Virtual value chain creation

There are multiple opportunities to create value integrating ICT systems in the network of suppliers. Yet, in the virtual area these opportunities mainly relies on the abilities and the willingness of the actors to share information. According To jelassi (page 111), “opening up new opportunities to make this information available to customers, thereby increasing the value created, is the main goal of the virtual chain.” Jelassi mentions five steps to make information valuable: it should be gathered and organised, selected and synthesized by relevance, and finally distributed using the right format.

In the physical world, small retailers usually regroup under brand names or franchises in order to weight in front of larger competitors. This generally results in both concentration of resources and centralization of activities. Mother chains’ contribution to the value creation process usually appears under the form of cost reductions with effects of economy of scales, better product/service availability and enhancement in marketing proposals. Today many manufacturers simply refuse to deliver small quantities to the shops and concentrated their strategy to work with the chains. The use of ICT between chains and franchisees has globally amplified the results in these areas, but also contributed to develop the most crucial aspects today: the on time processing of orders and the transfer of information and knowledge. Therefore, chains have become as important to their franchisees as to their suppliers playing the role of information broadcaster and providing within the supply chain. Tapscott in the introduction of the book “Creating value in the new economy” states that in the new economy “knowledge, as the principal source of wealth, has become the source of value creation, and that work and learning are the same”.

Actors of the supply chain should be categorised in order to identify where to develop tight relationships. I propose the use of suplly chains’ Kraljic matrix ( Kraljic 1983) which was initially designed for the physical world to weight the strategic importance of the partners in terms of risk compared to cost. This model applied to the virtual chain can help identifying opportunities for new forms of partnership to generate value.

Exhibit 6 : Kraljic matrix applied to the photo distribution.

This figured was extracted from a previous work concerning a brand chain of photography and its relations with its partners. The two dimensions of the model are horizontally the costs and vertically the risk that are inherent to the transactions, representing the power and interdependence dimensions stated by Kraljic. Risk is related to the number of suppliers, it increases if they are only a few; it is also related to the nature and sensitivity of the supply in the strategy of the firm: i.e it may be more risky to stop relationship with one ICT providers as it would require more changes within the firm, than shifting from one delivery supplier to another. The following lines explain how the suppliers can be segmented and what nature and degree of relationship could be applied in accordance of their position

Bottleneck and Strategic items :

These are suppliers that small retailers cannot avoid, because they are only few and weight a lot in the market. They require long term relationships, high level of trust, and a lot of information sharing. The current collaborative scope should be extended by integrating ICT systems from shop website to the management of inventory, identifying relative ad equation in the objectives. This could be for example the connection of the web site to the ordering system of the mother chains. Retailers could enhance their relation with these suppliers providing accurate statistic information related to inventory turn over, accuracy of marketing proposals, and efficiency of processes. Automation of processes such as ordering and billing would obviously bring results in lowering costs by improving efficiency. Extraction of customers information should lead to improve the accuracy of commercial proposals at every stages. In addition, the more accurate figures retailers can generate to bring visibility, the best position they will have to negotiate purchases conditions or other forms of participation such as advertisement and allocation of resources from their suppliers.

Routine and leverage items:

These suppliers are the less “vital” but remain as important in the value chain creation process. The power is balanced by the fact that they are multiple choices for the retailers and that it is easy to shift form one to another. Therefore retailers can more easily act on the relationship and extract high values. For example it is easy to negotiate consistent and valuable guarantees services from insurances firms that are numerous. Web based services providers such as web designers, payment services, referencing services, forum plat-forms and form builders should be included in that area. I suggest that, although, the sharing of information with these partners is less crucial, meaning it is less subject to pressure, this the area in which the most opportunities to create high value are present.


One the twelve themes of the new economy developed by Tapscott is des-intermediation, the fact that using ICT technologies some firms may eliminate some intermediaries such as retailers, to directly interact with consumers. In the photo finishing industry the two main traditional actors, Kodak and Fuji chose opposite strategies. The first chose a “dis-intermediated” and cost leadership approach opening a B2C website that distributes its products such as camera and memory cards, and launched its own on line print services throughout divers websites worldwide. Consumers are directly linked to Kodak laboratories which deliver prints at home. Costly intermediaries have disappeared of the chain and, in Europe, production has been delocalised and concentrated in Poland. The second supplier chose the “re-intermediated” way opening both B2C and B2B websites to interact with consumers and retailers; Fuji offers retailers the possibility to connect their website to their plate-form meaning prints can be delivered at the customers’ or in store. This choice can be related to exhibits 4 et 5 in the previous chapter, highlighting the opportunity of creating value collaboratively in a process of “re-intermediation”. In addition it can be related to Kim et al quoting Porter: “Tight integration between a company’s Web site and its physical store locations not only increases customer value, but it can also reduce costs. It is more efficient to take and process orders via the Web, but it is also more efficient to make bulk deliveries to a local stocking location than to ship individual customer orders from a central warehouse (Porter,2001)”. In the mentioned example the local stocking location is the retail store, and information can be captured in both virtual and physical places. Tapscott bases the opportunity of re-intermediation on the ability to create value based on electronic exchanges; yet I would suggest, that they are more opportunities in that case to use an integrated approach of both physical and virtual assets, following Kim et al’s theories.

There are two aspects that cannot be taken is account with Kraljic matrix which are the role of consumers in enhancing the value proposition and the capability of the entire network of partners to enhance its own knowledge.

The first aspect mentioned is related to what Tapscott describes as the phenomena of “prosumption” when the consumer becomes an actor of the production. ICT enables the consumers to configure and personalise their orders; there are many examples of personalisation or customisation in divers industry: it could be choosing the memory capacity of computer ordered from Dell, the colour of seats at Toyota, or the addition of a personal identity number on a Ipod. The choice made by the consumer affects the entire process of the supply chain and directly contribute to its value creation process. The customer does not order a product but participates in building his own product. Therefore it is crucial to consider consumers as actively contributing to the value creation process and implement tools to measure their contribution. This theme is closely linked to another defined by Tapscott as mass-customisation, in which electronic exchanges enable the vendors to deliver high volumes of personalised products. ICT has enable on time reaction meaning that when a specific demand is being done, the entire supply chain is ready to answer immediately.

The second aspect is directly linked with the level of commitment of the divers actors of the supply chain to integrate electronic activities in their strategy. It is related to the level of adoption of e-business or ICT adoption. A firm using basic features of e-activities such as sending/receiving email has less opportunities to capture and extract consistent data to be shared with partners. On the other extremity of the ladder, a organisation that fully integrates the system generates opportunities to create value trough the knowledge it has developed. Therefore, the effectiveness of the value chain creation is mainly dependent on the organization around e-business activities themselves as shown in exhibit 7. The figures shows that the more a firm implies itself in a sophisticated approach of e-business, the more it will require organisational changes, and the more it will generate global benefits.

exhibit 7: the DTI ladder adoption



It would be unrealistic to think of a single store crossing the stages to reach the state of transformed organisation on its own. First, because it does not have the resources to develop and sustain such a process; furthermore, because reaching such a stage, implies by definition the implication of various human experiences and know how to be successful. Stores are rarely run by more than 3 or 4 persons. Yet, it would be more relevant to evaluate retailer's relative contribution in an inter networked organization. As previously mentioned the new economy is leading firms to be more customer centric in opposition of being product or market centric in the ancient one; therefore, I would suggest that the stream of value creation process does not any longer follow a linear process from factories to retail shops, but rather a circle movement that initiates and comes back to the consumers. Retailers, whether they are physical or virtual, as being the main touch points with clients, have become the upstream source of information; they are not any more just the last step who deliver the product. In that prospective the flow of information has to take its source in the retail shops and horizontally spread through the network of suppliers/partners, which implies that retailers should put themselves in position to provide information and weight more in the value creation process.