What’s really driving disruption? (Hint: it’s not technology)

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Photo: Birchbox
Apr 25, 2019
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Knowledge@Wharton

Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

The emergence of a new technology is often cited as what drives the disruption of an industry or business. But that’s not true in most cases, according to Harvard Business School professor Thales Teixeira.

“In the vast majority of the cases, these startups have the same technologies as the incumbents that they are fighting,” Prof. Teixeira told Knowledge@Wharton show on SiriusXM.

Instead, startups disrupt established companies by decoupling the customer value chain — picking one aspect of the business and doing it better than the incumbent.

His findings, based on eight years of researching startups, tech companies and incumbents, are explained in his new book, “Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption.”

He states, “The key point of decoupling is not to replicate what established players do; it is to find something that consumers are very unsatisfied with. If you offer something better, you will steal away customers. The way that you do that is by reducing one of three costs: reducing monetary, reducing effort and reducing time costs. The way to do that is you use business models and technologies.”

For instance, online subscription services such as Birchbox focused on convenience as the weak link in the beauty buying experience in delivering samples to homes.

“That was the disrupting force,” said Prof. Teixeira. “It wasn’t that Birchbox had a website, it wasn’t that Birchbox had the ability to put samples in a box and ship it to your house. This is trivial; all companies can do that. It was actually this reduction in [convenience] cost.”

Still, the key finding is that it is the customer who is driving the disruption, and disruption in one industry spreads to changes in others.

”What we noticed through the data is people who start buying on Amazon, using an Amazon app, are more likely to sign up for Uber versus those who don’t buy frequently on Amazon. And those who are buying on Amazon and using Uber are more likely to sign up for Airbnb and start using Airbnb. And when they use these three apps, they are even more likely to use Birchbox and Trove and Venmo,” said Prof. Teixeira.

DISCUSSION QUESTIONS: Do you agree that addressing weak links in the customer value chain has been a bigger disruptor in retail than new technologies? In what ways are established retailers and brands still failing to understand and react to disruption?

Please practice The RetailWire Golden Rule when submitting your comments.
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"I agree — smart people at Birchbox, Uber, Airbnb, etc. aspired to disrupt simple experiential everyday human problems, leveraging the then-new digital environment."
"At the end of the day it doesn’t matter where you buy; consumers want a good selection of product that’s displayed well and is easy to shop. "
"I will venture that it WAS technology that brought about disruption in the market. Not the tech applied in the retail environment, but the tech advances made in non-commerce."

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28 Comments on "What’s really driving disruption? (Hint: it’s not technology)"


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Phil Masiello
BrainTrust

I absolutely agree that the biggest disruptors are finding gaps in the customer value chain. Retailers and established brands are very slow to react because they think they are invincible. Gillette is a case in point. When they do finally react it is with a bit of arrogance and tends to insult their core customers. They start dropping prices and increasing their promotional activity, rather than addressing the core issues with connecting to their customers.

At the end of the day, retailers and brands fail to spend enough time understanding their customers. Which opens the door for those that do.

Art Suriano
BrainTrust

The way any business succeeds is being different and better than their competitors. Find that one thing or several things you can do better than your competition, promote those benefits and build your brand based on them. Failing businesses are quick to find blame, saying things such as “we can’t compete with their technology.” In reality, if you understand your customer and what they want you should be able to adapt your business to match their needs. Too many companies are narrow-minded and don’t keep their businesses fresh and ahead of competitors. Then when the new player comes on the block offering services and conveniences they make excuses like “the new company has better technology.”

Being different and being better is all that matters, no matter what your business is. The adage, “the customer comes first” still exists today and if you are taking care of your customers and satisfying them, you’ll always be successful.

Shep Hyken
BrainTrust

Professor Teixeira nails it. It’s not technology that disrupts. It’s an easier, better, simpler and more convenient experience. It is now expected that a retailer sell quality products (based on the price the customer is paying) and provide a good customer service experience. That’s table stakes. The smart companies recognize that adding convenience takes the experience to the next level. Find what friction the competition causes its customers and eliminate it.

Chris Petersen, PhD.
BrainTrust

Customers have always been the great disruptors. They always will be. In this age of unlimited choices, retailers must work harder than ever to remain relevant. Today’s customers are no longer satisfied with mass merchandising. They are looking for personalization at every level of their shopping journey from search, to purchase, to services post sale. Future retail success will not be measured by sales today, but rather by life time value of customer relationships. To achieve that is a moving target of creating and maintaining relevancy in the eyes of the customer.

Brandon Rael
BrainTrust

The flashiest and most innovative technologies certainly get all the attention, as well as the hype. However, as the Wharton article shares, technology is simply an enabler to help enhance the overall customer experience, not the reason why customers will do business with you. The bottom line is that the market forces and the customers are the most significant disruptors. They are now empowered, connected and informed. It’s up to the retailers and brands to keep pace with them.

The overwhelming narrative is that customers want a “seamless” and “frictionless” experience, powered by technology. In some shopping segments, particularly convenience and repeat buys this makes sense. It’s not about the technology in the other more experiential and lifestyle segments. The overall experience and how the brands interact and meet the customers expectations matter more than any technological innovation.

Bob Amster
BrainTrust

The disruption has been what and how much retailers have agreed they will do for the customer. This is in sharp contrast to Henry Ford’s alleged statement that “You can have it [the car] in any color you want, as long as it’s black.”

Neil Saunders
BrainTrust

I completely agree with this. The technology is an enabler but it doesn’t disrupt without someone applying it properly and turning it into a solution for consumers. All of the big chains have access to the hot technologies of the day, but very few of them know how to apply them in a way that disrupts. And some don’t want to disrupt their existing business models, which is why they fall behind.

Georganne Bender
BrainTrust

We do a lot of consumer focus groups and I have never heard anyone say they chose a particular retailer over another because of technology. Professor Teixeira is right on when he says, “Make it better and you’ll steal away customers.”

Convenience and customer service are frequent topics of conversation on RetailWire, both are hot topics with consumers as well. At the end of the day it doesn’t matter where you buy; consumers want a good selection of product that’s displayed well and is easy to shop. They want to work with pleasant associates who know their stuff. Technology or no technology, it will always be about the customer experience.

Ricardo Belmar
BrainTrust
The customer is the disruptor. Technology is merely the enabler. Companies that realize this, and target the customer experience, be it convenience, price, or something else that fuels a pain point for the customer are the ones that disrupt the incumbents. It’s too easy for established brands to be fooled by their own success and market share into thinking they are immune to disruption. Just because customers buy from you repeatedly today doesn’t mean you can’t be disrupted tomorrow! We’ve seen so many examples with mattresses, shaving clubs, etc. Another key point is realizing you can be disrupted by adjacent markets, too. There is a reason we now talk about an “Uber experience” when discussing ease of use situations in retail. Uber’s app showed consumers how easy it could be to buy something with an app and not even have to think about payment. It just works, it works well, and customers enjoy it. That same experience is what consumers want to be replicated everywhere now. And we see retail startups doing this to established… Read more »
Rich Kizer
BrainTrust

Spot on. It has been, and always will be the key strategy in retail: differentiate and be unique, based on consumer desires. “Listen to the customer, they’re smarter than you.” There is always going to be a better way or more convenient, etc., and the winners are the ones with open eyes and nerves to change. There is always room at the top, just not enough room to sit.

Jeff Sward
BrainTrust

Sounds to me like the article is describing competition and customer expectations. Identifying market voids and opportunities. Evaluating strengths and weaknesses. Building a better mousetrap. Executing faster, cheaper, and these days with more transparency. One player puts forward a new tactic and very quickly resets the bar for the rest of the market. Customers very quickly expect/demand the same or better from the rest of the players. Competition keeps everybody on their toes.

Zach Zalowitz
BrainTrust

I love this question. The answer is in the commonality between the three apps referenced at the end of the post: Uber, Amazon and Airbnb. The thread between all three is two things. Convenience and choice. Two of them tap under-utilized assets and all three were competing in already competitive markets.

The technology wasn’t the answer for any of the three. In fact, their apps sucked at the beginning (Airbnb had crap images and Uber used to be a texting conduit between you and a black-coated driver) and some may disagree with me, but the Amazon shopping experience online is still a terrible UX.

Attacking the weak links is definitely the bigger disruptor because the experience is more than just digital. The experience at the core is a human emotional reaction and the strongest way to invoke that is a connection through shared experience. Technology as a primary driver can’t get that level of connection.

Bethany Allee
BrainTrust

Addressing weak links in the customer value chain is a bigger concept than new technologies, so of course it is a bigger disruptor. The ways retailers and brands are still failing to understand and react to disruption – I think they are reacting. They’re also prioritizing.

Overhauling a business to maximize the entire customer value chain takes resources and it is rarely the type of change that can happen overnight. Convenience and security are major value focus areas right now. Retailers and brands who look to address these two items are focusing on the right items for this moment in time.

Cynthia Holcomb
BrainTrust

I agree — smart people at Birchbox, Uber, Airbnb, etc. aspired to disrupt simple experiential everyday human problems, leveraging the then-new digital environment. Retailers and brands failed in most cases to have the foresight to understand the disruptive implications of how digital would disrupt the customer value chain. Playing catch up is a very noisy place for retailers. Bombarded for years now by “new” technology after “new” technology, most retailers and brands still lack digital curiosity. 20+ years in, the retail carnage is evident. As Professor Teixeria states “In the vast majority of the cases, these startups have the same technologies as the incumbents that they are fighting.” There seems to be no evidence or guidance or demonstrated loss able to boost a retailer’s head into the digital world of human-based retail technology solutions. Meanwhile, the beat goes on. And on…

Lee Kent
BrainTrust

Somewhere along the way, consumers lost their loyalty. Maybe it all started when they no longer had to go into a store to shop. They lost the personal and started focusing on other things. Identifying those other things and doing them right is what is turning the tables. Retailers now need to begin by looking at the customer journey(s) and finding ways to deliver along the path. Perhaps even offer a different path that moves the customer toward the purchase with ease, no frustration all while having a great experience. For my 2 cents.

Oliver Guy
BrainTrust

I agree – for me a disruptor is an organization that solves a problem, or perceived problem, along the customer journey.

This may be that it creates a new business model (omnichannel retail was a new business model – as is subscription retail). Combine this with changing customer/consumer behavior and technology — both from the consumer and corporate perspective — and you have the three key interconnected forces that companies in all industries need to understand as they are driving the changes.

Ralph Jacobson
BrainTrust

Just look at the most visible disruptors in any industry. The largest hospitality company doesn’t own any properties. The largest taxi service doesn’t own any cars, etc. For retail, it’s the same situation. Look at the weakest link and fix it. Look at your own organization. Are you REALLY operating any differently than you did 20 or more years ago? Grocers: Do you really still build brand new stores with dry goods in the center and fresh foods around the perimeter?! That’s been the case for more than 75 years. ADAPT or PERISH.

Jasmine Glasheen
BrainTrust

It’s interesting that once a consumer begins to interact with disrupters in one category, they’re more likely to interact with disrupters in other industries.

Unfortunately, more than a few legacy brands are still seeing disruption as a trend, instead of a new standard.

But as more young consumers come into their own and mature consumers open up to trying new retail models, consumers are going to expect brands to creatively problem solve to meet their needs.

Bureaucratic red tape can be a huge setback to a brand’s ability to pivot quickly enough to be known as a disrupter in their industry.

Michael Decker
BrainTrust

This one’s easy — e-commerce (Amazon) quickly and quite suddenly made the retail customer the boss. That’s what alternatives do: they shift power via new competition and choice. Before e-commerce, the customer was beholden to the retailer and the retail brand regardless of basic mainstays like customer service and product selection. Retailers got lazy and developed weak links that never had to be addressed.

Technology often makes the efficient exploitation of these weaknesses possible — but it is the customer-led solution that ultimately disrupts the status quo and wins the day.

So yes — physical retail got disrupted because the customer suddenly became the boss and demanded better service, better selection, better personalization and an overall better retail experience (what we call the in-store shopper moment®). And now brick-and-mortar retail is FINALLY responding.

Ken Wyker
Guest

The fact that it requires a Harvard Business School professor to point out that it is about the customer and not technology is reflective of the problem. In response to all of the disruption that has occurred, retailers and brands now seem to chase the latest technology to avoid being left behind, but they forget about the customer.

The best disruption does not come from crazy new technology ideas, it comes from someone genuinely embracing a customer issue and figuring out a way (often using technology) to make things better for the customer.

In solving a problem for the customer, the disruptor creates an emotional connection that the old provider can’t compete with. Even matching the new technology won’t win back the customer’s business.

Ken Morris
BrainTrust

Understanding consumer behaviors and attitudes is the key to identifying new or different retail approaches that resonate with consumers. For example the “IKEA effect” that explains the cognitive bias of consumers for products or processes where they invest their time and effort. When consumers spend time assembling a product, they feel more invested in the product with a sense of ownership and have a more personal attachment to the brand. IKEA has been benefiting from this approach for years and back in the 1950s when Betty Crocker switched from dry eggs included in the cake mix to having consumers add fresh eggs, it made consumers feel better about baking a cake because they felt like it was “real baking.”

Finding ways to connect with consumers’ emotions will likely lead to enhanced connection with your brand.

Richard J. George, Ph.D.
BrainTrust

I always remind myself that customers only buy two things: good feelings and/or solutions to problems. All of the technological advances have satisfied one or both of these buying reasons. The key is to figure out which of these two factors is the one that a company or brand is not addressing as best as it could, from the customer’s perspective. Therein lies an opportunity.

Cate Trotter
BrainTrust

Absolutely. Tech on its own is not enough. Tech for tech’s sake means nothing. It’s about using tech to provide increased convenience or value to customers. Think about how Uber disrupted the taxi business. It offered a more convenient/simple option. Whether we actually are busier than in the past is up for debate, but certainly we all feel more time poor. Therefore we are looking for brands to make our lives easier.

Unfortunately a lot of brands aren’t good at identifying the weak points in their business, or how they could add more value to customers’ lives. Then someone else comes along and pulls the rug out from under them — often with a simple application. It all comes back to really knowing your customer. Easy to say, but apparently harder for a lot of brands to do.

Paco Underhill
BrainTrust

What made a good store in 2000 and what makes a good one in 2019 are different. Retail is the dipstick of social change. The bigger the merchant, the greater the challenge to keep up with that evolution. Historically, American retail as been about birth, life, death and compost. We got a lot compost and more coming. I agree, tech is a byproduct of social change, not necessarily a driver — keep your eye on what your female customers are doing….

Sterling Hawkins
BrainTrust

100% — innovation + disruption has very little to do with technology and everything to do with our thinking (decoupling or otherwise). It’s why Steve Jobs could take an invention from Xerox 20 years prior and create the personal computer industry. Or why RC vehicles were my favorite as a kid, but today we call them drones and they’re doing everything from delivery to military duty. Technology is the enabler and sometimes the result — not the disruptor in and of themselves.

The biggest missing amongst retailers and brands today is an innovation culture, a group of people that can cultivate new ideas and perspectives beyond the status quo — and execute on them. Labs, innovation groups, etc. can help, but they tend to be siloed. What we can do is bring that kind of “startup” thinking, self starting and exponential aims into the entire organization. Is it confronting? Maybe … Does it work? Definitely.

Steve Dennis
BrainTrust

Technology may be the vehicle, but it is not the destination. And there are many ways to be disruptive and not all involve technology. The destination (and our work) is to deliver a more remarkable customer experience, and one of the ways brands get there is to dissect the customer journey (or value chain) and understand the opportunities to eliminate friction, achieve table stakes and amplify the wow.

The retailers that are stuck in the boring middle, in my experience, typically don’t do the human-centered design work to unlock their weak links and focus on being more remarkable and/or they are afraid to experiment.

The other problem is they often throw technology at a problem, rather than design the solution and find the technology that is the most effective and efficient.

Ananda Chakravarty
BrainTrust

So many folks are saying “it’s the customer” that drives disruption. Yes, but how did it get to that point in the first place? Are we saying that 30 years ago the customer was NOT the key factor in retail success? Michael Decker touched on this earlier. I will venture that it WAS technology that brought about disruption in the market. Not the tech applied in the retail environment, but the tech advances made in non-commerce areas — internet, mobile phones, social media, etc. Matter of fact, it’s technology that has empowered customers to know more, access more, and have more information in their pockets than anything else. Today’s disruptive changes are direct consequences of yesterday’s innovations and most important — they are interrelated.

Rajul Agarwal
Guest
3 months 21 days ago

While retail is being disrupted by technology, it is being transformed by the expectations of you and me as customers. Expectations to have differentiated experiences every time, everywhere across touchpoints.

wpDiscuz
Braintrust
"I agree — smart people at Birchbox, Uber, Airbnb, etc. aspired to disrupt simple experiential everyday human problems, leveraging the then-new digital environment."
"At the end of the day it doesn’t matter where you buy; consumers want a good selection of product that’s displayed well and is easy to shop. "
"I will venture that it WAS technology that brought about disruption in the market. Not the tech applied in the retail environment, but the tech advances made in non-commerce."

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