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The design of a company’s value chain has traditionally been viewed as a static enterprise, the assembling of a fixed set of suppliers and distribution channels to get and keep competitive advantage. But the pace of change in today’s technologies and markets has made that approach obsolete. Competitive advantage is, at best, a fleeting commodity that must be won again and again. And that requires continual disintegration and reintegration of organizations, with frequent reshuffling of structural, technological, financial and human assets, as every player in the value chain seeks some sort of temporary competitive advantage. No matter what business or industry one looks at — from telecommunications to computers, automobiles to health care — ongoing value-chain assessment and design at the corporate level have become a necessity.
The best examples of such innovative value-chain adjustment can often be found in the dynamic evolution of upstart ventures and aggressive high-technology giants. With their constantly shifting technologies, processes and organizational structures, these companies provide useful lessons in how value chains can be managed to respond rapidly to ever changing strategic challenges. These New Economy players, however, are not the only ones facing dramatic and sweeping changes throughout their value chains. All companies in all industries are operating on ever faster evolutionary tracks and at ever greater risk.
Every industry has its own clockspeed 1 — or rate of evolution — depending on its products, processes and customer requirements. Individual capabilities can lose value overnight, hastened by rapidly changing technologies, abrupt shifts in the larger economy or by the new tactics of competitors. The faster the industry clockspeed, the shorter the half-life of any given competitive advantage. A company’s real core capability — perhaps its only sustainable one — is its ability to design and redesign its value chain in order to continually find sources of maximum, albeit temporary, advantage.
Understanding and redesigning a company’s value chain begins with a map, one that identifies the organizations involved, the capabilities they bring to the value proposition, and the technological contribution each makes to the company’s products and services.
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1. See, for example, C.H. Fine, “Clockspeed” (Cambridge, Massachusetts: Perseus Books, 1999).
2. See, for example, A. Ehrbar, “EVA: The Real Key To Creating Wealth” (New York: John Wiley & Sons, 1998), or S.D. Young and S.F. O’Byrne, “EVA and Value-Based Management: A Practical Guide to Implementation” (New York: McGraw-Hill, 2000).
3. The starting point for this model was the material in Fine, “Clockspeed,” Chapter 9. The work, in turn, builds on P.M. Gutwald, “A Strategic Sourcing Model for Concurrent Product, Process and Supply-Chain Design” (master’s thesis, MIT Sloan School of Management, 1996), and C.H. Fine and D. Whitney, “Is the Make-Buy Decision Process a Core Competence?” in “Logistics in the Information Age,” eds. M. Muffatto and K. Pawar (Padova, Italy: Servizi Grafici Editoriali, 1999), pp. 31–63 (also available at http://web.mit.edu/ctpid/www/Whitney/papers.html).
4. Later and ongoing work addresses the product value chain, i.e., what products should be in the GM Powertrain portfolio. See, for example, S.S. Metcalf, “A System Dynamics Exploration of Future Automotive Propulsion Regimes” (master’s thesis, MIT Sloan School of Management, June 2001).
5. Karl Ulrich, “The Role of Product Architecture in the Manufacturing Firm,” Research Policy 24 (1995): 419–40.
6. S. Rosenberg, “Revenge of the File-Sharing Masses!” July 20, 2001, http://www.salon.com. Also see http://www.zeropaid.com.
7. In police work, SWAT stands for special weapons and tactics. SWAT teams are rapid-response teams that are trained to react to difficult and unanticipated urgent matters. We think the analogy fits well here.
8. J. Israely, “Looking More Savvy Than Sentimental: A Year After Rejecting Merger, Fiat’s Silencing Critics,” Boston Globe, June 23, 2001, p. C1.