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PERSPECTIVE

Largely internal perspective on how value is created across the supply chain

ORGANIZATION

Vertical integration (make versus buy) assessments biased toward keeping internal capacity full

RESTRUCTURING APPROACH

Restructuring primarily organized to reduce costs by reengineering delivery activities

FOCUS

Total cost-to-serve focus with near-term orientation

SUPPLIER SELECTION

Selection of suppliers from current industry players high switching costs

SPEED

Systematic, sequential progress made one step at a time

GEOGRAPHIC SCOPE

Regional and local suppliers dominate

EXAMPLES

Northwest Airlines Kmart Builders Square Anheuser-Busch (Eagle Snacks) Compaq

Exhibit 3. Passenger vs. Driver

PASSENGER

Source: Booz Allen & Hamilton

DRIVER

Entire value chain considered

Networked each task is done by whoever can do it most effectively and efficiently real market forces guide network development

Restructuring organized to deliver maximum shareholder and customer value across innovation and delivery activities, including both revenue growth and cost reduction

Value creation focus with strategic considerations playing a large role

Creation of supplier partners with appropriate capabilities versatile network

Simultaneous, step-change progress to drive early results

New global pools of talent and capabilities tapped

  • Southwest Airlines

  • Wal*Mart

  • Home Depot

  • Frito-Lay

  • Dell

There is a difference, however, between being appro- priately prudent and turning a blind eye to the necessity and inevitability of radical change. The Internet has helped all man- ner of competitor surmount the parameters of what is possible in terms of cost, convenience, access, and selection. It is trans- forming markets, with or without the participation of historic market leaders.

While companies such as Amazon and eBay may not have the ultimate answer, they are actively searching for the right

Case Study: eBay

eBay has brought the concept of the “flea market” to cyberspace, using categorization and search engines to help buyers find what they are looking for, creating a global exchange so massive in its scope and reach that it overwhelms anything that could be created in the brick-and-mortar world. It is one of the best examples of a business concept that builds on two critical characteristics of the Internet — low transaction costs and increasing returns to scale.

solution, as are many established players who understand the need and potentially huge opportunity presented by value chain restruc- turing. These companies are

looking beyond the traditional bailiwick of most reengineering efforts — execution/delivery activities — and are trying to identify and overhaul the sources and levers of innovation in the production process. These com- panies are the drivers in the new global economy (see Exhibit 3).

Drivers move beyond the traditional product-forward mindset and adopt a market-back orientation, assessing customer demand and then strategically restructuring their entire value chain to fulfill market require- ments in the most cost-effective

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