17th May 2019
This piece references observations from the recent book– Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption by Thales Teixera of the Harvard Business School; and which was recently reviewed in The Economist.
Companies like Uber and Airbnb depend on the internet, but their success is not down to any particular technological innovation of their own design. Instead, their secret lies in their business model.
Teixeira, argues that the principle that underlies businesses like these, is called decoupling. Other examples of the decoupling process, include Zipcar where driving a car is separated from purchasing and maintaining it and Birchbox, where customers are sent samples of beauty products, eliminating the need to visit a store to try them.
Disrupters have muscled in on some parts of the consumer value chain. One example is the practice of “showrooming”. Shoppers enter an electrical store and examine what’s on offer. But instead of purchasing the item in the store, they buy it online. Amazon has even created an app allowing customers to scan a product’s bar code, or take its picture, and discover its online price. The selection of products has been decoupled from their purchase.
This is not, as the author points out, a particularly new idea. Budget airlines like Ryanair and Easyjet have long since decoupled flying from the services and amenities that usually accompanied it. Passengers have to pay separately for the extras, like seat selection and the carrying of baggage.
Importantly, the argument here is that that decoupling is a customer-driven phenomenon—bottom-up rather than top-down. In this, it differs from disintermediation where companies, in a top-down approach, have used digital platforms to cut out middle-men. Decouplingdoesn’t necessarily subtract the middle man, but it can still result in lower costs to the consumer.
Successful businesses spot how consumer tastes are shifting, and that may involve looking at other industries as well as their own. For example, they can look at the success of Netflix’s subscription-based model; what works for tv programmes may also work for other goods and services, even one as apparently disparate as the ‘broken’ antibiotics industry.
If you like a restaurant’s ambience, but not its food. In theory, you could book a table but order the food from elsewhere, paying separately for the service and the cooking. This would represent an interesting alternative approach to services like Deliveroo, who allow you to eat your favourite food in a place where you feel most comfortable – at home. This decoupling process disintermediates the restaurant, but not the food.
The significance of this, especially for more complicated, mundane, purchasing decisions (e.g. with insurance in the financial sector) is the opportunity to decouple the process of researching and buying products, which consumers tend not to like, from consumption.
Pointedly, the book review in the Economist was in their (relatively) new column ‘Bartleby’, inspired by Herman Melville’s book and character, Bartleby The Scrivener. The Economist described the purpose of the new column thus – ‘Herman Melville’s haunting tale of a recalcitrant scrivener has relevance today….(and) this seems an ideal moment to launch our new column on management and work. Some of the biggest issues in economics concern the nature and organisation of work. What explains the recent slowdown in productivity growth in the developed world, and how long will it last?’
The challenge for existing managers is that they must worry about more than whether their overall costs are lower than those of their immediate rivals. If a part of their process is inefficient, or inconvenient for consumers, the decouplers may well grab hold of it. The efficiencies offered by this decoupling trend are especially attractive for 20 and 30-something millennials, as highlighted in this piece – Building Category Development Capabilities for the Future: ‘with mobile phones glued to their hands, short attention spans and need for instant gratification, we are increasingly becoming a society chanting “What do we want? Everything. When do we want it? Now!’
Teixera sums up – ‘by removing stages in the process required to consume a product or service, companies can encourage increased usage.’ One example is how Just Eat removes the need to go to a restaurant to eat its food.
The beauty of conscious decoupling is that the only limit to innovation is imagination, rather than technical know-how.