EXPLOITING THE VIRTUAL VALUE CHAIN customize policies on the vVC. Looking at the flow of information harvested along its VVC, USAAs managers invented business lines targeted to the needs of specific customers, such as insurance for boat owners. But the company also used its growing expertise with information to create new value for customers in areas that had little or nothing to do with insurance. It went one step further for boat owners, for example: it designed financing packages for purchasing boats. In fact, USAA now offers a wide range of financial products as well as shopping services for everything from jewelry to cars. Further, when a customer calls in with a theft claim, the company can offer to send a check or replace the stolen item.(Many customers opt for the latter because it involves less work and solves their problem By aggregating demand statistics and likely loss ratios, USAA has become a smart buyer for its loyal customer base, winning discount prices through high-volume purchases and passing some or all of the saving along to the customer. Today, USAA is one of the largest direct merchandisers in the United States, shipping real goods along its PVC as directed by the sensing capabilities of its vVC. Yet the company does not actually manufacture anything. Rather, it is a trusted intermediary Each stage of the virtual value between the demand it senses and the chain allows for many new supply it sources extracts from the information Although USAAs"product line"is eclectic, each of which could constitute it represents a logical, cost-effective, and a new product or service profitable progression of new business ven tures, all of which are underwritten by the information about customers captured in the company's virtual value chain Managing that information has become USAAs central activity. Through clever integration of the information harvested along the vvC and through a PVC that delivers goods and services, it creates new value for customers b serving a broader set of their needs The value matrix The new relationships that companies such as USAA are developing with customers spring from a matrix of value opportunities. Each stage of the virtual value chain-as a mirror of the physical value chain- allows for many new extracts from the flow of information, each one of which could constitute a new product or service. If managers want to pursue any of these opportunities, they need to put into place processes to gather the information, organize it for the customer, select what's valuable, package(or synthesize)it, and distribute it- the five value-adding steps unique to the information world. In effect, these value-adding steps, in conjunction with 30 THE McKINSEY QUARTERLY 1996 NUMBERcustomize policies on the VVC. Looking at the flow of information harvested along its VVC, USAA’s managers invented business lines targeted to the needs of specific customers, such as insurance for boat owners. But the company also used its growing expertise with information to create new value for customers in areas that had little or nothing to do with insurance. It went one step further for boat owners, for example: it designed financing packages for purchasing boats. In fact, USAA now oƒfers a wide range of financial products as well as shopping services for everything from jewelry to cars. Further, when a customer calls in with a theƒt claim, the company can oƒfer to send a check or replace the stolen item. (Many customers opt for the latter because it involves less work and solves their problem.) By aggregating demand statistics and likely loss ratios, USAA has become a smart buyer for its loyal customer base, winning discount prices through high-volume purchases and passing some or all of the saving along to the customer. Today, USAA is one of the largest direct merchandisers in the United States, shipping real goods along its PVC as directed by the sensing capabilities of its VVC. Yet the company does not actually manufacture anything. Rather, it is a trusted intermediary between the demand it senses and the supply it sources. Although USAA’s “product line” is eclectic, it represents a logical, cost-eƒfective, and profitable progression of new business ven￾tures, all of which are underwritten by the information about customers captured in the company’s virtual value chain. Managing that information has become USAA’s central activity. Through clever integration of the information harvested along the VVC and through a PVC that delivers goods and services, it creates new value for customers by serving a broader set of their needs. The value matrix The new relationships that companies such as USAA are developing with customers spring from a matrix of value opportunities. Each stage of the virtual value chain – as a mirror of the physical value chain – allows for many new extracts from the flow of information, each one of which could constitute a new product or service. If managers want to pursue any of these opportunities, they need to put into place processes to gather the information, organize it for the customer, select what’s valuable, package (or synthesize) it, and distribute it – the five value-adding steps unique to the information world. In eƒfect, these value-adding steps, in conjunction with EXPLOITING THE VIRTUAL VALUE CHAIN 30 THE McKINSEY QUARTERLY 1996 NUMBER 1 Each stage of the virtual value chain allows for many new extracts from the information, each of which could constitute a new product or service