“Companies are embedded in value networks. . .”

“Companies are embedded in value networks because their products generally are embedded, or nested hierarchically, as components within other products and eventually within end systems of use.

Although the goods and services constituting such a system of use may all be produced within a single, extensively integrated corporation such as AT&T or IBM, most are trade-able.

it also implies the existence of a nested network of producers and markets through which the components at each level are made and sold to integrators at the next higher level in the system. Firms that design and assemble disk drives, for example, such as Quantum and Maxtor, procure read-write heads from firms specializing in the manufacture of those heads, and they buy disks from other firms and spin motors, actuator motors, and integrated circuitry from still others. At the next higher level, firms that design and assemble computers may buy their integrated circuits, terminals, disk drives, IC packaging, and power supplies from various firms that manufacture those particular products. This nested commercial system is a value network.

As firms gain experience within a given network, they are likely to develop capabilities, organizational structures, and cultures tailored to their value network’s distinctive requirements.”