The VCE theory is breathtakingly simple. The theory suggests companies ought to control any activity or combination of activities within the value chain that drive performance along dimensions that matter most to customers and increase their Willingness To Pay.
When functionality and reliability are important to customers, companies need proprietary integrated solutions to try to reach a good enough level.
When the functionality and reliability of products overshoot customer needs, then convenience, customization, and low prices become what are not good enough.
When functionality is not good enough to address what customers in a given tier of the market can utilize, firms compete by making better products.
In order to make the best possible products with the technology that is available, product architects tend to employ interdependent, proprietary architectures, because building a modular system around industry standards forces them to back away from the frontier of what is technologically possible. In tiers of the market where product functionality is not good enough, competitive conditions penalize companies that attempt to do this. New technologies are often employed in these conditions.
Because this entails unstructured technical dialogue, transactions costs are minimized through integration. Integration constitutes an important competitive advantage in managing the interdependencies in design, manufacturing, sales, service and procurement during this period
When the functionality of available products outstrips the ability of customers in a tier of the market to utilize further improvements, companies must compete differently to win the business of customers who are over-served by functionality.
Speed to market and the ability to customize features and functions in response to the needs of customers in ever-smaller market niches, become the trajectories of improvement that customers reward with premium prices.
Efforts to compete along these dimensions of speed, flexibility and customization cause product architectures to evolve toward modularity. This facilitates speed and flexibility.
independent, focused providers of individual pieces of value-added thrive.
As a result, an industry which at one point was dominated by integrated firms becomes dominated by a population of specialized, non-integrated firms.