Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption

by Thales S. Teixeira

The strategy of defining core competencies and growing into adjacent areas is conceptually sound, embodying the notion of synergies derived from scale and scope economies. Most businesses start by leveraging scale economies, making the same product or rendering the same service over and over again and achieving increased market penetration. The efficiencies of production at scale give these businesses an advantage, lowering their unit cost compared to competitors’. When demand dries up, they can shift gears to a diversification strategy, producing products and services in new markets that allow for economies of scope. By producing two or more distinct products requiring similar skills or resources (buses and trucks, for instance), they also lower their unit cost. In both cases, the reduction of the firm’s own costs leads to growth in revenues, as the firm either charges customers lower prices or extracts higher profits that it then reinvests.