Largely internal perspective on how value is created across the supply chain
Vertical integration (make versus buy) assessments biased toward keeping internal capacity full
Restructuring primarily organized to reduce costs by reengineering delivery activities
Total cost-to-serve focus — with near-term orientation
Selection of suppliers from current industry players — high switching costs
Systematic, sequential progress made one step at a time
Regional and local suppliers dominate
• Northwest Airlines • Kmart • Builder’s Square • Anheuser-Busch (Eagle Snacks) • Compaq
Exhibit 3. Passenger vs. Driver
Source: Booz • Allen & Hamilton
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
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