Decouple the Value Chain to Drive Digital Disruption

“Decoupling” the value chain is the next big strategy for digital innovation and business models

Digital disruption isn’t just about the internet or mobile technology. It’s about the digitally-driven business models that forever transform business as usual no matter what you’re doing.

I recently had a chance to connect with Harvard Business School professor, Thales Teixeira, whose most recent book, Unlocking the Customer Value Chain, highlights the dynamics of “decoupling” and why it will drive even more disruption than we’ve seen in the world. Teixeira’s thinking closely matches what I’ve been exploring in my other articles on disruption across industries like packaging, manufacturing, safety, and travel.

Teixeira says the seeds of digital disruption originally started with unbundling as the internet became widely accessible. In the physical world, print-based newspapers bundled articles, restaurant reviews, and classified ads. Google unbundled the newspaper by offering readers one news article at a time. Yelp did the same for restaurant reviews, and Craigslist took on classifieds. Similarly, Apple iTunes unbundled the CD one song at a time, Netflix unbundled cable TV networks one show at a time, and Amazon Kindle unbundled textbooks selling one chapter at a time.

Around the 2000s, a second wave of business model innovation appeared: Disintermediation. This time, it was the intermediaries– travel agents, industrial equipment distributors, and full-service stock brokers–that got disrupted. In the case of the travel industry, hotels, airlines, and tour operators decided to bypass the travel agencies and offer their services directly to consumers over the internet. Disintermediation wreaked havoc.

In the past few years, a third wave of business model disruption has been gaining strength. Instead of breaking apart products or supply chains–as in unbundling and disintermediation, respectively–the customer’s journey, or value chain, is being torn apart. What’s a “value chain?” Your customer’s value chain consists of all the activities they do to satisfy their needs and wants. Whereas it used to be that established companies “owned” all aspects of the customer’s experience (aka value chain), we’re starting to see new players take over pieces of the experience, something Teixeira calls decoupling.

Take the consumer value chain in the beauty products industry: Purchase, trial, and replenish (or dispose). These activities used to be done in conjunction at or by Sephora, the leader in the beauty retailing industry. A few years ago, a startup chose to excel at one of these activities: the process of trialing a new product. By offering to ship samples of beauty products direct to consumers in a subscription model, Birchbox made the act of trying out products before buying them dramatically easier. In the process, it took away a step within Sephora’s customer experience.

Decoupling can now be seen across industries. PillPack, for example, helps people with multiple prescriptions organize them based on when they need to take each medication. However, it does not fill the medications–that’s still done by CVS (though Amazon recently purchased the company for $1 billion so that may change). Trōv allows insurance customers to turn their insurance on and off at any time for each of their possessions from their mobile app. It doesn’t, however, underwrite insurance policies–traditional companies like Geico and Allstate do this on the client’s behalf.

Today’s most dangerous disruptors are not stealing customers, but rather stealing customer activities from incumbents. Sephora never lost the customer to Birchbox, it merely lost the customer activity of trial. Now, both companies share the customer. PillPack shares customers with CVS, and Trōv shares customers with Allstate.

But sharing customers does not make decoupling any less threatening to established companies. Losing a customer activity in the value chain can create a domino effect.

More and more startups will use decoupling to steal customer activities from large and powerful incumbents. Decoupling helps entrepreneurs to hone in on one activity in the customer value chain that is currently being poorly delivered by the leading companies in the market. Startups that are the biggest threats do one of three things:

1. Add value to value-creating activities (i.e. manage pill intake).
2. Reduce value-charging activities (i.e. pay insurance only for the days you need it).
3. Eliminate value-eroding activities (i.e. no need to visit a store to sample beauty products).

Usually “cost” reductions at each stage–time, money and effort–dictate whether consumers will choose to decouple or not.

Decoupling may ultimately disrupt the concept of the customer experience itself. If you agree with the adage that you need to disrupt before being disrupted, it may be time to look at decoupling what you do and how you do it – before someone decouples you by meeting your very own customers’ needs better than you’re doing it yourself today.

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Soren Kaplan is the bestselling and award-winning author of Leapfrogging and The Invisible Advantage, an affiliated professor at USC’s Center for Effective Organizations, a former corporate executive, and a co-founder of UpBOARD. He has been recognized by the Thinkers50 as one of the world’s top keynote speakers and thought leaders in business strategy and innovation.