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Virtual Value Chain

Team Cupcake - Presentation #2

Christina Huynh

on 23 September 2014

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Transcript of Virtual Value Chain

Value Chain
Team Cupcake
Key Points
History of businesses
Value Chain Concept
Virtual Value Chain
- Physical & Virtual World
- Creating value
- Three stages of value-adding
- Implications
- Five principles
What is the VVC?
It is a business model for the information services industry developed by Jeffrey F. Rayport and John J. Sviokla.
"Examines and transition businesses to the information-based business model. "
The Virtual Value Chain:
Businesses controlled almost all factors of production and distribution.

Some have outsourced.

EX: Ford Motor Company in USA
The Value Chain Concept
"Re-evaluate the value chain and concentrate on operations that that can do their best."
Michael Porter's
Value Chain
Primary Activities:
Directly concerned with the creation or delivery of a product/service.
Support Activities:
This chain consists of a series of activities that create and build value. They culminate in the total value which expresses the way a business differentiates itself through configuration of its value chain.
Fundamental core concept of business strategy.

Series of value-adding activities connecting a company's supply side with its demand side.

The process can be mapped via flow diagram and then re-engineered to increase value or reduce costs.

Chain consists of a series of activities that create and build value.

Managers can redesign internal and external processes to improve efficiency and effectiveness.

But this original value chain treats information only as a supporting element.
The Virtual Value Chain
Information itself can be a source of value

To create value with information, managers must look to the marketplace.

The value-adding steps are "virtual" in that they are performed through and with information.

EX: Federal Express Corporation (FedEx)
- Traceable packages
- Free services
- Created added value
for the customer
- Customer loyalty
Information as Value
Businesses Compete in two worlds
Physical World:
A world of resources that managers can see and touch. Also called the marketplace.
Virtual World:
A world made of information. Also called the marketspace.
Answering machines
Bank services
Airline tickets
Fast-food outlets
Creating value in 5 activities
- Sifting and extracting digital information

- Store the data to make it easy to retrieve

- Selecting data to add value to operations

- Data is placed into context for users

Distributing Information
- Transmission of synthesized information to users
"A manager today would collect raw information and then add value through these steps."
The Virtual Value Chain
Three stages of adding value
Mirror Capability
New Customer Relationships
Companies acquire an ability to see physical operations more effectively through information.
- EX: Frito-Lay's Information Revolution
Companies substitute virtual activities for physical ones. Begin to create a virtual value chain that parallels but improves on the physical value chain.
Managers draw on the flow of information in their virtual value chain to deliver value to customers in new ways. Once companies become adept at managing their value-adding activities across the parallel value chains, they are ready to develop these new relationships.
Implications for Management
Managers must consciously focus on the principles that guide value creation and extraction across the two value chains separately and in combination.

The physical value chain is composed of linear sequence of activities with defined points of input and output.

The virtual value is nonlinear – matrix of potential inputs and outputs that can be accessed and distributed through a wide variety of channels.

Managers must understand the differences between value creation and extraction in the marketplace and in the marketspace; they must manage both effectively and in concert.

A company’s executives must embrace an updated set of guiding principles because in the marketspace many of the business axioms that have guided managers no longer apply.
Five Principles
The Law of Digital Assets
New Economies of Scale
New Economies of Scope
Transaction-Cost Compression
Rebalancing Supply and Demand
"Senior managers must evaluate their business."
& Physical Worlds

Digital assets, unlike physical ones, are not used up in their consumption.
Redefines economies of scale, allowing small companies to achieve low unit costs for products and services.
Businesses can redefine economies of scope by drawing a single set of digital assets to provide value across markets.
Transaction costs along the VVC are lower than their counterparts on the PVC and they continue to decline sharply.
The world of business increasingly demands a shift from supply-side to demand-side thinking.
Sana Aslam Christina Huynh Nida Javed
Work Citations




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