The most powerful force subverting conventional value chains, partly because it acts as a catalyst and accelerator for all the others, is a revolution in the economics of information. Information has always been the glue that held value chains together. The cost of getting sufficiently rich information to suppliers, channels, and customers made proprietary information systems and dedicated assets a necessity, and gave vertical integration its leverage.
That glue is now melting. Universal connectivity and common communications standards are enabling the open and virtually cost-free exchange of information of all kinds. Companies share product designs, CAD/CAM parameters, logistics information, and financial data with equal ease both inside and outside the corporation. New intermediaries are emerging to support interconnection, facilitate comparison, guarantee performance, and make markets. Searching and switching are vastly simpler and cheaper than they used to be.
These trends have two simultaneous effects. On the one hand, proprietary links give way to markets. Witness the outsourcing trend: companies can now make use of key activities in the value chain without owning them. On the other hand, opportunities for rich communication and collaboration between customers and suppliers are greater than ever. Both these developments undermine vertical integration, replacing it with a highly flexible mix of new coordination mechanisms, ranging from the ruthlessness of the spot market at one extreme to the most strategic of partnerships at the other.
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