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Okay. So, have you ever like been in that situation where you're just like stuck dealing with some process that seems so needlessly complicated?
Yeah, for sure.
Like uh maybe it's I don't know dealing with like an airline or like trying to figure out some some ridiculous software update or or even just thinking back to like how hard it was to find information before we had Google. Yeah.
It's it's like why why does this have to be this hard? What if like all of those frustrating steps just kind of vanished, you know,
that I think that feeling of of friction, that that moment of like there's got to be a better way. That's that's often like where real innovation kind of begins, right? So,
and that's that's exactly what we're going to be kind of diving into today, right?
Yeah.
Welcome to the deep dive everybody.
Yes.
Today we're unpacking this concept called decoupling the customer value chain.
Oh, interesting.
You've sent us some really cool stuff and we're going to be exploring this this really central idea from it that I think has the potential to like really change how you look at businesses and like how new ideas take hold.
Oh, cool.
You know, the these moments of customer frustration, these aren't just like random annoyances. They can actually be like clues to really big opportunities.
Yeah. Right.
Right.
So, our goal today is is to kind of get a solid understanding of like what this customer value chain actually is, how it can be kind of strategically broken apart or decoupled as they say. And then crucially, why this is such a powerful way of looking at like how successful new businesses kind of emerge and and shake up entire industries, right?
We're going to we're going to see how looking at things this way can help us spot opportunities to to make things better or even like completely reinvent them.
Interesting.
And to help us kind of navigate all of this, we have with us today somebody who has who has really lived and breathed this stuff. They've not only taught this very concept to MBA students at Harvard and UC, but they've also they've also worked correctly with numerous startups, you know, applying these very principles in in the real world. Yeah. So, think of think of them as our expert guide to this really fascinating territory.
Happy to be here. Happy to share some insights.
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Awesome. All right, let's let's kind of get into into the heart of what we're we're talking about today. This this idea of the customer value chain. Our our sources define this as essentially like the the entire sequence of steps a customer goes through to kind of like get use and and eventually move on from a product or service, right? And and think back to those initial like frustrations we were talking about like where do they come from? Right.
It's often somewhere within that that chain of activity. So so let's let's take a a really simple example, right? Like opening a checking account, right? Right. So if we map out that journey, like what are those what are those steps?
Yeah. It it involves several several distinct steps. for for you as a customer, right? So, first there's the research phase. You know, you're comparing different banks, their fees, their services,
right?
Then you likely have to physically go to a branch.
Yeah.
And then comes the application process. You know,
filling out forms, providing ID
and and finally, you know, after after approval, you you receive your your account details, maybe a checkbook. Yeah.
Each of these is a link in the that customer value chain, right, for for getting a checking account.
Okay. So, so we've we've kind of laid out these steps. Now, now what's the what's the next kind of crucial thing to look for here? Our source material talks about identifying the weak link. So, what what exactly is that?
Yeah. The weak link refers to those those specific activities within that that customer value chain. Right. Right.
That consistently lead to to dissatisfaction for customers, you know, when they're dealing with established companies,
right?
These are the the points of friction, the the moments of frustation. uh inefficiency or or unnecessary cost in the existing way of doing things and and that dissatisfaction that weak link that's that's where we find really fertile ground for for new ideas and innovation. Right.
Got it.
So so once we've pinpointed that weak link that's that's where this idea of decoupling comes into play. So can you can you explain what what decoupling actually means in this context?
Yeah, decoupling is is the strategic process of of breaking apart that that traditional customer value chain, right?
Often this is this is driven by a new often digital first company that that focuses intensely on one one specific activity or small set of activities that were historically all bundled together by by the existing players in the market. So let's let's think about our our taxi example, right?
Traditionally, if if you needed a ride, your options were pretty limited. Yeah.
You either try to hail a tab on the street or or you call a central dispatch,
right? And you were you were really kind of at the mercy of of chance or like a potential really busy phone line and and unknown wait time.
Exactly. Exactly. And then then along came ride sharing services, right?
And and what they fundamentally did was decouple the the value chain of of getting a ride by by hyperfocusing on that that matchmaking aspect, right? Connecting connecting people who needed a ride with with drivers who were available. They they recognized that the inherent inefficiencies and and uncertainties in that old bundled system
Yeah. that that paints a really clear picture. It's about taking, you know, one component of this overall process and making it like the absolute core focus, right? And often making much more streamlined and and effective
precisely. Yeah.
Now, our our sources mentioned that there are actually like three different kind of fundamental ways to to decouple a value chain.
Oh, okay.
Right. Can you can you kind of walk us through through those different types?
Yeah, absolutely. So, the the first type is what we call, you know, value creating decoupling. And this This involves separating out an an activity from the existing value chain that that when offered on its own, it actually generates significant new value for for the customer, right? So, so a a really compelling example of this is is Twitch.
Okay.
In the world of of video games.
Ah, yes. So, so think about it. Traditionally, the value in a video game came from like buying it and playing it yourself, right?
But Twitch came along and and allowed you know, millions of people to derive entertainment and value simply by watching other people play.
Exactly. Exactly. So, so playing a game is is inherently a value creating activity. Yeah. But, but Twitch recognized that that watching someone else play, especially if they're they're skilled or entertaining, is is also a a distinct value creating activity in its own right. Yeah. Right. They unbundled that experience. And and interestingly, this this kind of decoupling can sometimes even create entirely new economies around activities that that were previously just hobbies. That's a that's a really interesting way to look at it like creating value where it where it didn't explicitly exist before in that in that standalone way,
right? Yeah.
Okay. What's what's the what's the second type of decoupling?
Yeah. So, the second type is is what we call value eroding decoupling.
Okay.
And this is this is all about identifying and and then eliminating an activity from the customer value chain that that customers typically find inconvenient, you know.
Yeah.
Undesirable or or just a hassle. So, so think back back to how how we used to acquire video games, right, before before the rise of of digital distribution.
No, the the whole ritual of like
going to the video game store, browsing the shelves, hoping that the the game you wanted was in stock. Yeah.
Dealing with rentals, potential late fees, like it was it was a whole process.
Exactly. So, that that entire process of of physically going to a store, selecting a game, making the purchase or rental, and and then potentially having to return it for for many You know those those are those are value eroding activities.
Yeah.
And and Steam came along and and fundamentally decoupled this right by by offering digital downloads and streaming of of video games and completely removing that that inconvenient physical trip and and the associated hassles.
Right. So So less friction, more convenience. It's it's about focusing on the core value playing the game and and getting rid of all the all the annoying steps around it.
Exactly.
Okay. And and the third type
Yeah. So the third type is is what we call value capturing decoupling.
Okay.
And this involves fundamentally changing how a a company extracts value or or makes money from its from its customers. So the premium model that's that's so prevalent in in mobile gaming with with games like Fortnite being, you know, a prime examp this this illustrates this perfectly. Right.
Okay. So So instead of that that traditional model where you you pay upfront to even access and play the game,
right? Right. They they decoupled the core core value proposition, right? Yeah,
the ability to play a high quality game from the immediate requirement to pay so can download and start playing for free. And then the the company captures value later on through through optional inapp purchases like like cosmetic enhancements, virtual items or or other non-essential features, right?
So so the way they make money is is fundamentally shifted, right?
Yeah, that's a really powerful shift in in how how businesses kind of think about monetization.
Yeah. Now, our our source material makes this this really interesting point that that venture capitalists seem to have a certain preference when it comes to these these different types of decoupling.
Oh, yeah.
What what kind do they tend to to favor?
Yeah, it's it's quite insightful. Venture capitalists often show a stronger inclination towards startups that are that are centered around decoupling value creating activities. Okay.
So, so while all three types of decoupling can certainly lead to to significant growth and and successful businesses,
right?
The creation of of entirely new ways for for customers to to derive value often captures the attention and investment dollars of VCs. Perhaps it's because this this type of decoupling can open up entirely new markets and user bases.
Interesting. So, so like fundamentally creating a a new benefit for customers seems particularly attractive to to investors. Now, when when customers experience this decoupling, right,
what's what's the typical impact on on them and how does the concept of coupling kind of come into play after that after that initial decoupling,
right? So, so when when a a startup successfully decouples a part of the value chain and and really nails that that specific activity,
customers often feel that this this particular aspect of of the experience is now being done, you know, much better. Yeah.
With with greater focus, efficiency, and often at a lower cost or or with more convenience than before. Right.
Right. They naturally gravitate towards these these more more specialized solutions and and following this this initial kind of disruptive move,
successful startups frequently engage in what's known as coupling and and this is this is the strategic process of of adding, you know, related or adjacent activities back into their their service offerings, right? Essentially essentially expanding their footprint within
within the broader customer value chain,
right? So so our our source uses Uber as like a really really clear example of this, right? Yeah.
They they started by just focusing on ride sharing. Yeah. That that core core matchmaking function, but then they strategically coupled additional services like like food delivery with Uber Eats and even package delivery. Right.
Exactly. So, so by first excelling at that that core decoupled function efficiently connecting riders and drivers,
they built a a massive user base, right? A a strong brand and the underlying infrastructure
and and this then allowed them to to seamlessly kind of integrate and offer these these related services, right? Further disrupting existing players in in those in those adjacent markets. So, it's it's like a natural evolution for for a successful decoupled business.
So, so it's almost like you you break things down to really master one specific pain point and then you strategically kind of build build back out.
Exactly.
By addressing other other related needs.
Now, a a really crucial point that our that our source emphasizes is that is simply like decoupling a part of the value chain. and and providing some form of value doesn't automatically translate into financial success.
Yeah.
Can you elaborate on on why that is?
Yeah, that's that's a vital piece of the puzzle because while you while you might be solving a real customer painoint through decoupling, right, and even creating, you know, significant value, financial success is is far from guaranteed, right? Entrepreneurs often have to navigate a a complex journey of of building their their business operations, scaling their their reach, and critically figuring out a a sustainable and profitable business model, right? They need to determine how they will capture enough of the value that they're creating, right, to not only cover their costs but also generate a a healthy profit in in the long run, right?
So, so there's there's no automatic link between between providing customer value through decoupling and and building a a thriving profitable enterprise, right?
It it often requires significant experimentation and and adaptation. So it it sounds like having a a great idea for decoupling is just the first step in a much longer and often challenging process. Right
now our our source breaks down the act the actual process of decoupling into like five key steps and they use the example of of pillac to illustrate this. Okay.
Can you walk us through those five steps?
Yeah, absolutely. Pillpack is a is a fantastic case study that that really brings this framework to life.
Okay. So so let's start with with step one, right? Mapping the customer value chain, right?
For for someone like like Pillpack's target customer, right? Right. So someone who who needs to take multiple daily medications, what what did that what did that value chain typically look like?
Yeah. So for for an individual managing, you know, multiple prescriptions.
Yeah.
The the traditional value chain is is quite involved. It can be a real source of frustration. Yeah.
It starts with, you know, going to the doctor, getting diagnosed, and receiving one or more prescriptions.
Yeah.
Then there's there's the trip to the the pharmacy to pick up each medication often at at different times,
right?
The patient then has to, you know, figure out how to organize these pills, right?
Potentially multiple times a day with with specific instructions for each
and then and then of course actually remember to take them at the right times,
right?
And and the ultimate goal, right, feeling better is is often somewhat removed from all of this this logistical complexity.
Yeah, that that sounds incredibly complicated. especially for for someone who might already be dealing with with health issues on top of on top of all of that.
Okay. Step two is is classifying those activities, right,
within the value chain, right?
So, how did how did Pillpack kind of categorize these different things,
right? So, so they categorized each step as as either value creating, value capturing or value eroding.
Okay.
From from the customer's perspective, right? So,
in in this scenario, the the core value creating activities is actually taking the medication as prescribed to to improve one's health.
The value capturing aspects are are paying for the doctor's visits and and purchasing the the medications themselves.
Yep.
Everything else going to the doctor and pharmacy, the complex task of of managing multiple prescriptions and dosages and and remembering the the correct timing for for each pill was was largely classified as value eroding.
Okay.
Right. These are these are necessary steps,
right? To to get the benefit of the medication,
right?
But they don't inherently provide positive value to the customer. They're more like obstacles to overcome,
right? They're they're the hurdles that that you have to do you have to jump through to to get to that actual benefit, right?
So So step three is identifying the the weak link in in this chain.
What did what did PillPac kind of pinpoint as that that key area of of dissatisfaction?
So So PillPac recognized that for for individuals taking multiple medications, particularly older adults or or those with with complex health regimens. The the sheer complexity of of organizing and and consistently remembering to take the correct pills at the correct times was was a a major pain point that that was the the clear weak link in the in the existing value chain.
That Yeah, makes that makes perfect sense. You know, forgetting doses, taking the wrong medication at the wrong time, those are not only like inconvenient, but but could potentially have have some some serious health consequences as well. So So step four is described as kind of like break apart and steal the activity. How how did how did Pillpack actually achieve that?
Yeah. So, PillPacks Pillpack's ingenious solution was to was to create a subscription service.
Okay.
So, so customers could have all of their prescriptions sent directly to PillPac. Pillpack would then handle the the purchasing of the medications, meticulously organize them into
into individual prepackaged doses, clearly labeled with the with the date and time they needed to be taken.
Wow.
And then deliver these these customized packs packs directly to the customer's door on a on a regular basis.
Yeah.
So, so they essentially they they completely took over that that burdensome organization and management task on behalf of the customer.
That's that's that's brilliant. They they completely removed that that central point of of friction for for their target customer. Yeah. And and finally, step five is is understanding and preempting responses, right?
So So what what kind of responses did did Pillpack anticipate from from the existing players in in the market?
Yeah. So, so Pillpack was was keenly aware that that traditional brickandmortaries might not be particularly enthusiastic about about offering a a similar service.
Right.
Right. So, so while they technically could do the same thing, sorting and delivering prepackaged medications, doing so could could significantly reduce instore foot traffic, which is a which is a vital component of of their business model, right? As as it as it drives impulse purchases and and other over-the-c counter sales, right?
So, so Pillpack correctly anticip hated that this this lack of strong competitive response from from the major pharmacy chains would give them a a significant window to to grow their business which ultimately led to their their very successful acquisition by by a major player.
So by by really understanding the the underlying incentives and and potential disincentives of of the established players, right? Yes. Pillac could could kind of anticipate that they might not face, you know, immediate and and aggressive counter moves. sense.
That's that's a really key strategic insight.
Yeah.
Now, our our source emphasizes one of these five steps as being like particularly crucial for for achieving successful disruption through through decoupling. Which which step would you say that is?
Yeah, without a doubt the the most important step is is identifying the weakest link in in the customer value chain. That that specific point that causes the greatest frustration and and dissatisfaction for for customers. This is this is where the most significant opportunities for for truly successful and impactful disruption reside.
Yeah.
And and the example of of the the insurance industry we we mentioned earlier really underscores this, right? The sheer the sheer difficulty customers faced and
trying to to compare, you know, complex insurance policies from from different companies was was a a massive weak link. And that that directly led to the the rise of numerous insure- techch companies specifically focused on making that that comparison process far easier. and more transparent.
That that really resonates. Anyone who's who's ever tried to wade through like pages of insurance policy details knows exactly what that what that pain point feels like. Yeah.
So, what are some of the the key triggers or signals that might indicate like potential opportunities for for decoupling within a given industry or or process?
Yeah. So, so our source highlights highlights a few important triggers to to watch out for.
Firstly, significant shifts in customer behavior whether whether driven by by evolving needs and preferences or the emergence of previously unmet desires can create, you know, openings for decoupling.
Secondly, widespread customer unhappiness or dissatisfaction with existing processes is is a is a very strong indicator. And this unhappiness often boils down to to an activity being being perceived as as too expensive either in terms of
of money or or crucially time taking an unacceptably long time to to complete or or requiring a disproportionate amount of effort from from from the customer. So So the the widespread shift from purchasing physical media like like DVDs to to the instant access and convenience of streaming services, right?
Perfectly illustrates illustrates the the power of of reducing customer effort.
Absolutely right. Who who wants to like drive to a store and and potentially face like late fees when when you can, you know, access this vast library of content instantly from from your couch. Right
now, let's let's touch on a technology that's that's been generating a lot of a lot of buzz and and has the has the potential to really reshape reshape many industries.
Yeah.
Artificial intelligence.
Yeah.
Particularly generative AI.
Yeah.
What what role do you see AI playing in the in the context of of decoupling the the customer value chain?
Yeah. So, so AI, including generative AI, is is undoubtedly a powerful and incredibly versatile tool that that has the potential to to be applied to decoupling in numerous ways, but it's it's really important to remember that that AI at its core is is a general purpose technology, right?
Much much like the internet or even computers themselves were were in their in their early days. So it's it's successful application in in decoupling hinges on on identifying very specific activities within within a a value chain. Yeah. Where AI can genuinely and and significantly reduce cost, time or or effort for for the customer. So there's there's a a real risk of of getting caught up in in the hype and and trying to apply AI for the sake of it without a a deep understanding of of the fundamental customer pain points.
So So it's not just about like throwing AI at a problem and hoping that that something innovative sticks. It needs to be needs to be much more targeted than that.
Exactly. The the most effective and impactful uses of AI and decoupling will will likely emerge in in areas where where customers are already experiencing significant dissatisfaction due to to high costs, lengthy and and incon venient timelines or a substantial amount of of required effort,
right?
So, so if you're if you're considering leveraging AI as a tool for decoupling, the key is to to first pinpoint those those existing weak links in the customer journey and then explore precisely how how AI can be can be strategically deployed to alleviate that that specific pain in a in a meaningful way.
That's a really important caution and and a really great way to kind of think about it. The technology should be driven by by the customer's needs and frustrations, not just by the capabilities of the technology itself.
Precisely.
Well, this is this has been an incredibly insightful discussion. Let's let's quickly kind of recap some of the key takeaways for for you. Right. We've we've explored the the concept of the customer value chain, the critical importance of identifying those weak links that that cause customer frustration and and the three distinct ways that that a value chain can be decoupled by creating new value. you by by eroding undesirable steps and and by fundamentally changing how value is is captured. Right. We've also highlighted the the significance of of focusing on genuine customer dissatisfaction as as the the prime opportunity for for disruption. Yeah.
And and touched on the potential and and also the limitations of of technologies like like AI in in this process
and and hopefully as we've as we've kind of gone through this, you've you've had some of those aha moments. Yeah.
Connecting these principles to the to the successes and perhaps even the struggles of of various businesses you you encounter every day.
Yeah.
You know, this this framework really does provide a a powerful new lens for for analyzing market dynamics and understanding why certain startups manage to to gain traction so quickly by by laser focusing on on very specific customer pain points.
Absolutely. You might you might now be thinking about how how you could apply this this framework to specific industries. you're you're deeply familiar with. Yeah. Or perhaps even pondering the the longer term consequences and and ripple effects of of these these ongoing decoupling trends. Right. Right.