Virtual Value Chain
Encyclopedia
The virtual value chain, created by John Sviokla and Jeffrey Rayport
, is a business model
describing the dissemination of value-generating information services throughout an Extended Enterprise
. This value chain
begins with the content supplied by the provider, which is then distributed and supported by the information infrastructure
; thereupon the context provider supplies actual customer interaction. It supports the physical value chain of procurement, manufacturing, distribution
and sales of traditional companies.
To illustrate the distinction between the two value chains consider the following: “when consumers use answering machines to leave a message, they are using an object that is both made and sold in the physical world, however when they buy electronic answering services from the phone company they are using the marketspace
—a virtual realm where products and services are digital information and are delivered through information-based channels.” (Rayport et al. 1996) There are many businesses that employ both value chains including banks which provide services to customers in the physical world at their branch offices and virtually online. The value chain is separated into two separate chains because both the marketplace
(physical) and the marketspace (virtual) need to be managed in different ways to be effective and efficient (Samuelson 1981). Nonetheless, the linkage between the two is critical for effective supply chain management
.
Michael Porter
, creator of the value chain, stated that there is no value added by the Internet itself, however the Internet should be incorporated into the business’ value chain. As a result the Internet affects primary activities and the activities that support them in numerous ways. Porter describes the value chain in the following:
“The value chain requires a comparison of all the skills and resources the firm uses to perform each activity.”
The products and services the business supplies to the market need to conform to a channel that fits the customer’s needs. Therefore this channel controls the strategy of the business. The channel comprises different events, and each of these events should be in accordance to the overall strategy of the business.
In the virtual value chain (VVC), information has become a dynamic element in the formation of a business’ competitive advantage. The information collected is utilized to generate innovative concepts and ‘new knowledge’. This translates to a new value for the consumer. An examination of the VVC model informs the business to what function they have in the chain, and if they are not currently offering services that are information based (i.e. Internet services), how they can make the transition to the information based model.
In the virtual value chain the ‘virtual’ indicates that the value adding steps are performed with information. The transfer of information between all events and among all members is a fundamental component in using this model. In the VVC the creation of knowledge/added value involves a series of five events: gathering, organization, selection, synthesization, and distribution of information. The completion of these five events, allows businesses to generate new markets and new relationships within existing markets. The process of a business refining raw material into something of value and the sequence of events involved is similar to that of a business collecting information and adding value through its cycle of events.
and the goal of that relationship is to produce materials, information and knowledge for the market. IT maintains the relationship among the members of the chain. The VVC model does not indicate any shifts in the market, or how and when the customer’s needs will change.
New technological developments in IT are drastically changing the way businesses operate. Each business’s internal and external relationships are managed by IT and value adding and generation of ideas are relying more and more on IT. This trend has led to a different approach to value chain thinking. Using this approach Mary Cronin separates the VVC into three elements: inputs from supplier, internal operations, and customer relations.
Jeffrey Rayport
Jeffrey F. Rayport is a consultant, author, and founder and chairman of Marketspace LLC, a strategic advisory practice that works with leading companies to reinvent how they interact with and relate to customers...
, is a business model
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
describing the dissemination of value-generating information services throughout an Extended Enterprise
Extended Enterprise
An extended enterprise is a loosely coupled, self-organizing network of firms that combine their economic output to provide products and services offerings to the market...
. This value chain
Value chain
The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...
begins with the content supplied by the provider, which is then distributed and supported by the information infrastructure
Information Infrastructure
An information infrastructure is defined by Hanseth as "a shared, evolving, open, standardized, and heterogeneous installed base" and by Pironti as all of the people, processes, procedures, tools, facilities, and technology which supports the creation, use, transport, storage, and destruction of...
; thereupon the context provider supplies actual customer interaction. It supports the physical value chain of procurement, manufacturing, distribution
Distribution (business)
Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
and sales of traditional companies.
To illustrate the distinction between the two value chains consider the following: “when consumers use answering machines to leave a message, they are using an object that is both made and sold in the physical world, however when they buy electronic answering services from the phone company they are using the marketspace
Marketspace
Marketspace - an information and communication based electronic exchange environment - is a relatively new concept in marketing. Since physical boundaries no longer interfere with buy/sell decisions, the world has grown into several industry specific marketspaces which are integration of...
—a virtual realm where products and services are digital information and are delivered through information-based channels.” (Rayport et al. 1996) There are many businesses that employ both value chains including banks which provide services to customers in the physical world at their branch offices and virtually online. The value chain is separated into two separate chains because both the marketplace
Marketplace
A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed.-Marketplaces and street markets:A...
(physical) and the marketspace (virtual) need to be managed in different ways to be effective and efficient (Samuelson 1981). Nonetheless, the linkage between the two is critical for effective supply chain management
Supply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
.
New developments lead to new strategies
In the last decade the advancement of IT and the development of various concepts in manufacturing, like just In time (JIT) have led to the situation where businesses no longer focus on purely the physical aspect of the value chain as the virtual value chain is equal in importance.Michael Porter
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
, creator of the value chain, stated that there is no value added by the Internet itself, however the Internet should be incorporated into the business’ value chain. As a result the Internet affects primary activities and the activities that support them in numerous ways. Porter describes the value chain in the following:
“The value chain requires a comparison of all the skills and resources the firm uses to perform each activity.”
The products and services the business supplies to the market need to conform to a channel that fits the customer’s needs. Therefore this channel controls the strategy of the business. The channel comprises different events, and each of these events should be in accordance to the overall strategy of the business.
In the virtual value chain (VVC), information has become a dynamic element in the formation of a business’ competitive advantage. The information collected is utilized to generate innovative concepts and ‘new knowledge’. This translates to a new value for the consumer. An examination of the VVC model informs the business to what function they have in the chain, and if they are not currently offering services that are information based (i.e. Internet services), how they can make the transition to the information based model.
In the virtual value chain the ‘virtual’ indicates that the value adding steps are performed with information. The transfer of information between all events and among all members is a fundamental component in using this model. In the VVC the creation of knowledge/added value involves a series of five events: gathering, organization, selection, synthesization, and distribution of information. The completion of these five events, allows businesses to generate new markets and new relationships within existing markets. The process of a business refining raw material into something of value and the sequence of events involved is similar to that of a business collecting information and adding value through its cycle of events.
Stages of the value adding information process
Businesses implement value-adding information by using the three stages of the Rayport and Sviokla model:- Visibility – By using information businesses learn the ability to view physical operations more effectively. This means that the foundation for the virtual value chain is used to co-ordinate the activities of the physical value chain. Furthermore, with the assistance of IT, it is then fully possible to plan, implement, and assess events with greater precision and speed.
- Mirroring capability – Businesses duplicate their once physical activities for virtual, by producing a parallel value chain in the marketspace. In other words, the business moves the value adding activities from the marketplace to the marketspace.
- New customer relationships – Businesses present value to the customer by new means and in new fashions. IT creates value in the marketspace. The new relationship between business and customer is strongly based on using IT. This implies that products and services are presented by IT and part of these products and services are in the form of bits.
Relevance to the business world
The virtual value chain has the benefit of having a view that encompasses the entire network along with its strong employment of IT. The VVC model has a strong relationship to the supply chainSupply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
and the goal of that relationship is to produce materials, information and knowledge for the market. IT maintains the relationship among the members of the chain. The VVC model does not indicate any shifts in the market, or how and when the customer’s needs will change.
New technological developments in IT are drastically changing the way businesses operate. Each business’s internal and external relationships are managed by IT and value adding and generation of ideas are relying more and more on IT. This trend has led to a different approach to value chain thinking. Using this approach Mary Cronin separates the VVC into three elements: inputs from supplier, internal operations, and customer relations.
- The inputs from supplier element is focused of the Internet and how it can add value to the business’s acquisition activities. In other words, business’ with use of the Internet have the capability to find different suppliers quickly (effective) and for different purposes (efficient).
- The internal operations element is in regards to the business’ value adding events which are based on the effective procurement and distribution of the information within the business. It is essential that businesses can emulate this model because of the increasing large role information plays in the business world. With use of the Internet, the business can procure and distribute information globally with relative ease and low cost.
- The customer relations element concentrates on applying the information directly from the customers’ needs and attitudes about the product or service to add value. The internet is a useful tool in acquiring the direct information about the customer’s needs and attitudes. The internet is also used to distribute information about the products and services to the market (i.e. electronic catalogues). Following the distribution, forumsInternet forumAn Internet forum, or message board, is an online discussion site where people can hold conversations in the form of posted messages. They differ from chat rooms in that messages are at least temporarily archived...
and discussion groups collect the necessary information about the products and services that the business provides.
See also
- Value (marketing)Value (marketing)The value of a product is the mental estimation a consumer makes of it. Formally it may be conceptualized as the relationship between the consumer's perceived benefits in relation to the perceived costs of receiving these benefits...
- Porter generic strategiesPorter generic strategiesMichael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope...
- Porter 5 forces analysisPorter 5 forces analysisPorter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization economics to derive five forces that determine the competitive intensity and therefore...
- Marketing strategyMarketing strategyMarketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.-Developing a marketing strategy:...
- Strategic managementStrategic managementStrategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...