The Three Dimensional Business Definition framework from Harvard Professor Derek F. Abell is a model that can be used for defining the business of a company. The definition of a business is an issue that should not be taken lightly. In his book “Defining the Business – The Starting Point of Strategic Planning” Abell says that the standard two dimensional way of looking at a business (products and markets) has serious flaws. He suggests a three dimensional model, with the following 3 axes:
- Served Customer Groups. Categories of customers. (WHO)
- Served Customer Functions. Customer needs. (WHAT)
- Technologies Utilized. The way that the needs are being satisfied. (HOW)
Abell’s business definition framework proposes that a business can be defined by using three dimensions: customer groups (who we’re going to serve), customer needs (what customer need we’re attempting to meet), and technology or distinctive competencies (how we’re going to meet that need). This approach strongly stresses understanding customers and not on an industry and its products or services. Based on these three dimensions, Abell’s competitive strategy classification scheme proposed that a business could be defined by its competitive scope (broad or narrow) and by the extent of competitive differentiation of its product/service offerings.
Abell’s strict marketing emphasis limits his business definition framework as a widely used and general approach to describing organizations’ competitive strategies. But it did provide clues to two important aspects of competitive strategy: competitive scope and level of product differentiation.
The business scope of the example company in the figure on the right is defined as: providing CF1, CF2 and CF3 to / for: CG1, CG2, CG3 and CG4 using: T1 and T2.
Origin of the Three Dimensional Business Definition Model
Before Abell it was standard practice to define a business in one of the two following ways:
- Resource Capabilities. For example: a business could be defined as: manufacturing high value, low priced electronic devices.
- Programs of Activity. Conventionally in terms of products offered and markets served. For example: a business could be defined as: providing electronic devices for the oil industry. See: Product/Market Grid
Kotler proposes in 1975 to add a supplementary measure of Differentiation to the Product/Market GRID, distinguishing between:
- Undifferentiated Marketing. A company chooses not to recognize the different segments in the market. Advisable when there is substantial product homogeneity or market homogeneity and/or at an early stage of the product life cycle.
- Differentiated Marketing. A company decides to operate in two or more segments of the market but designs separate product and/or marketing programs for each. Advisable when competitors are using segmented approaches to the market. And/or at later stages of the product life cycle.
- Concentrated Marketing. A company tries to achieve a large share of one or a few submarkets. Advisable when the company resources are small and/or when competitors are using segmented approaches to the market. And/or at an early stage of the product life cycle.
Usage of the Three Dimensional Business Definition Framework
- Define a business scope at all three of the following business levels:
- Corporate Level.
- Business Level.
- Lower Organizational Levels.
- Describe or communicate changes in business definition. See: Product Life Cycle
- Describe or communicate the business of the competition.
- Systematically analyze the growth opportunities for a business.
- Describe or communicate (the evolution of) markets. See: Four Trajectories of Industry Change
Strengths of the Three Dimensional Business Definition Method
- Emphasizes that products are merely a physical manifestation of the application of a particular technology to the satisfaction of a particular function for a particular customer group. The choice is one of technologies, functions and customers to serve. Not of products to offer.
- Central in the model of Abell is the customer, not the company itself. See: Value Disciplines
- Framework can be used to describe both the current status and the desired status. The graph is easy to understand for each employee.
Limitations of the Three Dimensional Business Definition Approach
- Three dimensional thinking is more complex than two dimensional thinking.
- Model provides only abstract growth directions.
- Model does not provide assistance to determine the appropriate scale or size of a business.
Assumptions of the Three Dimensional Business Definition Theory
- Business definition covers the definition of activities at any level in the organization in which some relatedness of resources exists.
- Individual business definition determines market boundary definition.
- Market boundaries and business boundaries can and must be defined in three dimensions instead of two.
Source: Derek F. Abell – Defining the Business – The Starting Point of Strategic PlanningBusiness frameworks like Three Dimensional Business Definition are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.