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While there is a lot of hype around the Internet, there is little doubt that it will drive funda- mental shifts in nearly every value chain. Companies across industries and markets are re- evaluating their entire strategy and business proposition as they restructure themselves to com- pete in an arena transformed by e-technology. The Internet has dramatically reduced transaction costs, leading to the disintegra- tion of many traditional value propositions and the de-integra- tion of certain value chains. That trend will likely continue.

The lower costs and instant, convenient communica- tion afforded by the Internet allow the members of a value chain to link much more tightly, producing a more efficient, responsive product/service for the end-customer. Furthermore,

the Internet provides a platform for building entirely new and possibly advantaged business models — both revolutionary new models like eBay, or incre- mental improvements on existing models like Auto-by-Tel.

To succeed in the new e-enabled world, companies need to do four things:

1. Be aware of the way the Internet can and will trans- form your business — unlocking consumer value, reducing cost, or both.

2. Decide what improve- ments can be implemented within your current business model and what requires reinvention.

  • 3.

    Decide how to compete

    • either with an e-enabled ver-

sion of your current business model, or with something com- pletely new and revolutionary.

4. Remember the need for speed and urgency. Internet com- petitors will be sure to remind you if you forget.

Case Study: Online Travel Agents

In looking at the travel space and the complexities of executing transactions within this space, it almost appears as if the Internet were specifically designed to correct the inefficiencies inherent in the travel industry. Consumers and suppliers are, by definition, dispersed. Travel involves moving from someplace you are to someplace you are not. Moreover, the process of researching and buying travel is information-intensive, involving a tremendous amount of data about each component of a trip from a wide variety of sources.

The Internet offers the possibility to reduce or eliminate these research transaction inefficiencies, and new competitors in this space such as Travelocity and Expedia have seized on this opportunity. That is why sales of travel products through online services are expected to quadruple from 1999 to 2003 to $29 billion according to Forrester Research. While this is still only 10% of all travel sold, a fierce battle is expected to occur between travel suppliers and online travel agencies to control a leading share of this market.


alue chain restructuring demands a very deliber- ate, proactive approach and a new set of core capabilities. V

It starts with understanding where and why value is created

  • both in today’s environment

and in the future. The primary targets for capturing sustainable value will have to be defined in terms of the end-consumer’s requirements. Aspects of the value proposition that are critical to the consumer from the point of view of cost, quality, and time- to-market must be distinguished from those that are not.

Additionally, you must make a realistic assessment of the value-added roles of existing partners. Which have unique capabilities that ought to be nur- tured? Which have short-term advantages, such as low labor rates, that can be leveraged today? Which have longer-term advantages that deserve more careful and ongoing support, given your understanding of where your industry and the economy are moving?


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