Digital businesses are redefining the concept of consumer access, often by eliminating the middleman to grab a direct link to the end-user.
This disintermediation shortens the value chain and can generate lower costs, faster deliveries, and direct customer feedback.
A company’s value chain partners are frequently its business-to-business partners and eliminating them has already disrupted several industries. The music industry is a great example; today, artists are posting their songs directly onto Internet-based music platforms, and in the process avoiding consolidators, distributors, and intermediaries of any kind. This new system creates a value chain that is faster, less expensive, and generates fewer failures.
So, when revisiting your value chain, consider simplifying via direct consumer contact through digital channels. Be aware of the disruptive elements for your business, from classic competitors within your industry as well as from new competitors who are applying the reduced digital value chain to reach your customers with competing products.
New stakeholders in the new digital world are goods manufacturers, who, by tagging their products with sensors for all kinds of environmental parameters including temperature and humidity, as well as GPS and location parameters including inclination, altitude and latitude, are disrupting those who have no idea what condition their goods are in or where they are.
Additionally agents and mediators, who manage the material flows for goods manufacturers to optimize the “goods on the roads” process, are part of the new digital disruptors. An example of how middlemen can make themselves fit into the new digital world.
The auto industry – and many others – has been influenced by the seminal work on value chain analysis by Michael Porter of the Harvard Business School. Companies broke down key aspects of their operations into what Porter called primary activities, such as purchasing and production, and support activities, such as HR. They made varying decisions on what to build versus what to buy. In recent years, technology, globalization, and other influencers have allowed companies to fine-tune these buy-versus-build decisions and to quickly reverse them when necessary. For some businesses this process has led to vertical integration; for others — such as the auto industry— the result has been vertical disintegration.
However, the transformation of value chains is not only limited to goods: Most large banks have spent decades becoming one-stop shops — offering loans, credit cards, retirement accounts, currency trading, etc. It’s interesting how many start-ups are picking off specific bank services and going after those niche markets. For example, Kickstarter, a funding platform launched in 2009, has helped a number of entrepreneurs to use crowdfunding to finance their ideas. Another example is Square, which provides credit card services to small businesses with a mobile card reader and pay-as-you-go fees. Each of these entities is promising better or less-expensive services than the large banks. In their own small way they are precipitating a disintegration of the traditional banking sector.
The disruptive threat is real so, no matter what industry you are in, your business must become digital to survive. Enterprises have long vacillated between build-versus-buy decisions and vertical integration versus disintegration. Digital technologies are making such swings easier and quicker and are eliminating the middleman wherever possible.
Read more about digital businesses and their transformation journey in my book, The Digital Enterprise.