According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.
Understanding the Customer Value Chain
In the book Unlocking The Customer Value Chain, professor Thales Teixeira explains it as a framework of all the steps or activities that customers have to go through to acquire products and services. The customer value chain then helps to map the journey of our customers from their viewpoint.
The customer value chain primarily represents all the steps customers take in order to get the product or service. Thus, that represents a journey, but from the customers’ perspective (what set of values the customer gains at each step).
In short, at each step of the experience customers gain a different set of values which make up the whole customer value chain. For instance, if I walk into a local book store, the whole experience will have different sub-values I gain as a customer.
As I enter the store, the value I get is the immersive experience of being able to feel, touch and walk through the store to find the book I need. As I see various books, I can open them, have a quick glance within, and why not, also read some chapters.
While I might be able to do the same on my Kindle, the immersive experience of the bookstore, makes it very attractive for a voracious reader. And yet, as I’m about to buy a few books, I might have to find them in various local bookstores.
Or I could, for instance, check if they are all available on Amazon at a lower price. On Amazon I’ll be able to find them all in the same place, and at a lower price (Amazon’s mission it’s all about variety and convenience).
While initially, as a customer I get the most of the experience. I can use any local bookstore to evaluate and choose the books I need, and yet finalize the purchase on Amazon, as I get convenience.
Over time, I might end up doing the whole process on my Kindle (as I can have all the books I need, right away).
This is, perhaps, how Amazon decoupled the bookstores’ customer value chain. Where in disintermediation, the company disrupts the distribution process, by cutting out intermediaries.
Decoupling is primarily about value and how it’s delivered to customers. So part of the experience is redesigned, and the decoupler identifies a core part of the value chain where it will add much more value compared to existing players.
The decoupler then, in theory, enhances the part of the value chain where there is the most business value (Amazon didn’t have to maintain physical stores) as it carries high margins and it is highly scalable (the whole experience can happen online).
As discussed with Thales Teixeira: “Decoupling is this idea that I’ve observed across all these industries and these startups that I noticed is that they weren’t trying to really steal customers from what we call the incumbents, the large established companies.”
In short, as he pointed out “Airbnb wasn’t really trying to steal the customer in the traditional sense from all the hotels in the world. If it was trying to do that, it would create hotels and maybe build it and get hotel rooms and then steal customers from Marriott or from the Ritz Carlton or from any other hotel.”
Instead, what Airbnb wanted to do was just “improve the matchmaking between people that had homes to rent and people that were trying to find, and not just hotel rooms, but actually a different experience to stay in somebody else’s home for a while.” And so that key activity of matchmaking is what Airbnb decided to do.
Breaking down entry barriers
When I interviewed Thales Teixeira he pointed out:
First, let’s be clear that decoupling is an ENTRY strategy. Due to the power of specialization, it allows small, cashless, resource-constraint startups enter a market, steal activities from much larger and cash-rich competitors and, in essence disrupt these incumbents.
As Thales pointed out, decoupling can be used as a strategy to reduce entry barriers in a world dominated by existing incumbents.
In that scenario, it is essential to map the customer journey and identify the single activity that the decoupler can perform better than the incumbent.
Once you found the activity to decouple, you have an excellent place to start. Indeed, to build a platform business, it is essential to master a core transaction, thus simplicity and focus on that might help scale fast.
Birchbox case study
An example is how Birchbox manufactured a different experience compared to Sephora, already a massive player in the beauty industry.
Thus, with a $10 per month the customer get five samples beauty products, delivered at home. Convenience, price and different kind of experience drove the Birchbox business model.
Therefore, Birchbox removed the hassle for customers to having to go to Sephora to source beauty products. While also pricing it at a convenient price, and delivered at home.
By identyiing the key activities Sephora customers have to go through. Birchbox understood they wanted to focus on sampling beauty product, as the most valuable part of the customer value chain.
And they specialized in that.
Initially, startups entering several markets choose to decouple as this makes them focus on one core and key activity in the value chain, which makes them grow more quickly and be identified with that .
How to decouple
To decouple you might want to ask a few questions:
Why do people want to buy it?
What do they want to buy the most?
What is the most difficult part of the experience and yet the most valuable?
Usually, the decouplers to offer a better alternative, and gain traction quickly might enter the market with a sort of Blue Ocean Strategy, where they offer more, for less.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
For that, we need to look at the three main currencies people use throughout the value chain.
The three customers’ currencies
Let’s take into account three main currencies:
Monetary currency: (money).
Time currency.
And effort currency.
As a decoupler if you can reduce costs for customers, time and effort taken, this might unlock major disruptive changes. Airbnb reduced these three costs. Uber reduced these costs. Amazon did the same.
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. Due to the pandemic, Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.
Connecting the dots
Disruption moves in waves. Unbundling helped to break apart existing products to offer only the most valuable parts of them. Thus, it worked at product level.
Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.
Disintermediation, cut many intermediaries from the supply chain, thus working at supply chain level.
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all can produce products that customers want.
Decoupling instead, works at customer level. Where the customer experience (the customer value chain) gets broken down, and the decoupler focuses only on a few key values, customers get to enter the market and quickly grow.
By reducing costs, improving convenience in terms of time and effort, the decoupler makes it a no brainer for the customer to go through this redesigned customer value chain, where the most valuable part, according to the customer, is offered at more convenience.
What’s next?
As startups gain control of new markets. They expand in adjacent areas in disparate and different industries by coupling the new activities to benefits customers. Thus, even though the adjunct activities might see far from the core business model, they are tied to the way customers experience the whole business model.
Those companies that once were startups, turned into tech giants, they managed to grab most market shares in their core industries.
Yet, as the web has become more intertwined, those tech players also moved in adjacent markets, where they could couple their service with others.
To cover more and more of the users’ experience, the coupling process is among the major forces shaping the business world in the last years and going forward.
Coupling as a growth strategy
Thales also pointed out:
After establishing themselves via decoupling, startups needs to enter new markets and/or come up with new products (or both). Many use coupling in the customer value chain (CVC) as a GROWTH strategy.
Only after a startup has mastered an essential activity and it has decoupled it successfully, it has a viable and robust business model.
To expand further, it can identify adjacent activity to couple with the existing core activity.
From there, it can scale further. Thus, coupling works as a growthstrategy.
The coupling era
While in the past startups had the advantage on their side to be able to decouple activities from tech giants.
My argument is that in today’s digital landscape, tech giants still act, in many cases, as startups.
As a reference, back in February 2018, Google launched Google Trips. As Google explained at the time:
Planning a trip involves lots of searching for flights, hotels, things to do, itineraries and more. The process is often cumbersome because we have to use multiple tools to gather everything we need—especially on a mobile phone.
So Google Trips was announced as a way to “help users explore options and make decisions on their smallest screens.”
In 2019, Google Trips got even better, much much better:
In short, Google entered at full speed and force the travel industry by enabling end users to perform the whole travel navigation from searching to booking.
As reported on skift.com, Expedia’s CEO, while answering questions in a media briefing at the Expedia’s Explore ’18 conference in Las Vegas, Okerstrom announced, “The internet has been littered with the bodies of companies put out of business by Google.”
And he went on by defining Google as its most significant competitors that made many entrepreneurs rethink the logic of the whole digital business world.
Travel and tourism search engines like Expedia, Booking, and TripAdvisor had thrived thanks also to the inability and lack of interest of Google to cover these segments.
As Google has grown to the size of a tech giant, it now has the power to reshuffle entire industries.
How do you counter that?
Defending from the coupling giant
I spoke to Thales Teixeira and he explained:
As companies grow and take on more CVC activities they tend to do so not necessarily by fulfilling each activity in the absolutely best way possible. Google Trips might be great if you already use Google Maps and Google Gmail, but if used alone it might be not as good as Kayak or something else. As Google couples, it does not couple optimally at each activity. Therein lies the opportunity for another start up to come up with a better product or service at a weak link of the coupling tech company.
Therefore, as an existing company, threatened by Google, you need to understand what the tech giant is trying to achieve by coupling.
In Google’s case, the tech giant is trying to lock in users, by providing an end-to-end experience. Thus, coupling will be very powerful where users already adopt the other Google’s products (like Gmail and Maps). There, the user will have an enhanced experience, all in the same ecosystem.
Yet, this experience will be diluted where users also adopt other products, and are not necessarily tied to the Google ecosystem.
In that case, as a company risking to be coupled by the tech giant you might want to focus on the set of users outside the Google’s ecosystem (DuckDuckGo has built a whole business on that).
Attacking the giant’s weak links
For as much, as the giant wants to couple several activities, to create a whole ecosystem where users can do pretty much anything.
There will be always a product or a set of experiences that are weak within a tech giant’s ecosystem.
For instance, in Google’s case, privacy is a big issue, given the amount of data the tech giant collects. This is the core of its business model. Its whole advertising machine is built on top of that.
That is why, companies like DuckDuckGo, gave rise to what I like to call “privacy-as-a-business-model” where the sole fact, that the company doesn’t track, or throws the data away on the go is a value proposition in its own sake.
Thus, it doesn’t matter if the experience on DuckDuckGo is not yet comparable to Google, as long as it is counterbalanced by the privacy protection.
DuckDuckGo makes money in two simple ways: Advertising and Affiliate Marketing. Advertising is shown based on the keywords typed into the search box. Affiliate revenues come from Amazon and eBay affiliate programs. When users buy after getting on those sites through DuckDuckGo the company collects a small commission.
The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.
A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distribution to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.
A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.
By definition, a horizontal market is a wider market, serving various customer types, needs and bringing to market various product lines. Or a product that indeed can serve various buyers across different verticals. Take the case of Google, as a search engine that can serve various verticals and industries (education, publishing, e-commerce, travel, and much more).
A vertical or vertical market usually refers to a business that services a specific niche or group of people in a market. In short, a vertical market is smaller by definition, and it serves a group of customers/products that can be identified as part of the same group. A search engine like Google is a horizontal player, while a travel engine like Airbnb is a vertical player.
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.
A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.
Psychosizing is a form of market analysis where the size of the market is guessed based on the targeted segments’ psychographics. In that respect, according to psychosizing analysis, we have five types of markets: microniches, niches, markets, vertical markets, and horizontal markets. Each will be shaped by the characteristics of the underlying main customer type.
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.
Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.
As startups gain control of new markets. They expand in adjacent areas in disparate and different industries by coupling the new activities to benefits customers. Thus, even though the adjunct activities might see far from the core business model, they are tied to the way customers experience the whole business model.
The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain. Observing, analyzing, and understanding how the bullwhip effect influences the whole supply chain can unlock important insights into various parts of it.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
Consumer-to-manufacturer (C2M) is a model connecting manufacturers with consumers. The model removes logistics, inventory, sales, distribution, and other intermediaries enabling consumers to buy higher quality products at lower prices. C2M is useful in any scenario where the manufacturer can react to proven, consolidated, consumer-driven niche demand.
Transloading is the process of moving freight from one form of transportation to another as a shipment moves down the supply chain. Transloading facilities are staged areas where freight is swapped from one mode of transportation to another. This may be indoors or outdoors, depending on the transportation modes involved. Deconsolidation and reconsolidation are two key concepts in transloading, where larger freight units are broken down into smaller pieces and vice versa. These processes attract fees that a company pays to maintain the smooth operation of its supply chain and avoid per diem fees.
Break bulk is a form of shipping where cargo is bundled into bales, boxes, drums, or crates that must be loaded individually. Common break bulk items include wool, steel, cement, construction equipment, vehicles, and any other item that is oversized. While container shipping became more popular in the 1960s, break bulk shipping remains and offers several benefits. It tends to be more affordable since bulky items do not need to be disassembled. What’s more, break bulk carriers can call in at more ports than container ships.
Cross-docking is a procedure where goods are transferred from inbound to outbound transport without a company handling or storing those goods. Cross-docking methods include continuous, consolidation, and de-consolidation. There are also two types of cross-docking according to whether the customer is known or unknown before goods are distributed. Cross-docking has obvious benefits for virtually any industry, but it is especially useful in food and beverage, retail and eCommerce, and chemicals.
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.
Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.
Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.
Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.
Jidoka was first used in 1896 by Sakichi Toyoda, who invented a textile loom that would stop automatically when it encountered a defective thread. Jidoka is a Japanese term used in lean manufacturing. The term describes a scenario where machines cease operating without human intervention when a problem or defect is discovered.
The andon system alerts managerial, maintenance, or other staff of a production process problem. The alert itself can be activated manually with a button or pull cord, but it can also be activated automatically by production equipment. Most Andon boards utilize three colored lights similar to a traffic signal: green (no errors), yellow or amber (problem identified, or quality check needed), and red (production stopped due to unidentified issue).
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
