Digital Disciplines. Wiersema Fred

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focus on one area, and leverage other companies that have expertise in the others.

      Hagel and Singer used slightly different terminology than Treacy and Wiersema, because they were focused on organizational entities rather than value disciplines – that is, strategies that deliver differentiated customer value. Thus, they argued for the separation of the customer relationship management business, which would appear to typically require a customer intimacy strategy; the product innovation business, which would presumably require a product leadership strategy; and the infrastructure management business, which would obviously benefit from operational excellence.

      Hagel and Singer argued that the culture and competitive mandates for each business are often different. For example, they said that the customer relationship management business should have a culture of customer focus and service orientation. They argued that the product business should have a culture of innovation, rewarding creativity, and collaboration. The infrastructure business, in their view, should have a culture focused on cost, efficiency, and standardization.

      Hagel and Singer argued that companies should not only choose which of these three to embrace as core strategy, but that they actually should split into three separate companies: one company per discipline, as it were. The customer relationship management business can achieve benefits through economies of scope – gaining a large fraction of wallet share by selling not only traditional products but those from partners. The product innovation business can achieve strategic advantage through speed. And the infrastructure management business should focus on economies of scale.

      This is the exact opposite of the philosophy of a highly vertically integrated organization of a century ago – say, with Ford and automobile manufacturing, or Hollywood movie studios, which integrated production and distribution via company-owned theaters, or AT&T, which had a captive manufacturing unit, Western Electric, as well as owning its distribution business, the operating companies such as New York Telephone.

      Representing the unbundled approach, consider Coca-Cola. Partly of necessity borne of the limited assets of its founder, it had a highly unbundled business from the very start. Most of Coca-Cola is water, which was acquired by soda fountain operators from municipal water infrastructure. When Coke became a bottled drink, it was independent bottlers who invested in bottling plants and machinery, and trucks and drivers for physical delivery to stores and restaurants, which were someone else's investment. And, in terms of materials such as sugar and corn syrup, these were not produced in Coca-Cola facilities, but were commodities bought from other firms, such as Monsanto and Cargill.49

      As another example, consider Apple's iPhone. Apple itself is focused on product design and innovation. It does not own infrastructure such as manufacturing facilities; manufacturing is outsourced to Hon Hai Precision Industries, better known as Foxconn. And, although its retail stores are masterpieces of architecture and merchandising, in one recent quarter, only 15 percent of US iPhones were sold in the company stores. About 70 percent of the phones are sold through the four major carriers and another 10 percent at Best Buy.50

      Or, consider a different Apple business, apps, which now generate $15 billion annually. Here, the product innovation business has almost completely been separated from the main corporation and given to app developers such as Rovio (Angry Birds), King Digital Entertainment (Candy Crush), and even a direct rival: Microsoft (Office). Although there are a number of Apple apps, such as Keynote for presentations and the Safari browser, product innovation for apps has mostly been outsourced to other businesses, while Apple retains customer relationship management through the hardware, the Apple App Store, Apple ID, and, of course, payments.

      Information technology enables the unbundled corporation as never before. The App Store enables unbundled product innovation pure-plays to often thrive without any end-customer relationships, only a relationship with Apple. Uber, a “ridesharing” service, is arguably mostly a customer relationship app. Uber connects people who would need a ride somewhere with drivers that have vehicles, not unlike a taxi company. The infrastructure – drivers and their vehicles, but also roads, tunnels, and bridges, and cell phone towers and networks – is not owned or operated by Uber. Yet asset-less Uber recently had a valuation of $40 billion.51

      The rationale for the unbundled corporation argument reverses a nearly century-old insight from economist Ronald Coase. He asked a deceptively simple question regarding why firms should exist. After all, it is not unheard of for individuals to band together to achieve a common goal, say, raising a barn, without formally incorporating.

      Coase argued that firms exist as a way of minimizing certain kinds of costs. After all, in a loosely coupled network of individuals, there are costs not found in a standing corporate organization. These include costs such as those required to identify personnel with the right skills (search costs) and those to then contract for tasks (transaction costs). A company with a stable organization of employees could be more efficient over time than an ad hoc collection of individuals.

      Hagel and Singer, though, said that information technologies reduce the need for such integration, enabling firms to be smaller yet still interact efficiently with those in complementary businesses. Consequently, firms could be smaller and more focused. Thus, they argued that an integrated firm could actually subdivide or unbundle into smaller firms focused on either operational excellence of their infrastructure, product leadership through innovation, or intimate customer relationships.

      The bottom line: Whether or not a company does unbundle, it is important to understand the locus of strategic focus: operations, products, or relationships.

      Business Model Generation

      In Business Model Generation, Alexander Osterwalder and Yves Pigneur created what they call the business model canvas, which provides a high-level framework for specifying various choices to configure or restructure businesses. In their approach, they divide firm choices into nine major areas.52

      The first three areas are activities (i.e., processes), partners, and resources (i.e., assets), which Hagel and Singer would presumably refer to as infrastructure; the relevance to operational excellence is clear.

      Value propositions are another major category. As usual, the intent is to consider the benefit provided to the customer. It can be quantitative – say, a 10 percent reduction in heating bills – or qualitative – say, a not-to-be-missed entertainment experience. Since the value proposition is generated by the total product/service, including tangible and intangible elements, it's an area where product leadership or product innovation is essential.

      Next, there are three areas of customer interaction: customer segments, customer relationships, and channels. The channels category includes communication such as marketing and advertising, distribution, and sales. Hagel and Singer would presumably consider these three areas in total to be customer relationship management, and Treacy and Wiersema would likely consider customer intimacy to be the relevant value discipline.

      In addition, they delineate the underlying cost structure and revenue streams associated with these, which are areas for development of unique business and pricing models, such as, say, the “razor and razor blade” approach where the razors are low margin but the blades are highly profitable.

      Each of the nine areas has a number of different options, and the total configuration of these options defines a business model. For example, customer segments might include the mass market, niche markets such as wealthy Brazilian expatriates with teenage children living in Ohio, or a diversified approach comprising multiple unrelated segments. Revenue streams might be based on physical product sales, delivery and ownership, or on a rental model, or

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