Working with customers today requires speedy delivery of the product or service, but also mandates a full understanding of the customer experience itself. This ranges from how a customer discovers a brand, engages with the provider, consumes the product or service and also how the customer works through any service needs.
I kept these elements in mind when I read "Unlocking the Customer Value Chain" by Harvard Business School professor Thales Teixeira. I felt it an excellent book and below are the things that I personally, not as any official Oracle endorsement, got out of the book.
Teixeira notes some key concepts in the beginning of the book that he expands upon throughout:
Business Models / Customer Value-Chain
A key theme throughout the book, is innovation: not product or fulfillment innovation, but a customer-centric business model innovation, defined below.
Decoupling / Rebalancing
If an incumbent falls short in any of these areas, it provides an opportunity for a new entrant to decouple the customer value-chain and take away a piece of the business in one of the customer-centric areas of value-creation, value-charging, or value-eroding. While successful businesses can be built by decoupling in any of these three areas, Teixeira notes that value-creating decouplers tend to have higher valuations.
Another concept covered is “layering of innovation”, or, how the best approach to building a business is to first articulate the current standard, then develop the digital equivalent, and finally innovate on top of digital business models.
Teixeira details the process of In how to go about decoupling,:
1. Identify a target customer segment and its detailed customer value-chain.
2. Classify the activities in that chain as either value creating, charging, or eroding.
3. Identify weak links between the activities, places where the customer currently performs all activities with one vendor but would be willing to break some apart if it benefits them.
4. Break the weak links.
5. Predict how incumbents will respond, with two general categories of incumbent response are to recouple what was decoupled, or to preemptively decouple.
This idea of an incumbent forcing recoupling, through actions such as lawsuits, should perhaps be a temporary one as it goes against customer desires, so an alternate path is rebalancing, a form of decoupling through altering the business model, with the below definition from the book:
Rebalancing: Create value at every point where you attempt to capture value, and capture value at every point where you attempt to create value.
The concept of rebalancing comes from looking in the value chain for leakage, defined as value created minus value charged. If found in large quantities, to try to address it through rebalancing. An example of this from the book is how Best Buy instituted supermarket-like slotting fees for manufacturers, charging them for prominent display space while still providing the same value to consumers.
Building disruptive businesses
Teixeira covers the overriding importance of customer acquisition, even if through non-scalable approaches by keying in on customer-focused approaches to business creation. Examples below:
• Customer-side synergies: Cost reductions that the customer gains while consuming multiple activities provided by a single firm.
• CVC adjacencies: Activities immediately preceding and following those that a customer chose to decouple from an incumbent.
• Coupling: The act of sequentially adding and strengthening the links between adjacent customer activities captured from an incumbent.
The second and third concepts above include verbiage around activities that have been decoupled, but the same ideas apply for an incumbent provider, in either scenario it’s not about provider focused activities, but rather customer value-chain focused activities, tying into the below concepts from Teixeira:
• Resource-centricity: Certain firm-owned resources are your most valuable possessions. All your major business decisions should help you expand and leverage these resources.
• Customer-centricity: Customers are your most valuable possessions. All major business decisions should enhance your ability to increase the number of customers and leverage them.
The book notes how when a company does things not in the best interest of the customer, they’ll usually suffer. Also, companies are generally not customer-centric, but people are. So, companies need to set up things so their employees have the incentive to be customer-centric.
To hear Teixeira talk about his book, The Innovation Engine Podcast has an excellent interview with him.