Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption

Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption. By Thales S. Teixeira and Greg Piechota

Technology disrupts incumbent businesses. It even disrupts entire industries. In the battle by incumbent businesses to survive and thrive, they must beat the disrupting technology with an even better one. Right?!

Actually, wrong - as Professors Teixeira and Piechota explain in this very important business book.

Traditional business competitiveness took the viewpoint of the company and its success. This is most easily illustrated by a model many businesspeople will have learned in their undergraduate programmes – Porter’s five forces. This strategic tool looks at the company’s competitors, their suppliers, possible substitutes for their offering, the barriers new possible entrants will have to overcome, and oh, yes, the customers.

In the early 1950’s Peter Drucker wrote that the purpose of a business is to serve the customer. Financial success was simply proof that you are doing it well. But this point has been missed by many, and as it turns out - at a company’s peril.

The authors’ conclusions are research-proven but are underpinned by a compelling logic. This they illustrate by reference to companies we are all familiar with.

Their starting viewpoint is a Drucker-type view of a business’ purpose: the customer’s satisfaction. Their second viewpoint is an understanding of the company in terms of its ‘business model’.   “A business model specifies how the firm creates value (and for whom), and how it captures value (and from whom).”

A business model can be seen from many perspectives. The authors start from the perspective of the customer. The value is two-fold.

Fill in the missing word in this sentence: ‘Disruptive ________ have proven to be the biggest threat to incumbent businesses in the last decade.’ If you thought the missing word was ‘technologies’, consider the following.

The greatest disruption to the taxi industry, bar none, has been the rise of Uber. The greatest disruption to the hotel industry has been Airbnb. Both companies use technology, but that has nothing to do with their disruptive power or effect. Two other powerful concepts explain these disruptors’ meteoric rise. The one is the customer value chain and the other is the decoupling of this chain.

Let me illustrate this with a personal example that occurred a number of years ago. At about 12:15 I ordered a taxi to take me from my office in Saxonwold to a meeting in central Sandton, a distance of about 8 km.

At 20 minutes to 1, I was called by a driver from the taxi company introducing himself and asking where I was going to. I asked him where he was, as time was running out for me to be on time for my meeting. He said he was in Sandton. I asked him to cancel the request as he couldn’t get to me and get me to Sandton, in 20 minutes.

So, I turned to the Uber app that I had downloaded but never used. A driver responded in minutes and was at the entrance to my office a few minutes later. I arrived at the meeting on time.

The success of the Uber was not the app that allowed me to call the driver, or that connected the driver to the Uber control centre, nor the GPS that directed him to my destination most efficiently. Those are by now, technological ‘ho-hum’. It is the revolutionary change in the business model of running a taxi service.

Crudely, the traditional taxi company owns (or controls) a limited number of cars simply because of the cost of the fleet. Uber owns none, so the size of their fleet is only limited by the number of drivers who can make money from being Uber drivers. If there is a glut of drivers relative to the number of people wanting a ride, few will make money. That is the only limitation – which is why Uber’s Johannesburg fleet is said to be 7,000.  

The Uber business model is a success from both the passengers, and the drivers’ perspective, because it has satisfied both these customers in ways not achieved by conventional taxi companies.

All business models are a chain that, taken as a whole, provide a level of satisfaction of a customer’s need. Where this chain can be decoupled to add increased value for the customer, a disruptive opportunity exists. The value can be in the time customers are saved, the convenience of using this provider, the cheaper price of the offering, and so on.

Consider the disruption caused by Uber for the benefit of the passenger. The huge fleet means there are more cars available for rides: this leads to quicker response times. The price displayed on the app provides comfort in advance of the cost of the trip, the connection to a credit card means that there is no delay by having to pay the fare on reaching the destination. And the list goes on.

Considerable benefits also accrue to the customer on the other side of the Uber platform, the driver.

Why I rate this book so highly is because it can be of great value both to an incumbent business and a would-be disruptor. Both need to urgently map out the ‘customer value chain’ and identify where more value can be added for the customer, and where disruptors could be coming from.

The links in the customer value chain are becoming smaller: finding out what these are and how they can affect your business will allow you to take the gap or prepare for the inevitable intrusion into your profits.

Best Buys, a highly successful appliance chain, saw their customer traffic rise as their profits dropped, as Amazon’s popularity increased. People were using Best Buys as the showroom in the first step of the customer value chain - finding the appropriate product. There they scanned the barcode and ordered the item from Amazon at a better price.

Several attempts to stop this practice failed, and much money was lost. Eventually, Best Buys worked out how to monetise being a showroom by offering major brands space to display their wares and inform customers.

This book provides a practical method of analysis to address the inevitable process of disruption. It is replete with cases that both stimulate thinking and illustrate problems or solutions. When you and your top team have read Unlocking the Customer Value Chain thoroughly and digested the method, you will be ready to craft either your defensive or offensive strategy.

Whether you are the disruptor or the disrupted, this book is an essential read.