Disruptive Innovation and Disintermediation Strategies in Value Chain

Abstract

Disintem1ediation was originally coined to represent the banking industry: withdrawal of funds from intennediary financial institutions in order to invest in instruments yielding a higher return (American Heritage Dictionary. 1994). Today this term has taken on a whole new meaning: the elimination in a business process of the intermediary whose costs exceed the value it provides (Pinto 2000). This paper attempts to understand the change in the value chain strategies brought about by the digital revolution. Disintennediation is said to happen happened when third parties are eliminated from the supply chain, enabling direct links between buyers and sellers. The advent of the internet technologies has accelerated the process of removing in selling the middleman selling products directly to customers rather than going through traditional retail channels. By eliminating the middlemen, companies can sell their products cheaper and faster. Today this concept of disintermediation is the driving force in a number of business sectors. The idea of disintennediation eliminates the economic value of the middle man and thus the third parties or intennediaries (including sales channels, distributors, and retaiI outlets) are considered downstream links, generating lower margins.