Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part III

This is the third of four installments of our conversation with Thales S. Teixeira, Lumry Family Associate Professor at Harvard Business School. In the previous installment, Teixeria explained how BestBuy approached the issue of “showrooming.” Readers can find information on his book at  

To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part II, click here.
To read Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part I, click here.

To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part IV, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part III, click here.

To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part II, click here.
To listen to [Podcast] Technology Didn’t Disrupt Your Industry: Q&A with Thales S. Teixeira, Part I, click here.

BestBuy also changed a lot of their instore procedures. They added more services, particularly consulting, because people don’t know how to use their DVD player or their virtual router. They were adapting internally, looked at that disruption, and realized the true opportunity is the service, the expectation. They changed some of their practices, didn’t they, to be more customer centric?
Yes, one of the biggest customer-centric practices was actually not giving commissions to sales people, because then sales people are freely allowed to say what they think and try to help consumers. But initially BestBuy said, “What can we offer that Amazon cannot offer?” and based what they can offer off of that, value-added services. Amazon is an online company and can’t offer that.
Well, that’s not true anymore. Amazon offers installation and all sorts of services which are actually executed by local partners. So that in itself didn’t do the trick. The realization that BestBuy had two customers—they had one customer who is called the consumer, the shopper, and the other customer was their suppliers and manufacturers. Samsung is their customer, but they weren’t charging Samsung for certain activities.
Now, I talked to the CEO of BestBuy, and he was telling me they’re going even further. They’re trying to convince electronics manufacturers that they can do a better job at R&D than the manufacturers, that they have the data to tell the manufacturers what new televisions, for example, to make for the next year, because they’re closer to the customers. They’re trying to even, kind of, so to speak, enforce R&D and consumer research from the manufacturers. They said, “Look you guys don’t know what you’re doing, because you launched 50 brands of TVs, 80 brands of stereos every year, 20 brands of laptop computers, 20 models, and quite a few of them are duds, and so you don’t know what you’re doing. We know better and we’ll help you decide what to build for next year.” Now, they’re trying to capture that additional value-added activity.
I think the broader point is that companies are experimenting, both startups and [established] companies. The challenge of being an executive today is looking at a market, for example, the retail market, and looking what’s going on and imagining that all of those attempts and experiments are actual good ideas and sustainable ideas. You have to make sure that once you go to New York City, Manhattan, and you see all these various different types of store formats and features and elements—quite a few of them are not going to survive. They are experimenting. You want to be careful what you benchmark against and what you think is going to work. Quite a few of them have been shown not to work and experimentation is in full force. 
But experimentation is good, right?
Yeah, it’s good, but it’s different from looking at sustainable industries and saying, well, “If I’m an oil producer or refinery, I can go look at Shell and BP and know how they do it. I can just mimic and do that as well.” When you’re in retailing or some other highly transitional industry, like re-saling, you can’t just go look out what others are doing and say, “Let’s do that as well” because that’s going to make the difference. There’s a lot of experimentation and a lot of things are up in the air as we speak. Both in the startup as well as the large established business sector.
So, what can brands do then? How do they create unique engagement with their customers? How do they navigate this very disruptive time?
The first thing to be done is to understand what your customers are doing in order to acquire their goods and services, the steps they require to do so. For example, the consumer of BestBuy that is looking to buy a television—there’s many steps that they need to do. Some people call it “customer journey”; I call it “the customer value chain.” I’ll briefly explain why.
Basically, it entails figuring out—you’re a customer, you have a need, go to a store, look at all the options, compare a ton of features, eliminate some other ones, choose one, pay for it, get it delivered, use it, dispose of it. It doesn’t finish when you sell a product. You have to go all the way in all the stages and activities that customers are required to do in order to acquire, use, and dispose of goods and services. You map out all these activities, and then you have to classify these activities. And the classification entails figuring out, for each activity, is it a value-creating activity, a value-charging activity, or a value-eroding activity? No matter what you’re selling, what business you are—if you’re selling to an individual, to a business, to the government—whatever you sell, all of these activities can be one of these three.
For example, comparing options and testing a TV is a value-creating activity for me, as is, obviously, using the TV. A value-changing activity in the case of BestBuy would be paying for the TV and paying for the delivery. A value-eroding activity might be just going to the store. That’s when the activity doesn’t benefit me or the retailer. Another one is disposing of the TV. It’s a value-eroding activity. If I go to a store, or every time I go to a hotel, fill out my personal information, these activities are value-eroding. So, after you’ve classified, identified, and mapped out all the customer’s value chain and mapped out all the activities into value-creating, capturing, eroding, you can figure out where you can actually increase value-creating activities, reduce value-capturing activities, and eliminate value-eroding activities. That’s where you will find the opportunities to actually deliver more value for your customer.
There’s a million things that you can do, but all of them will be either a value-creating/increasing, value-creating/eliminating, value-eroding, or reducing value-capture activity. This is the process that I go through with large businesses to identify these points, because you want to acquire more customers through one of these three strategies. If you want to retain customers, do one of these three strategies. If you want to steal customers from competitors, do one of these three strategies much better. If you want to get loyal customers, and so on and forth. That’s sort of the process to go about.
What startups are trying to do is, they’re not trying to steal customers anymore from big companies. Amazon did not want to try to fully steal the customer from BestBuy. Amazon only wanted the customer to buy the product on Amazon. Amazon essentially wanted people to go to the stores, to go to BestBuy, evaluate, talk to the sales people. “We don’t have the sales people, we don’t have the stores at this time. We just want you to pull out your phone and buy online with us.”
So, the big change that I’ve observed from the past is that companies would try to steal customers from each other. Coca-Cola would create a new product to steal from Pepsi. Ford would create a new product and steal from GM. Now startups are trying to steal customer activities which is not the same as stealing a customer. They leave many of the activities to be done by the established company, but all they’re trying to do is to steal one or a few customer activities. This process is what I call “de-coupling.” 
What do you think is the biggest challenge brands face in decoupling or adding value or whatever it may be? Disruption? Where should brands go?
So, a few things. One is stop focusing on your competitors and focus on your customers. Redirect that focus of attention away from competitors and what they’re doing and mimicking them and overcoming them and focus on the customers. Number two, redirect away from technologies. Technologies are not what’s disrupting you, and technology is not what’s going to save you. Technology is important, but it’s a secondary or tertiary issue after you understand, “What do you want to deliver of value for your customer, and what is valuable to your customer?”
There is no way out of it. You have to go there and figure it out. You need to figure out what your customers value and why, and then how to deliver that. Mapping out the customer value chain will help executives in any business do that, because the customer value chain is where the battle for consumer attention is playing out to be. The startups are stealing customer activity. That is where the battle is and that’s where you need to really focus on and understand it. Then, go in depth and understand how to create more value and how to reduce value-capture activities and how to eliminate value-eroding activities. And then, once you know what you need to do on behalf of customers, you need to figure out—and this is very challenging—you need to figure out how to evolve your business model to make sure that you can deliver on that, and at the same time, be sustainable, profitable, or have all of your financial requirements in place.
That is the big challenge, and there is no simple formula to both create value for your customers as well as capture significant portion so that you’ll be a profitable business. Many businesses might not be right now paying for news or something that is up in the air. People are debating whether it is possible or not, and that’s an example. But I’d say that’s the approach.

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