Unbundling Meaning

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Different sectors, like manufacturing, legal, medical, insurance, etc., follow unbundling. The split help to cater to the needs of different fields with less cost and higher performance because less valuable processes are removed, and most useful parts are retained. But it is a continuous procedure because of unending technological innovation and emerging trends.

Key Takeaways

  • Unbundling of services refers to the method in which different business operations are broken down into parts for better value creation. Major corporations involved in manufacturing, healthcare, technology, legal, insurance, etc., can go for unbundling their business.It helps create value for stakeholders and upgrade the business, capitalization, or innovation at a lower cost. Unbundling is a continuous process because market trends change, and new ideas emerge, which can be used better by adding value to functional processes and eliminating the less useful ones.

Unbundling Business Model Explained

The unbundling procedure refers to splitting different business operations to achieve better results. Unbundling the corporation by selling off a business division, a product, and an asset class demerger or spinning off an existing company into various parts is a continuous process.

Unbundling of services in a company is done with the consent and decision of the board or management. For example, if the management feels that the business is performing up to the desired level, losing market or reputation, in urgent need of funding, or incurring extra costs due to the operation of divisions that are not useful, it may decide to unbundle.

It increases customer satisfaction because there is an improvement in efficiency. It also helps understand how much the business has progressed and its future growth potential, a criterion for analysts to make investment-related decisions.

Unbundling legal services is a growing trend nowadays. Here, the legal advisers or lawyers provide specific legal services related to the case and make necessary documents, which reduces the consultation cost as the client is responsible for the rest of the processes.  

Unbundling exists in the medical field, which results in higher bills. Here, the practice of unbundling codes is prevalent. Billers often use two different Current Procedural Terminology (CPT) codes to split the bill into two parts when the biller should do both billing under the same code. Thus, unbundling codes results in increasing the bill value.

Examples

Some examples will help in understanding the system better.

Example #1

Star Media is a leading media and news agency headquartered in New York City, New York. It previously published newspapers with the latest news updates, which was hugely popular among readers. But with the advent of the internet, its popularity started reducing. People prefer to surf the net to learn about the latest happening across the globe.

Example #2

Example #3

According to a report by McKinsey & Company, even though the financial crisis of 2008 ended and the equity markets in the US boomed, insurers still did not see any significant development.

The effect of opaque risk and external factors remain the same. Significant industry changes, increased competition, technological changes, and investors’ perceptions put insurers at risk. Similarly, modernization is expensive. Thus, it is necessary to go for unbundling the value chain and look for services that will provide a competitive advantage.

Advantages & Disadvantages

Unbundling means separating a complete business process into parts that can cater to the needs of a larger market or increase efficiency and create better value. The advantages and disadvantages of the procedure are mentioned below:

Advantages

  • Create value –   Unbundling helps to create value for consumers of the product, whereas there is no need to create or manufacture anything new.More options to choose from – Customers get more options because now the entire process is divided into parts from where it is possible to choose the most helpful process instead of opting for the entire package. Increase in revenue – The consumers can choose the part of the product or operation they need, and if more consumers opt for it, unbundling leads to an increase in revenue for the company. Less cost – The cost of individual parts of a process is less than the entire package. Unbundling legal services makes them more affordable because clients pay only for a specific service related to a case. Market expansion – The product’s market expands because more consumers purchase the product.Product customization –   To increase profit margin and get more customers, organizations will try to customize the product to meet the demands and needs of the market better. Gain competitive advantage – Organizations gain competitive advantage by removing parts of a business process that no longer add value, which is particularly useful for new entrants and helps them capture the market quickly. Helps in business upgradation –  Unbundling the corporation involves innovation, better staffing, the latest technology, and research, which leads to business upgradation.

Disadvantages

  • Lots of parties involved –  Since one process is being broken down into many parts, many parties are getting involved. The expense related to research –    Expense increases due to added research and separating business into smaller units. Customer preference change –    Customer preferences keep changing frequently. Therefore, the value addition made today due to the split up may go down after a few months or years. Lack of name recognition – Since parts of the business are separated, there is a lack of name recognition by customers. Therefore, maintaining the brand name is crucial for any company to survive in the market.

Unbundling vs Bundling

Unbundling separates different business lines from the entire value chain to increase efficiency and gain better market access. In contrast, bundling is a series of value-added services grouped as a single unit or package. Let us look at the difference between the two.

This article has been a guide to Unbundling & its meaning. We explain it with examples, advantages & disadvantages, and compare it with bundling. You can learn more about it from the following articles –

Sometimes, two medical procedures that should be billed under the same CPT code are billed separately. This increase the bill value, which is illegal at the healthcare system’s cost.

In the case of a local loop, an extensive broadband network is connected to customers’ homes. Various service providers physically lay down wire connections. Previously the local exchange carriers had a monopoly, but now many small providers have this access to increase competition.  

Unbundling charges refer to the extra charges incurred due to the separation of a procedure from the entire block of the value chain. For example, different procedures that should be billed separately are clubbed together in the medical field, thus increasing the charges.

An insurance policy is unbundled when the various parts of the product are purchased from different insurance companies or carriers. The risk funding and claims are handled separately. The carrier arranges the coverage and a TPA, a separate entity, handles the claim. In life insurance, along with the claim, there is an investment option. In case of the policyholder’s death, the beneficiary gets both.

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