With alarming speed, the Web has infiltrated traditional value chains, opening up supply networks, production processes, and distribution systems to new e-enabled competitors that have unlocked trapped value. These new economy companies have considered the entire value chain, not just several steps or one company’s role in it. They have taken an industry, even a cross- industry, view on how value is delivered to the customer. They also have pioneered ways to optimize the efficiency as well as the effectiveness of the process to generate incremental value. In so doing, they have sometimes spurred the development of new and better business models that offer greater customer solutions, relentlessly lower costs, and accelerate marketplace actions and reactions.
But while these start-ups may have unlocked considerable latent value, it is not at all certain they will capture it in the long run. Rather, it is the established companies with longstanding mar- ket presence that ultimately should succeed in extracting the greatest value from the Internet. However, while the established companies have an advantaged position, they are struggling to truly leverage new technology judiciously to restructure their value chains in a way that creates real value for the customer, while capturing real value for themselves.
It is our strong belief that value chain restructuring is no longer a luxury; it is a necessity for most industry players. However, the approach cannot be “everyone out for a pass”— or funding every initiative labeled with an “e.” Established players must continue to be guided by sound economic fundamentals, but must now apply those fundamentals in an e-world. The issue is whether you drive the change and capture the benefits…or whether you’re taken for a ride.
Drivers become the center of gravity in their respective value chains by determining specifi- cally where and how value is created and positioning themselves to control it. In this Viewpoint, we detail how your company can become a driver by adopting and applying five key principles:
Understand Consumer Value
Maximize the “Surplus” in Your Chain
“Pick Your Spots” and Capture the Value
“Look Both Ways” in the Value Chain
Embrace e-Enabled Opportunities
To unlock the tremendous trapped value in today’s value chains, companies need to direct their focus not only internally, but also externally. In addition to restructuring their own supply net- work, they must make concerted efforts to address the gaps and inefficiencies that exist in their industry’s value chain. They must give suppliers the assets, insights, and freedom to innovate, and they must ally with rivals, when and where appropriate, to deliver true customer solutions.
©2001 Booz•Allen & Hamilton Inc.