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Exploiting Virtual Value Chain

Executive Summary

Over the past decades, the world has changed dramatically, and the business realm has not been left behind. The scenario is exemplified in the article “Exploiting the Virtual Value Chain” by Rayport and Sviokla, published in 1995 in the Harvard Business Review. The authors argue that businesses nowadays compete in two spheres, namely virtual and physical. In the former, goods and services are in the form of digital information and accessed via data-based channels, while the latter refers to the conventional market, where products are tangible. In these times, companies need to shift focus and exploit the virtual value chain for continued success rather than focusing on just the physical realm.

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The virtual realm, or marketspace, relies solely on information, and even though it is relatively new, it is credited for the emergence of e-commerce. Exploiting the virtual value chain requires managers to avoid the axioms that govern the physical marketplace and embrace key principles relevant to the marketspace. This case study examines Rayport and Sviokla article “Exploiting Virtual Value Chain,” particularly the integrated marketing communication which is pertinent to virtual market value chain.

Discussion

Rather than the conventional value chain, which is often mentioned among consultants, academics, and managers, the authors introduce the term in the virtual marketplace. Virtual value chain model defines a sequence of value-adding activities that link and organization’s supply-side to the demand end (Rayport and Sviokla, 1995). The main difference between physical and virtual value chain is that while the former has distinct platforms, the latter has none, operating from end to end instead. Companies can achieve a virtual value chain when they integrate information that they capture in all the value chain stages. Further, organizations need to treat data as a critical supporting element of the process rather than a value source. The argument is backed by an example of Federal Express Corporation, which allows their clients to track their packages through the company’s website on the internet.

Apart from virtual value chain, companies need to shift their focus from the physical marketspace to the virtual one. Even though the two are similar, what differentiates them is the value-adding steps involved in each one. Depending on the business’s nature, a company may be forced to exploit both the physical and virtual markets. Rayport and Sviokla,1995 aptly cite Geffen, whose executives manage the physical value chain that involves production and sale of compact disks but need to create and explore the virtual one. To exploit virtual value chain, first, companies need to see their physical operations through information. Second, they need to mirror capabilities in the marketplace onto the marketspace and in the third stage, they need to use information in creating and strengthening customer relationships. The three stages explain the interplay between physical and virtual value chains that the writers attribute to companies’ success, including Boeing, Toyota and Ford.

Conclusively, the article is based on the assumption that managers understand that virtual value chain assumes that the axioms that guide them in the marketplace do not hold in the marketspace. In this regard, directors should clearly differentiate between value extraction in both realms. Rather than the usual guiding principles, the executives need to use five fundamental principles in the marketspace. Unlike physical assets, digital ones are not depleted in their consumption. Virtual value chain dictates economies of scale, allowing upcoming companies to compete favorably with the big firms. Organizations can use one type of digital asset to offer value across multiple different markets. Costs incurred in the virtual value chain are lower compared to the physical value chain and continue declining per unit cost as production capacity doubles every 18 months (Rayport and Sviokla, 1995). Managers need to shift their thinking from the supply to the demand side, which requires them to sense and respond to clients’ desires instead of just producing and selling goods and services.

Reference List

Rayport, J. F and Sviokla, J. (1995) Exploiting the virtual value chain. Web.

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