Digital Value Network KBC Saxena Fortune Institute of International Business New Delhi July 2011

Digital Value Network

KBC SaxenaFortune Institute of International Business

New DelhiJuly 2011

Digital Value Network 2

Attributes of Success at PGDM

CC & C

EEE

PPP

Year 1

Year 2


Attributes of Success at PGDM

Conceptual Clarity & Communication

Expression of Expert-level Education

Planned as Perceived Placement

Year 1

Year 2


Some Basic Concepts

• What is a Market?• A Marketplace?• A Marketspace?• A Channel?• Communication, Distribution, and Service

Channels?• An Intermediary?


How is Digital Economy Different?• Digital economy is different because it is a networked

economy.• Businesses that hope to successfully compete in it, must

do so through collaboration, alliances, and constant communication with other businesses as well as with customers.

• No longer a company push standard products through a supply chain, forcing customers to adapt to whatever it chooses to deliver to them.

• Companies must first understand the structure of and the relationships between – participants in this new kind of market.


How do you Master this Marketplace?

Customers

Manufacturers

Suppliers

Your Company

Distribution Channels

Service Providers

Business Partners

Networked Communiities

Aggregators

Infomediaries

Intermediaries


Competing in the Digital Economy• To be competitive, companies must offer specifically

customised products/services to meet needs of individual customers.– Must employ product development processes that interact

dynamically with customers.– Perform a more constant monitoring of overall market

trends.– Order-to-delivery cycle times get dramatically reduced.– Raw materials procured rapidly and in a cost effective

manner.– Distribution methods that suit the customer’s, not the

company’s convenience.


Value

• Value reflects the sum of the perceived tangible and intangible benefits and costs to customers.

Digital Economy 9

Evolving Customer Perception of Value

Time Today

Customer Value

Proposition

1950

Price

Quality

Brand

Content

Time

Digital Economy 10

Redefining the Notion of Value in Digital Economy

• Firms are not thinking in terms of distribution chains or supply chains.

• Rather they are thinking in terms of interlocking relationships that form a network, or value web, which has its prime directive the goal of providing value to the customer – as the customer defines it.

• The only way to do this successfully is to put yourself in your customer’s place. Think about what they value most about your product or services. Once that has been figured out, find what can be done to enhance the value.


Traditional Supply Chain

Sources Suppliers Converters Distributors Retailers Consumers


Traditional Supply Chain• A “push-down” system, it is replete with excessive

physical movement, including repetitive product transportation, storage, and handling activities.

• Carries significant administrative, transactional, and financial costs that do not add significant value to the end consumer.


Seamlessly Integrated Value Chain (Digital Value Chain)

Sources

Suppliers Distributors Consumers

Converters Retailers

Goods Conduit

Information Cond`uit

Funds Conduit

Communication


Digital Value Chain• Companies participating in digital value chains create 65%

more shareholder wealth for each dollar of earnings than those still operating in traditional supply chain.

• Such companies not merely focus on increasing operational efficiency, reducing inventories, or shrinking manufacturing and delivery cycle times; rather concentrating on pipeline velocity.

• Pipeline velocity characterised by: near-zero lead times, actual demand response instead of forecasting, zero-tolerance delivery schedules, synchronization of flow with true customer demand, removal of lot sizing, and absolute control to ensure immediate response to changes.

• Also focus on quality, cash flow, and IT-enabled flow of information to all members of value chain.

Digital Economy 15

Digital Work Environment

Information

Knowledge Action/Work

CaptureInfer/ discover

Apply

Learning


Law of Increasing Knowledge (in digital value chain)

• Consumer intelligence grows exponentially as more individuals interact as members of a community made possible by digital communications.

• As more consumers interact within a growing community, they attain more knowledge about the value-added aspect of products and services in the marketplace.

• Empowered by this knowledge, digital consumers have started making much more intelligent decisions about the products/services thy buy.


Digital Value Network• A digital value network (DVN) is a community of business

partners and customers that is connected using IT.• A DVN is not a network made by simply integrating traditional

supply chain by using IT. The players in a DVN work together to maximise their combined value for the benefit of the end consumer.

• A DVN is a much more dynamic entity than a traditional supply chain. The relationships within a DVN are fluid – forming, disintegrating, and reforming based on market dynamics and the whims of the consumer.


Components of a DVN• Digital value chain: highly efficient business relationships that

allow for synchronous execution of business processes across the extended enterprise.

• Digital function platform: electronic links of digital value chain are made possible through use of a standards-based technology platform that allows partners to execute a traditional business function in a digitally enhanced way.

• Infomediary: a new form of business intermediary that supports DVN. This provides a number of information-based functions that support the operation of DVN and forms the piece of DVN model.


Benefits of DVN Model• Produces superior market valuations for companies

that embrace because it replaces manual processes with highly flexible, automated high-content information conduits. [Example: Dell Computers]

• Especially relevant for larger organisations.

Digital Economy 20

Redefining the Notion of Value in Digital Economy

• Firms are not thinking in terms of distribution chains or supply chains.

• Rather they are thinking in terms of interlocking relationships that form a network, or value web, which has its prime directive the goal of providing value to the customer – as the customer defines it.

• The only way to do this successfully is to put yourself in your customer’s place. Think about what they value most about your product or services. Once that has been figured out, find what can be done to enhance the value.


Types of Roles for Infomediaries• Integrating services and needs [Example: PagalguyMBA].• Aggregating services and needs [Example: Makemytrip.com].• Creating a floating price system based on supply and demand

[Example: eBay].• Managing the flow of products from the initial supplier to the

final customer [Example: FastParts Trading Exchange].• Managing an everchanging electronic affinity group made up

of vendors, suppliers, and customers – the composition changes in response to customers’ needs.

• Monitoring the performance of all members of a DVN.• Saving time for DVN members.• Managing operational functions like warranty.


True DVN Begin to Evolve• To date, only a few companies have moved from

processing a traditional supply chain, to becoming part of a digital value chain to the ultimate step of forming a DVN. [Aldrich, 1999]

• There is ample evidence that early forms of DVNs are emerging, most based upon early EDI private networks, but some are evolving by rallying around Internet-based infomediaries such as AOL and eBay.


Beginning the DVN Journey“There are many ways of going forward, but only one way of standing still.”

-Franklin D. Roosevelt

• One of the most fundamental building blocks of DVNs is moving into e-commerce by designing a customised entry strategy based on your industry.

• Manufacturers should begin by setting up a digital value chain that, in the short term, will help reduce costs and improve efficiencies.

• Wholesalers, distributors, and retailers need to begin by protecting their positions in existing supply chains and value chains by setting up a digital function platform that leverages the value adding capabilities and anchors business in multiple value chains.

• Current intermediaries must initiate infomediaries services associated with their current offerings, customers and brands.

Documents

Digital Value Network KBC Saxena Fortune Institute of International Business New Delhi July 2011