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Map your value chain and rethink your business model to stay ahead of the curve.

Many companies have faced disruption. Of course, Uber and Airbnb are the poster children of disruption, but there are many more. Kodak was displaced by the digital camera. Blockbuster’s physical doors could not stay open in the face of Netflix’s virtual service. Borders Books failed in the wake of Amazon.

Some companies have also managed to continue in the face of industry disruption, such as Best Buy and Barnes & Noble.

What companies, both big and small, established and startup, can do to avoid disruption is the topic of this discussion. Our guest is Dr. Thales Teixeira, Associate Professor at Harvard Business School and research of digital disruption.

He has a new book examining disruption titled Unlocking the Customer Value Chain. We discuss how value is now being created for customers.

Summary of some concepts discussed for product managers

[2:21] How did your book come about?

I visited my first startup in 2010 and visited Mark Zuckerberg and other executives at Facebook. I asked them how they were planning to disrupt the media industry and found they had a clear plan for doing so. Since then, I’ve had similar conversations with Netflix, Airbnb, and many others who were all doing versions of the same thing. The book is about that common pattern of disruption across industries.

[4:55] Your book covers a few key terms — decoupling, disruption, and the consumer’s role. Can you define those?

I use different terminology for disruption than some people do. For me, it happens when you have an established big company in any industry that loses a significant amount of market share to a disruptor in a short period of time. For example, Uber stole a large portion of market share from taxis, and Dollar Shave Club took market share from Gillette.

The customer value chain is the process by which customers evaluate which product will be the best fit for them. Customers have to go through it to acquire the goods they want, whether it’s cosmetics or appliances. Decoupling is the breaking of the links in the customer value chain. For example, Birchbox makes it easier for customers to test beauty products. It does not try to replicate Sephora, but it makes one part of the process much easier from the consumer perspective.

[9:22] What are some of the ways that startups decouple the customer value chain?

Many of them use value capturing activities or new ways of doing things that the customer might not have enjoyed previously. For example, if you don’t like going to the store, a service like Birchbox or Zappos makes it easier to replicate the experience of trying products from the comfort of home. Uber is cheaper than cabs and eliminates the need for the consumer to physically hail a taxi. No matter what type of product or service you have, all you can do is create more value for customers, reduce value capturing activity, or eliminate value eroding activity.

[16:02] What’s at stake for established companies that are not paying attention to disruption?

A large portion of market share is at stake. A generation ago, market share gains and losses were less than 1 percent between established brands like Pepsi and Coke or Ford and GM. We’ve seen startups capturing 30-40 percent of market share, which is very disruptive. No one seems to be immune from it, regardless of industry. In response to this, companies typically blame technology and build their own technologies. We have yet to see an example of a company that made its own technology and been successful. The other response is to try to buy out the startup. This does not stop the bleeding. In the end, customers are what’s disrupting your business. Their behaviors are changing rapidly and startups can more easily accommodate their needs.

[23:16] What can large companies do to respond to disruption?

The core problem is that consumers are breaking the business models of these companies, so the solution has to be around the business model. You can either recouple the business model or learn to live with the fact that the model is broken. When TiVo and DVR technology came out and gave the consumers the option to skip ads, networks responded by putting the ads at different places within the shows so people had to view them. That’s an example of recouping. Best Buy decided to preemptively decouple by realizing that consumers wanted to use them as a showroom before buying products online. They found that they were creating value for their suppliers and started charging slotting fees for brands who want to put products on display in their stores.

[28:41] What can established companies do now to prepare for future disruption?

If the problem is that customers are changing, you need to understand your customers and map out your current value chain as clearly as possible. For each step, identify where value is created, captured, and eroded. Once you do that, do whatever you can to reduce cost for customers, both monetary and time costs. It will require innovating your business model.

Useful links:

• Thales’ site all about Decoupling with additional resources
• The book, Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption
• Thales Harvard Business School page

Innovation Quote

“If you don’t know where you’re going, any road will take you there.” -Cheshire cat responding to Alice (in Alice in Wonderland)

Thanks!

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