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chain restructuring will take in the e-Economy. First, it is impor- tant to note the broader perspec- tive that the dot.coms and other new-form competitors have brought to the marketplace. In assessing opportunities to trans- form business models, they have considered the entire value chain, not just several steps or one com- pany’s role in it. They have taken an industry-wide, even a cross- industry view on how value is delivered to the customer, and have pioneered ways to optimize not only the efficiency of the process, but its effectiveness, thus generating incremental value. In so doing, they have spurred the development of new and better business models that:

  • Offer greater customer solutions;

  • Relentlessly lower costs through improved return on assets; and

  • Accelerate marketplace actions and reactions.

But while these upstart start-ups may have unlocked considerable latent value, it is not at all certain they will cap- ture it in the long run, as the stock market is beginning to real- ize. In generating their early wins, these small companies have roused the sleeping giants

in their respective marketplaces, those who have exercised historic dominance, or at least influence, over the industry’s value chain. While new online players have managed to optimize certain links in industry value chains, it is the established companies with longstanding market presence that should ultimately succeed in reinventing those value chains, unleashing their own ability to innovate while reducing com- plexity. In so doing, they could potentially capture the lion’s share of the trapped value in the long run — if they are wise.

Leveraging the Internet to Transform the Value Chain

O f course, a good many companies have been anything but wise in their approach to e-business and the value chain restructuring opportunities it presents. They have staked one of two extreme positions: Either they ignore the Internet’s potential to transform their business models, or they blithely fund any concept with an “e” in its title.

Both extremes have their hazards, as the brief test of time has already proven. The swift descent in the valuations of several online darlings and the hits taken by certain brick- and-mortar “laggards” suggest that while the Internet definitely has its place in most value chains, it cannot substitute for sound strategy and solid infra- structure. Companies founded on little more than a domain name have learned this lesson the hard way (e.g., Pets.com, Mothernature.com), as have traditional companies that have arrived late to the online party (e.g., Toys “R” Us, Barnes & Noble).

The “launch-and-learn” philosophy spawned by the Internet is here to stay. But the suspension of rational economics that characterized the dot.com era is now over. So, what have we learned? How can established companies successfully leverage the Internet to transform their value chains?

First, they need to approach the task on two levels: a company- specific level and an industry- structure level. The first is by now old hat. Company execu- tives have long recognized the


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