Read through the tech and business press on any given day and you’re likely bombarded with news about the latest technologies. We’re living through the 4th industrial revolution, and digital transformation is threatening to sweep all before it as rivals utilize technologies such as artificial intelligence to change the competitive landscape.
It’s a mindset that underpins a constant assessment of the technology landscape to see what’s around the corner. This horizon scanning typically involves scouring the world for interesting research and novel startups so that companies can get a start and not be disrupted. Many big firms will have incubators and accelerators to try and ensure the magic sauce rubs off on them.
In all of this, the customer gets a bit of a cold shoulder. Steve Jobs famously eschewed focus groups in favor of telling customers what they should like, and it encapsulates the classic Henry Ford’ism that if you ask customers what they want you’ll simply develop a faster horse.
Customer value chain
It’s an approach that Harvard’s Thales Teixeira believes is misguided. In his latest book, Unlocking the Customer Value Chain, he argues that far from technology being at the heart of the growth of companies like Uber and Airbnb, their success lies in their ability to change the way consumers discover, buy, and use products and services.
He argues that true change comes from business model innovations that have at their heart an understanding of how incumbent businesses make money, and how that process can be disrupted in future.
“Forget for a moment about wearables, drones, chatbots, the internet of things, machine learning, and augmented or virtual reality,” he says. “They all might have a place in your future business, but your role, as a senior business executive, is to figure out the business side.”
At the heart of his thesis is the concept of decoupling, which is the process by which a disruptor breaks the links between the customer’s value chain. Decouplers steal one or more of the activities we go through when procuring goods or services, and execute them themselves.
As such, disruption occurs when customers choose not to execute all of the steps in the value chain with a single company. Innovation typically emerges when disrupters decoupling value-creating activities, value-capturing activities, or value-eroding activities.
Assessing the risk
Teixeira argues that there are a number of questions incumbent firms can ask to assess the potential of their industry or their business being decoupled.
- Is there co-consumption? Do consumers have to consume a number of things for the product or service to work? For instance, Gillette users need both the razor and the blades.
- Is there separability? Can these value creating functions be separated by a potential disrupter? In the Gillette example, can someone break the link between a cheap razor and expensive blades?
- Is there leakage in the customer value chain? In other words, is the value created greater than the value charged to the customer. In the Gillette example, the leakage potential was considerable in the razor-and-blade business model.
These provide an interesting perspective on the threat of disruption for any business. The book brings together the various strands of Teixeira’s work over the last decade or so into a thought provoking read.
Whilst so often we focus on technology or start-ups as the source of disruption, Teixeira believes instead it’s the changing needs, wants and behavior of the customer that is the real driver of change. As such, it’s business model innovation that is the big change we should focus on. The book goes on to outline a number of ways you can defend against disruption, and offers a thought provoking read for anyone concerned about change in their industry.
