Schwab.com Executive (Part 2)

Schwab’s Value Discipline(s)

The value disciplines described by the HBR article entitled “Customer Intimacy and other Value Disciplines” and the discernable elements of each include:

  • Operational Excellence = a strategic approach to the production and delivery of products and services, with the objective to lead its industry in price and convenience
  • Customer Intimacy = a strategic approach to continually tailor and shape products and services to fit an increasingly fine definition of the customer, with objective of building customer loyalty for the long term; although there may be large, short-term investments
  • Product Leadership = a strategic approach to produce a continuous stream of state-of-the-art products and services, which requires: (1) embracing creative ideas from external and internal sources, (2) quick commercialization of the ideas, (3) the relentless pursuit of new solutions of problems solved with existing products and services

According to the article, firms need only master one of these disciplines and meet the industry standard for the others to be successful; firms that master none of the disciplines will not succeed.

Firms that embrace operational excellence are constantly seeking ways to minimize overhead costs, eliminate intermediate production steps, reduce transaction costs, and optimize business processes.  With this framework and the selection of the key phrases from the Stanford case entitled “The Charles Schwab Corporation” (Schwab), we would state that Schwab from the start focused on the “Operational Excellence” value discipline.  This can be gleaned from the following quotes in the case:

“in 1971….Schwab understood that the building of transaction services and advice increased the costs to savvy investors”

“as a discount broker, Schwab focused on providing investors low-cost and high-quality execution  services.  Schwab’s primary focus was on serving individual investors, providing them a wide selection of brokerage and investments services at prices that were substantially lower than those of full-service firms.”

“Schwab’s compensation and benefit cost savings were passed on to customers in the form of lower commissions.”

The growth of the Internet and the resulting number of people willing to invest online, changed the level of knowledge that had been present within Schwab’s customers from the 1970’s through the late 1980’s. i.e. the Internet customer was generally less knowledgeable and required more assistance.

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