Exploiting the Virtual Value Chain

1
Exploiting the Virtual Value Chain

• Rayport, Jeffrey F., and John J. Sviokla.
  (1995). Harvard Business Review, Nov.-Dec. , p.
  75-85.

2
Physical vs. Virtual

• Physical world of commerce deemed to be
  marketplace
  
• Virtual world of information deemed to be
  marketspace
  
• The two areas have different intrinsic value
  systems that must be understood in order to
  leverage the benefits of the virtual value chain

3
Physical vs. Virtual

• Traditionally, marketplaces utilized information
  to provide value, not as a source itself of
  value
  
• Marketspaces are now finding value in
  information, such as in the FedEx example
  provided where tracking information enhances the
  value of the shipping service

4
Creating Virtual Value

• Involves 5 steps at each stage of adding value to
  the chain
  
• Gathering information
• Organizing information
• Selecting information
• Synthesizing information
• Distributing information

5
Utilizing Dual Value Chains

• Study found that organizations able to draw
  revenue from the virtual realm do so by
  exploiting both the virtual and physical aspects
  of the business
• A conventional understanding of the economies of
  scale and scope does not apply to the virtual
  value chain (VVC) in the same way as it does to
  the physical value chain (PVC) (p. 77)
• Both chains must be managed simultaneously to be
  effective and productive

6
Adopting Value-Added Information Processes

• Companies go through 3 stages
• Visibility the ability to see physical
  operations more effectively through information
  
• Mirroring capability virtual activities are
  substituted for physical ones and parallel value
  chain in the marketspace evolves
  
• New customer relationships value is provided to
  customers in different ways by exploiting the
  value matrix

7
Visibility
8
Mirroring Capability
9
New Customer Relationships
10
Implications for Management

• The two value chains must be managed in tandem
  yet separately to gain value from them because of
  their differences
  
• Executives must understand the differences
  between value creation and extraction in the
  marketplace and the marketspace they must manage
  both effectively and in concert (p. 83)

11
The Law of Digital Assets

• Digital assets are not consumed during use
• Cost of information value production is close to
  nothing, so companies that must charge for
  consumption of underlying materials face
  challenges in competing with companies offering
  digital, renewable products and services

12
New Economies of Scale

• Small companies can now compete with large
  companies in their offerings in the marketspace
  due to low unit costs for products and services
  

13
New Economies of Scope

• Businesses can draw upon a single set of digital
  assets to provide value in several different
  areas and markets
  

14
Transaction-Cost Compression

• Transaction costs are radically lower on the VVC
  than on the PVC
  
• Information tracking and control costs continue
  to drop, making it possible to track far greater
  amounts of information about products, services
  and consumers than ever before

15
Rebalancing Supply and Demand

• The world of business increasingly demands a
  shift from supply-side to demand-side thinking
  (p. 85)
  
• The increase in information from the VVC makes it
  possible for companies to be more sensitive about
  and receptive to the needs and desires of their
  customers