But it is not the apocalypse. It will not wipe out all that came before. Indeed, there is every rea- son to believe that, in most cases, it is the established market lead- ers who will ultimately extract the greatest value from the Internet — but only if they lever- age this new technology judi- ciously to restructure their value chains and create real value for the customer, while capturing real value for themselves.
That means reaching beyond “efficiency” improve- ments and seizing “effectiveness” opportunities. That means looking beyond a few steps in the value chain and assessing the entire value chain, not just from a com- pany perspective, but from an industry-wide and even cross- industry perspective. That means anticipating where customer needs will be tomorrow and adapting operations today to sup- ply the greatest value against that emerging demand. Then — and only then — can companies get past the hype and capture the full value of “e.”
An Old Perspective, Just a Wider Lens
estructuring the value chain is hardly a new concept. The past two decades have seen billions spent on software, hardware, and con- sulting expertise, all aimed at extracting extra value from the so-called value chain. Whether the investment was in MRP, ERP, or “reengineering,” the results were all too often unimpressive. R
And then there was “e.” With alarming speed, the Web has infiltrated traditional value chains, opening up supply net- works, production processes, and distribution systems to new e- enabled competitors that have unlocked trapped value. These “virtual” companies have approached value chain restruc- turing with two key advantages: 1) an outsider’s detachment about how to create value, and 2) none of the traditional cost struc- tures of entrenched players.
Take Priceline.com as an example. It stepped into a void in the travel industry’s value chain, creating a new, unbranded chan- nel for airlines and hotels to sell distressed inventory. No airline on its own could risk doing the same, since it might cannibalize current sales and erode its pric- ing structure. By consolidating
What Is a Value Chain?
A value chain is the sequence of all the activities needed to envision, create, engineer, produce, distrib- ute, market, and sell a set of related products or services. The value perceived by the end-consumer of the product or service is derived in part from each step in the chain, although not all steps create the same amount of value or deliver the same profit potential.
Each step in the chain requires distinct assets and capabil- ities. Hence, a given chain includes many different types of businesses (e.g., R&D-oriented companies, product developers and marketers, component suppliers, contract man- ufacturers, distributors, retailers).
this distressed inventory at an industry level, offering a new and different product (e.g., uncertain flight times and routings), and operating in the economically advantaged environment of the Internet, Priceline.com unlocked substantial trapped value, and provoked a competitive response from the airlines and hotel chains.
Priceline’s example — and the dot.com experience, ingeneral
has furnished valuable
insights on the likely path value