Clayton Christensen: "Understand why the ability to make profits seems to migrate between parts of what strategy wonks like to call the 'value chain'. Why, for example, did profits in the personal computer industry migrate from the designers and builder of machines (Apple, Compaq, International Business Machines) to the makers of sub-systems (Microsoft and Intel)? Why does the balance of power appear to be shifting away from large car companies and towards the makers of value-added components and sub-systems?
The answer is that the basis of competition changes when products 'overshoot' the needs of the majority of customers. As this happens, raw performance becomes less important than the ability of manufacturers to get products to market quickly and in wider variety. The companies that concentrate on designing and assembling finished products (Apple or General Motors) thrive in the first era. They use proprietary technology and vertical integration to achieve maximum performance. Once performance is "good enough" for the average consumer, however, product architectures tend to become modular. This enables shorter development times and products that are easier to customise.
In this environment it is the sub-system and component suppliers whose products are no longer good enough. They come under greater pressure from manufacturers to improve performance but reap attractive profits for their trouble. Prof Christensen summarises all this in one pithy sentence: 'The power to capture attractive profits always shifts to the activities in the value chain where the immediate customer is not yet satisfied with the performance of available products.'"
Development, promotion and maintenance of a standard reference model for Value Chain Management
Posted by: Stephen Meyer | May 25, 2005 at 12:46 PM