Unlocking the Customer Value Chain

1. Decoupling is the new wave of digital disruption, driven by customer needs

Customers truly are changing the business landscape. We are changing.

Customer-driven change. Decoupling is a form of digital disruption where startups break apart the traditional chain of consumption activities provided by incumbent companies. This process is fundamentally driven by changing customer needs and behaviors, not by new technologies. Customers seek to reduce costs – monetary, time, and effort – associated with acquiring products and services.

Widespread impact. Decoupling is occurring across various industries:

• Retail: Amazon decoupled product browsing from purchasing
• Transportation: Uber decoupled car ownership from mobility
• Hospitality: Airbnb decoupled property ownership from short-term accommodation
• Media: Netflix decoupled content creation from distribution

These disruptions often start small but can rapidly accumulate momentum as more consumers adopt new behaviors and startups exploit these shifts.

2. Business model innovation, not technology, is the primary driver of disruption

Technology alone does not disrupt markets, it rarely does.

Beyond technology. While many assume that innovative technologies drive market disruption, the real engine of change is business model innovation. Startups like Dollar Shave Club, Birchbox, and Uber didn't necessarily have superior technology; they introduced new ways of creating and capturing value for customers.

Value creation and capture. Successful disruptors focus on:

• Identifying unmet customer needs
• Developing new ways to deliver value
• Creating innovative revenue models
• Leveraging existing technologies in novel ways

Examples:

• Trov: On-demand insurance for individual items
• Klarna: Simplified online payments and short-term financing
• Airbnb: Monetizing underutilized living spaces

3. Customers are disrupting markets by changing their behaviors

If certain "new technologies" adopted by competitors "cause great firms to fail," as Christensen's subtitle suggests, then it makes sense for incumbents to respond by investing in new disruptive innovations themselves. But what if innovation and disruption are not so tightly connected?

Customer-centric perspective. To understand and anticipate disruption, companies must shift their focus from competitors to customers. This involves:

• Mapping the customer's value chain (CVC)
• Identifying activities that create, charge for, or erode value
• Recognizing changing customer preferences and behaviors

Cost reduction drives change. Customers are motivated to decouple when:

• Monetary costs are too high
• Time costs are excessive
• Effort required is burdensome

By reducing these costs, disruptors can attract customers away from incumbents, even if their core product or service is not significantly different or better.

4. Decoupling occurs when startups break links between customer activities

Decoupling: The act of breaking apart the chain of consumption activities that customers normally performed in partnership with them as customers go about acquiring goods and services.

Types of decoupling:

1. Value-creation decoupling: Breaking links between value-creating activities
2. Value-charging decoupling: Separating value-creating from value-charging activities
3. Value-eroding decoupling: Breaking links between value-eroding and value-creating activities

Examples:

• Twitch: Decoupled playing video games from watching others play
• Steam: Decoupled purchasing physical games from playing them
• SuperCell: Decoupled playing mobile games from paying for them

Market impact. Decoupling can significantly disrupt established markets by:

• Attracting price-sensitive customers
• Reducing barriers to entry
• Changing customer expectations
• Forcing incumbents to adapt their business models

5. Incumbents can respond to decoupling by recoupling or rebalancing

To fend off disruption, coexistence is key!

Two main response strategies:

1. Recoupling: Attempting to glue back together the activities that have been decoupled
2. Rebalancing: Accepting decoupling and adjusting the business model to create and capture value in new ways

Recoupling tactics:

• Contractual obligations
• Technological integration
• Legal measures
• Bundling of services

Rebalancing approach:

• Identify new sources of value creation
• Develop alternative revenue streams
• Focus on activities where the company has a competitive advantage
• Collaborate with disruptors where beneficial

Case study: Best Buy

• Initial response: Tried to prevent showrooming
• Successful rebalancing: Charged manufacturers for in-store displays, embraced price-matching

6. Assess the risk of disruption by analyzing customer consideration sets

Changes in your customers' consideration sets are the first telltale signs of impending disruption to your market, and possibly to your business as well.

Consideration sets. The limited group of options that customers actively consider before making a purchase decision. Changes in these sets can indicate:

• Shifting customer preferences
• Emerging competitors
• Potential market disruption

Assessing disruption risk:

1. Monitor changes in consideration sets
2. Evaluate the types of options customers are considering
3. Assess the potential impact on market share

Levels of disruption risk:

• Low: Customers consider similar products within the same category
• Medium: Customers consider new product categories or technologies
• High: Customers question the need for the product/service altogether

Quantitative analysis. Calculate Market at Risk (MaR) by considering:

• Cost differences between incumbent and disruptor offerings
• Customer sensitivity to different types of costs
• Incumbent's current market share

7. Growth strategies should focus on customer-side synergies, not firm-side adjacencies

Customer-side synergies: Cost reductions that the customer gains while consuming multiple activities provided by a single firm.

Rethinking growth. Instead of focusing on firm-side adjacencies and competencies, companies should:

• Identify adjacent activities in the customer's value chain
• Pursue opportunities that create customer-side synergies
• Grow by coupling additional customer activities

Benefits of this approach:

• More focused growth strategy
• Clearer priorities for employees
• Increased customer loyalty
• Lower customer acquisition costs for new offerings

Case study: Alibaba

• Started with B2B e-commerce
• Expanded into adjacent CVC activities:
  • Online payments (Alipay)
  • Cloud computing (Alibaba Cloud)
  • Consumer-to-consumer marketplace (Taobao)
  • Business-to-consumer retail (Tmall)
• Created a seamless ecosystem covering multiple customer needs

8. To avoid stalling, companies must maintain a customer-centric mindset

Companies will tend to stall not when they stop innovating per se but when they abandon the laser focus on the customer needs that fueled their early growth to begin with.

Resource-centricity trap. As companies grow, they often:

• Become overly focused on protecting existing resources
• Lose sight of evolving customer needs
• Struggle to adapt to changing market conditions

Maintaining customer-centricity:

• Regularly reassess customer needs and preferences
• Encourage a culture of customer-focused innovation
• Align incentives with customer satisfaction metrics
• Foster diverse perspectives within the organization

Case study: Netflix vs. Blockbuster

• Blockbuster focused on protecting its store-based model
• Netflix prioritized customer convenience, first with DVD-by-mail, then streaming
• Result: Netflix disrupted the market, Blockbuster went bankrupt

9. Spot the next wave of disruption by monitoring the "Big Seven" consumer categories

It turns out that we can spot global waves of disruption by considering a small, manageable list of industries that are routinely monitored by market and research analysts globally.

The Big Seven categories:

1. Living (housing, home goods, maintenance)
2. Moving (transportation)
3. Eating (food, drinks, preparation)
4. Dressing (fashion, cosmetics, grooming)
5. Learning (education)
6. Entertaining (media, electronics, sports)
7. Healing (healthcare, treatments)

Monitoring for disruption:

• Track cost increases across these categories
• Identify areas with significant pent-up demand for cost reduction
• Look for emerging customer behaviors that span multiple categories

Present-casting approach:

1. Broaden your view by tracking the Big Seven
2. Determine where costs are exceedingly high
3. Translate trends across domains to anticipate changes in your industry

Example: "Set it and forget it" (SIAFI) trend

• Fashion: Subscription clothing services
• Food: Meal kit deliveries and automated grocery replenishment
• Entertainment: Music and video streaming subscriptions
• Housing: Co-living arrangements with flexible locations

By monitoring these broad consumer categories, companies can better anticipate and prepare for the next wave of disruption in their own industries.

Last updated: January 22, 2025