Own the Future: 50 Ways to Win from The Boston Consulting Group

Chapter 41

The Deconstruction of Value Chains

Carl W. Stern

This chapter was first published in 1998. At the time the Internet was in its infancy—Google was founded the same year—but its implications for the economics of information were already becoming clear and remain true today.

The end of the nineteenth century saw the construction of the vertically integrated value chains that came to define modern business. The end of the twentieth century witnessed their deconstruction. Markets intruded on the web of proprietary arrangements that held these chains together. As they did so, the boundaries defining businesses, companies, and industries came under attack—radically transforming the nature of competition. New concepts of strategy and organization are required in order to cope.

The Logic of Value Chains—Undermined

Integrated value chains served business well. They enabled the sophisticated coordination that growing technical complexity required. They organized the dedicated assets, both human and physical, necessary for achieving economies of scale and scope. Expensive to create, they were a formidable barrier to competition once established. The vertically integrated value chain was a potent competitive machine.

Not anymore. Powerful forces have undermined the logic and practice of traditional vertical integration. Eroding trade barriers and the resulting globalization of markets ...