EXPLOITING THE VIRTUAL VALUE CHAIN scale and scope does not apply to the virtual value chain(vvc)in the same way as it does to the physical value chain(Pvc). Moreover, the two chains must be managed distinctly but also in concert Companies tend to adopt value-adding information processes in three stages. In the first, visibility, companies acquire an ability to "see"physical operations more effectively through information. At this stage, managers use large-scale information technology systems to coordinate activities in their physical value chains, in the process laying the foundation for a virtual value chain. In the second stage, mirroring capability, companies substitute virtual activities for physical ones; they begin to create a parallel value chain in the marketspace. Finally, businesses use information to establish new customer relationships. At this third stage, managers draw on the flow of information in their virtual value chain to deliver value to customers in new ways. In effect, they apply the generic value-adding activities to their virtual value chain and thereby exploit what we call the value matrix As companies move into the information world to perform value-addin steps, the potential for top-line growth increases. Each of the three stages represents a considerable opportunity for managers. Visibility During the past 30 years, many companies have invested in technology ystems to enable managers to coordinate, measure, and sometimes control business processes. The information about steps in the value chain collected by these systems has helped managers to plan, execute, and evaluate results with greater precision and speed. In other words, information technology has allowed managers to see their operations more Conventional understanding of the economies of scale effectively through the information world. In and scope does not apply recent years, managers have been able to the virtual value chain gain access to the information generated in the course of traditional operating activities, and that information helps them see their physical value chains as an integrated system rather than as a set of discrete though related activities In this way, they can gain new insights into managing the value chain as a whole instead of as a collection of parts. Companies such as Fed Ex, Wal-Mart, and Frito-Lay have transformed this kind of visibility into competitive advantage. The successful use of world-class information systems by each of these companies is now common know ledge, but consider one example- Frito-Lay -from the perspective of the marketspace. Frito's achievement with its widely publicized"information THE McKINSEY QUARTERLY 1996 NUMBER 1 25scale and scope does not apply to the virtual value chain (VVC) in the same way as it does to the physical value chain (PVC). Moreover, the two chains must be managed distinctly but also in concert. Companies tend to adopt value-adding information processes in three stages. In the first, visibility, companies acquire an ability to “see” physical operations more eƒfectively through information. At this stage, managers use large-scale information technology systems to coordinate activities in their physical value chains, in the process laying the foundation for a virtual value chain. In the second stage, mirroring capability, companies substitute virtual activities for physical ones; they begin to create a parallel value chain in the marketspace. Finally, businesses use information to establish new customer relationships. At this third stage, managers draw on the flow of information in their virtual value chain to deliver value to customers in new ways. In eƒfect, they apply the generic value-adding activities to their virtual value chain and thereby exploit what we call the value matrix. As companies move into the information world to perform value-adding steps, the potential for top-line growth increases. Each of the three stages represents a considerable opportunity for managers. Visibility During the past 30 years, many companies have invested in technology systems to enable managers to coordinate, measure, and sometimes control business processes. The information about steps in the value chain collected by these systems has helped managers to plan, execute, and evaluate results with greater precision and speed. In other words, information technology has allowed managers to see their operations more eƒfectively through the information world. In recent years, managers have been able to gain access to the information generated in the course of traditional operating activities, and that information helps them see their physical value chains as an integrated system rather than as a set of discrete though related activities. In this way, they can gain new insights into managing the value chain as a whole instead of as a collection of parts. Companies such as FedEx, Wal-Mart, and Frito-Lay have transformed this kind of visibility into competitive advantage. The successful use of world-class information systems by each of these companies is now common know￾ledge, but consider one example – Frito-Lay – from the perspective of the marketspace. Frito’s achievement with its widely publicized “information EXPLOITING THE VIRTUAL VALUE CHAIN THE McKINSEY QUARTERLY 1996 NUMBER 1 25 Conventional understanding of the economies of scale and scope does not apply to the virtual value chain