective, and ensure that the strategic triangle is well integrated into what you do.
By using this three-part approach, you can cover the key issues that you need to think about when developing your business's strategic plan.