ROUNDMAP-Decoupling

Decoupling of the Value Chain

Professor Thales Teixeira from Harvard Business School took 8 years to write his book ‘Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption’. His observations of dozens of startups, tech companies, and traditional players led to an understanding of how business is being disrupted. We’ll discuss his findings while uncovering the question: Why now?

DECOUPLING OF THE CUSTOMER VALUE CHAIN

The publisher explains: “There is a pattern to digital disruption in an industry, whether the disruptor is Uber, Airbnb, Dollar Shave Club, Pillpack or one of the countless other startups that have stolen large portions of market share from industry leaders, often in a matter of a few years.”

“As Teixeira makes clear, the nature of competition has fundamentally changed. Using innovative new business models, startups are stealing customers by breaking the links in how consumers discover, buy and use products and services. By decoupling the customer value chain, these startups, instead of taking on the Unilevers and Nikes, BMW’s and Sephoras of the world head-on, peel away a piece of the consumer purchasing process.”

A customer value chain is a business concept that represents the creation of value for a customer. It is similar to the supply chain, which charts the various stages of production and supply from raw materials to the sale of the final good to the end user. The big difference is that while a supply chain often measures costs, the customer value chain is based on the increase in value to the end user.

This idea is somewhat similar to a ‘value stream‘. Value streams describe how a stakeholder – often a customer – receives value from an organization. As opposed to many previous attempts at describing stakeholder value, value streams take the perspective of the initiating or triggering stakeholder rather than an internal value chain or process perspective.

What Uber, Amazon, and Airbnb have in common is that they aim to make the customer’s job-to-be-done a lot easier. Uber made ride-hailing a breeze, Amazon made it simple to search for exotic books, while Airbnb made it effortless to find a cheap and fun place to stay. They all took the customer’s job-to-be-done as a startingpoint and created a service that significantly improved customers’ lives.

While Teixeira’s viewpoint does hold merit, what’s even more important is the question: Why is this happening now? How could these startups disrupt markets and industries that have been under the control of large corporations for so many years? To get to an answer, we need to look at another surge of decoupling ─ in particular, one that took place almost 100 years before.

DECOUPLING OF WORK AND craftmanship

Around 1890, Frederick Winslow Taylor was one of the intellectual leaders of the Efficiency Movement, a pioneer in applying engineering principles to the work done on the factory floor.

What Taylor described, often referred to as the division of labor, was, in fact, the decoupling of work and craftsmanship. Instead of having to hire exceptional people with a broad skill set, he suggested to break down work into smaller pieces. This allowed a factory manager to hire specialists that were much cheaper, easier to train and replace, more skillful, and therefore more productive.

Throughout the years we’ve applied the same scientific management principles, not just to factory workers but throughout the entire organization. Even today, people are compelled at a young age to make a choice of their area of specialization. Polymaths are not allowed.

While the division of labor raised productivity, complexity increased alongside it. To offset the operating costs and make a profit, companies had to expand their operation quickly. More production led to more stock and this drove companies to sell more products ─ leading to mass consumption.

Economies of Scale meant that only the largest operations were able to compete successfully on price, causing an evergrowing economic divide. Between 1978 and 2012 the share of startups relative to industry leaders dropped by as much as 44 percent, while employee wages remained almost the same.

In 2012, Kauffman Foundation launched the ‘Startup Act‘ to incite people to start new businesses:

THE TIPPINGPOINT

Let’s go back to our question: Why is this happening now? How could these startups disrupt markets and industries that have been under the control of incumbents for so many years?

As incumbents increased their portfolio to serve more diverse markets, its operation grew in size. To raise productivity work had to be divided, creating complicated structures of specialist teams. By sharing resources and capabilities between separated departments and divisions, duplication could be prevented, allowing efficient utilization.

However, sharing introduced complex interrelationships that brought new restraints, decreasing operational agility. Consequently these corporates have a really hard time coping with fast-changing customer demand. Although most perceive themselves too big to fail, they are, in fact, most vulnerable to disruption.

So, again, why now? Contrary to the traditional value chain, the digital value chain is still very much undeveloped. This allows digital-savvy entrants to focus on a single aspect of the digital value chain, decoupled from its entirety, and offer unsurpassable added value. For instance, Backbase is a Dutch startup focused on offering a superb digital banking experience, allowing banks to deploy it as a front-end, interfacing with the bank’s legacy systems ─ allowing the client to focus on its core business.

Beware, the traditional value chain went through a similar process of decoupling decades ago, giving rise to specialists like distributors, cargo handlers, warehouses, accountants, and print services.

What's NEXT?

Although we are still in a transitional phase ─ in between two large s-curves, the cards will soon be reshuffled. Most incumbents will need to restructure, while some will disappear. As the next s-curve takes shape, new corporates will emerge, however, contrary to the current cohort of ventures, they will need to coexist in an environment that is far more cooperative, distributive, and regenerative.

As the population rises, our planetary resources won’t sustain the rising demand. In 1905, the average person consumed 4.6 tons of resources, today, that’s more than 10 tons. This exponential growth is not only causing environmental havoc, but it’s also depleting Earth. We need another form of decoupling: the decoupling of wealth and resources, to survive another century of consumerism.

As we’ve uncovered via the Business Model Matrix, the way to a more sustainable form of consumption is either through resource-centric or network-centric business models.

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Edwin Korver

Edwin Korver

Architect of ROUNDMAP™ - Advancing Grandmastership of Business™ ✪ Business Model Matrix™ ✪ Polymath ✪ Generalist ✪ Systems Thinker ✪ Board Member, CEO CROSS-SILO BV

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