The Delta Model: How Arnoldo Hax reprioritized corporate strategy

Arnoldo Hax, an operations management expert who introduced a customer-centered approach to competitive strategy with his Delta Model, died April 20. He was 87.

Hax, the Alfred P. Sloan professor of management emeritus at MIT Sloan, joined the school in 1973 as a member of the Operations Management group. An industrial engineer who believed that management could be improved through rationalization, Hax was an early member of the strategy group at MIT Sloan and strengthened ties with the MIT School of Engineering.

“He was a big proselytizer for the idea that management can be made more effective,” said MIT Sloan professor emeritus Michael Scott Morton. “The Delta Model was the synthesis of the factors that he saw as most important in setting a strategy.”

Here’s a closer look at Hax’s Delta Model and some of his innovative work around strategy and operations management.

Inside the Delta Model

Customer bonding is at the heart of strategy; it is “fundamental” for a company to get to know the customer and provide a unique value proposition that differentiates it from its competitors, Hax said in a 2010 interview with Emerald Publishing.

His customer-centric view challenged the notion of putting competition at the center of an organization’s strategy and prioritizing domination over competitors.

“The danger here is that you tend to view strategy as rivalry and the way to win is to beat someone,” he said. “That anchors us in the past, and most dangerously it creates an obsession about the competitor’s behavior.”

To illustrate this idea, Hax and MIT Sloan’s Dean Wilde created the Delta Model. In a 1999 MIT Sloan Management Review article, they wrote that under the Delta Model, strategy and execution are connected through adaptive processes. This is achieved by:

1. Defining the three strategic positionings (best product, total customer solution, and system lock-in).
2. Aligning a firm’s competencies with the desired strategic position.
3. Seeking a coherent integration across business processes to produce unifying action.
4. Incorporating supplier and complementor companies to ensure fulfillment of the customer value proposition.

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The Delta Model was an alternative to Michael Porter’s Five Forces, the strategy field’s dominant framework at the time.

“Porter’s view was quite simple: You were either a low-cost producer or you were differentiated in some shape or form. But Arnoldo’s point was that there are different ways to compete,” said MIT Sloan deputy dean Michael Cusumano.

“The Delta Model was more from a customer perspective. You can either compete with the best product — and ‘best’ could be related to lower cost or differentiated through quality — or you can compete as a total solutions provider, or you could have what Arnoldo called system lock-in. Today, we would call that platform competition,” Cusumano said.

Nicolás Majluf, a systems and industrial engineering professor at the Catholic University of Chile, completed his PhD in management at MIT Sloan. He and Hax co-authored several books and papers on the content and process of corporate strategy.

“He told me many times when we were writing, ‘I want to be helpful; I want to tell people how to do strategic management,’” Majluf said. “He was trying to help companies, and he was refining the Delta Model at every step of his consulting work.”

Hax’s mathematical background led him to create 10 “Haxioms” for his Delta Model.

The 10 Haxioms are:

1. The center of strategy is the customer.
2. You don’t win by beating the competition, you win by achieving customer bonding.
3. Strategy is not war; it is love.
4. A product-centric mentality is constraining; open your mindset to include the customers, the suppliers, and the complementors as your key constituencies.
5. Try to understand your customer deeply. Strategy is done one customer at a time.
6. Commodities only exist in the minds of the inept.
7. The foundations of strategy are two: Customer segmentation and customer value proposition; and the firm as a bundle of competencies.
8. Reject the two truisms: “The customer is always right,” and “I know the customer needs and how to satisfy them.”
9. The strategic planning process is a dialogue among the key executives of the firm — seeking consensus on the direction of the organization.
10. Metrics are essential; experimentation is crucial.

The Delta Model isn’t the only work Hax produced at MIT Sloan with real-world applications.

In 1973, he authored a paper on hierarchical production planning that outlined four levels of decision-making, each with its own characteristics, such as the type of manager in charge of execution, the scope of the planning activity, the level of collected information, and the timeline.  

“The lower one gets in the hierarchy, the narrower is the scope of the plan, the lower is the management level involved, the more detailed is the information needed, and the shorter is the planning time horizon,” Hax wrote. “Each level of planning has its own objectives and constraints in which decisions have to be made.”

Connecting with the business community

Born in Santiago, Chile, Hax helped launch what is now the Leaders for Global Operations program, a dual-degree engineering and MBA track. He also led the MIT-Chile program, for which he received the Medal of the Order of Commander from the president of Chile in 2013 .

Hax’s integrative approach to strategy spurred him to explore new partnerships within MIT and made him notably successful with his consulting clients.

“Even though he came from operations research, having consulted with lots of companies and worked with them on planning and execution, he realized that you need people trained in organizations and strategy and management processes,” Cusumano said.

Gerhard Schulmeyer, SM ’74, tapped Hax for help while navigating leadership positions, including serving as president and CEO of Siemens in the U.S. and as a senior vice president at Motorola.

“He helped me sort out where the strategy stood and what the changes were for the companies I took over,” said Schulmeyer, who eventually became a professor of the practice at MIT Sloan.

Executives loved Hax because “he could speak their language, and he was teaching strategy,” said Thomas Magnanti, professor of operations research at MIT Sloan. “He was teaching how corporations can improve themselves, and these senior people who were coming to industry loved that.”