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Borders
2011,
Nokia,
2013
a victim of digital d...
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“We didn’t do anything wrong, but somehow we lost.”2
2017,
J. ...
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Today, digital disruption affects every industry, geography, and market, and it isn’t going away. Rather than a single, pivotal event, disruption has become a permanent condition of modern markets.
How should large, established companies respond?
In particular, I argue in Unlocking the Customer Value Chain that new technology isn’t driving most disruption today. Consumers are. And that in turn means incumbents require a different kind of innovation in order to thrive—not technological innovation, but a
transformation in business models.
Innovating your business model requires a deep knowledge of customers. You must understand what your customers want, and in particular, the main steps or activities they undertake in order to satisfy their desires. You need to understand their value chain.
I call this process of breaking apart the chain of consumption “decoupling.”
Amazon,
Netflix
Facebook
These disruptive companies, and many lesser-known firms that we’ll analyze, all deploy innovative technologies, but they use technology to enable their business models. The business models themselves represent the true innovations.
The present wave of customer-driven innovation in business models is fundamentally new.
fo...
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While frameworks such as SWOT analysis,*2 game theory, and even Michael Porter’s Five Forces proved extremely useful for companies in the 1980s, 1990s, and early 2000s, the nature of competition has changed. Most industries used to have only two or at most a few major global players. T...
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As a rule, these traditional strategy frameworks tend to be firm-centric, oriented toward what’s best for the company relative to its competitors.
Incumbents should take a general approach to what is essentially a generalized problem.
Customers truly are changing the business landscape. We are changing. Small, frequent, and spontaneous actions in our daily lives—staying in a rented home versus a hotel, hailing a private car versus a taxi, comparing prices on an app versus going from store to store—can eventually take down entire industries.
decoupling occurs at the level of the customer’s value chain, not at the product level. I define “customer value chain” (CVC) as the series of activities that customers perform in order to fulfill their needs and wants. These activities include searching for, evaluating, purchasing, using, and disposing of products. The customer value chain is analogous to Michael Porter’s value chain (the series of activities such as operations, logistics, and marketing that companies execute in order to create value for themselves), but it reflects the customer’s vantage point, rather than the company’s.
Understand Customers, and You’ll Understand Disruption
Don’t become another cautionary tale like Borders, Nokia, and J. Crew.
technological innovation alone didn’t save them. It likely won’t save your business, either. Your fate lies in the hands of customers.
So let’s understand the logic of their
needs and...
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Yet there was one thing that customers weren’t doing as much of as in the past: pulling out their wallets.
“showrooming.”
In surveys, shoppers reported that their top three reasons for “showrooming” were better online prices, their desire to see products in person before ordering online, and the unavailability of items at retail stores (e.g., due to stocking shortages).
in the throes of
went on the attack,
None of these tactics seemed to deter consumers from showrooming.
Was the strategy sustainable in the long term?
Price matching stopped the leak of customers, but it ate into profit margins without addressing the root cause of the industry’s disruption.
Feeling besieged by a threat that seemed to come out of nowhere, all they could do was retreat into their industries and take tentative stabs in the dark.
But what if disruption is actually the same across industries? What if the threat posed by Amazon to Best Buy bears a structural similarity to disruptive
threats in a range of other industries?
If you could understand this hidden pattern, then you wouldn’t be blindly feeling your way any longer. Even if disruption is rearing its head in your industry for the first time, you’d be able to respond in a methodical way by deploying a generalized framework.
A pattern does exist—one
Globo, Brazil’s biggest media company.
Telefonica, Spain’s largest telecom company.
What consumer would pay 40 cents a minute to call New York City from Madrid when you could Skype another person anywhere in the world for free?
The pain was real, and a cure was not yet available or well understood.*1
Sephora,
Birchbox;
In a sense, Amazon and Best Buy were sharing customers.
