Radical change

Evolving consumer preferences

Consumers today have more choice than ever, and their loyalties are increasingly gravitating toward brands that offer personalized, evolvable and frictionless experiences across every touchpoint.

Not only that, but thanks to modern digital technology and social media, the voice of the customer has grown exponentially louder than it has ever been, and this has fundamentally altered the power balance between brands and consumers.

As a result, companies today must embrace the notion that a world class digital customer experience is essential for survival. Because for consumers today, the high watermark of customer experience is not defined by those of your closest rivals — it's defined by every experience in your customer's “digital-everything” ecosystem.

What this means is that organizations must do significantly more than simply “lift and shift” their aging services to the cloud, and implement a few modest user interface enhancements. Instead, companies must continuously improve and modernize the entire customer experience from end-to-end, ensuring that every step in that experience is fast, personalized, and evolvable.

Business model innovation

For established organizations, consumer loyalty is at an all-time low and new business model innovation is a key contributor. Business model innovation is the fuel that helps well-funded and tech-savvy startups disrupt existing markets in new and exciting ways that are not only differentiated, but also significantly improve on cost and time-to-value.

Today, there are literally thousands of well-funded and creative new business models coming to market each year that offer either better value, or newer, more customized and differentiated experiences.

So far, it seems that no industry is immune. At the heart of business model innovation is a technique known as “decoupling”, which breaks apart what Harvard professor Thales A. Teixeira refers to as “the customer value chain”.

In his 2019 book, Unlocking the Customer Value Chain [3], Teixeira describes how upstarts disrupt established players by eliminating as many non-value added activities from the customer experience as possible. To better illustrate how decoupling works, we’ve included additional examples from Teixeira’s earlier work in Figure A below.

Figure A: Examples of decoupled activities and their disruptors

Perhaps the most classic example of how decoupling can work to great effect comes from Amazon and how they were able to successfully use decoupling to disrupt the analog book purchasing experience with a fully digital experience.

They did this by removing as many non-value adding activities from the customer experience as possible. In this case, the non-value adding activities included travelling to the store, searching through long stacks of books and waiting in line to pay. Through digital, Amazon was able to replace these actions with value-adding activities like home delivery, digital search and one-click purchasing. Then, through their Kindle eBook service, Amazon once again decoupled the analog book buying experience by reducing customer time-to-value to a few clicks.

Over the past two decades, there are more and more examples that show the power of decoupling as a disruptive force. In another example, Teixeira demonstrates how Netflix successfully offered customers an unrivalled entertainment experience in terms of variety, price and time-to-value, while leaving telecom providers to fulfill the costly and complex work of delivering internet connectivity service.

And while Amazon and Netflix are no longer upstarts, for incumbent organizations, the threat of new businesses with similar potential will continue to be a significant existential threat. And, as interconnectivity between devices and lower transaction costs merge with unprecedented AI and automation capabilities, this threat will only continue.

Incumbent organizations must learn to disrupt, defend and differentiate before they are displaced themselves.