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The advent of the internet has fundamentally transformed traditional business models and value chains. Companies can no longer rely on their existing assets and processes as sources of competitive advantage. Instead, they need to embrace digital value systems that are specifically designed to harness the potential of the online world. A key difference between value chains and digital value systems is that the former focus on controlling internal activities and assets while the latter leverage external partnerships and information sharing. Consider how the internet has radically altered various elements of the traditional value chain: Logistics and supply chain management have been revolutionized by the internet's ability to connect companies with new suppliers and business partners globally. This has led to dramatic improvements in responsiveness to customer demand and flexibility. Companies are outsourcing more manufacturing and focusing more on managing data about materials rather than physical storage and movement. The priority is being agile and adapting to market changes rather than trying to tightly control in-house processes. Similarly, operations management has been transformed by a new emphasis on scalability through outsourcing and forming alliances with partners that can ramp production up or down rapidly based on real-time demand signals. Instead of investing heavily in enterprise resource planning systems to align internal processes, the focus is increasingly external - on connecting to the best partners worldwide. With easier access to production capacity, companies can also develop and test new products faster without being constrained by operational bottlenecks. Distribution and order fulfillment have changed due to the internet enabling build-to-order manufacturing with reduced need for finished goods inventory. Companies are less dependent on in-house warehousing and physical distribution systems, allowing customer orders to flow directly to outsourced manufacturers. Production planning is based more on flexible alliances that can scale rather than forecasts and inventory management. The internet has also revolutionized marketing and sales by enabling much greater personalization and customer empowerment. With infinite product variations possible, companies need to focus on providing a superior online customer experience rather than traditional mass advertising and market segmentation approaches. The goal is to build interactive relationships that give customers more control rather than trying to persuade them through one-way messaging. Finally, customer service has been transformed from a "one-size-fits-most" call center model to one centered around continual, personalized contact with the goal of creating lifetime customer relationships. There is greater emphasis on self-service and remote diagnostics enabled by internet-connected products rather than relying predominantly on service visits. Each of these transitions from the traditional value chain to digitally-powered approaches represents a monumental change. But when they occur simultaneously across operating functions, the combined effect is enormously disruptive. Companies that simply try to use the internet to streamline their existing chains will be left behind. Instead, organizations need to architect their operations as digital value systems - interconnected webs of internal and external capabilities oriented around sharing information rapidly to co-create value. A digital value system brings together online partnerships, real-time data exchange, and mutually beneficial network effects. It is less rigidly structured than a value chain and more resembles a solar system with entities dynamically interacting in orbits around each other. As more partners join the ecosystem, the possibilities for value creation expand exponentially rather than linearly. Deep relationships develop through ongoing co-innovation. Revenue opportunities emerge from new services built on top of the core offering. Customers receive highly tailored solutions at attractive prices. The starting point for creating digital value systems is decoupling information about products and services from the physical items themselves. This information can then be injected into a fluid ecosystem where partners have full transparency into operations, costs, and profit margins. Instead of trying to tightly control internal processes, the focus becomes optimizing the overall system effectiveness through creative business models: outsourcing, splitting work into contractible modules, empowering customers to self-serve, and exploring mutually beneficial partnerships. As more information circulates rapidly through digital value systems, it enables faster learning and innovation. Companies build deeper customer relationships that are harder for competitors to displace. They understand emerging needs faster and can introduce revenue-generating services more quickly. They tap collective intelligence to find ways to do things better, faster, and cheaper - delivering superior solutions to delighted customers. The key to success in digital value systems is aligning incentives around shared value creation rather than maximizing returns for any single player. When participants focus on growing the overall ecosystem by delivering exceptional experiences, everyone benefits.