Market Value Doesn't Vanish—It Migrates

When industries go through high uncertainty, disruption or crisis, value doesn't disappear. It migrates.

Profits and industry control move from one value chain segment to another, concentrating where companies can demand premium pricing and exert disproportionate influence. Meanwhile, companies stuck in segments where value is vanishing find themselves increasingly powerless, commoditized and struggling to grow. Understanding these mechanics has been the central premise of corporate strategy for over a century.

The Century-Long Quest to Map Value

The intellectual journey begins at least as early as Adam Smith, who in 1776 documented how merchants and manufacturers would go to great lengths (often including violence) to control the most valuable segments of trade routes and markets.¹ Smith understood that monopoly power concentrated at strategic chokepoints, where those who controlled passage could extract extraordinary rents.

This analysis deepened significantly with Ronald Coase in 1937, who recognized that value concentrates at specific constraint points in economic systems.² His insight was deceptively simple: transaction costs create natural bottlenecks that determine where companies draw their boundaries. Joseph Schumpeter expanded this thinking in the 1940s, showing how innovation creates temporary monopolies where extraordinary profits accumulate through "creative destruction."³

These early economists established a counterintuitive principle: value distribution in markets is inherently uneven. It pools at constraints, creating positions of extraordinary advantage for those who control them.

The 1960s brought systematic analysis to these intuitions. Jay Forrester pioneered system dynamics, explicitly modeling how constraints determine system behavior.⁴ Oliver Williamson's transaction cost economics explained why firms integrate around high-specificity activities.⁵ Together, they began trying to quantify where companies could extract maximum value: at points where coordination costs, switching costs or technical constraints gave certain players decisive bargaining power.

The Revolution Has a Name

Everything changed when Michael Porter gave us the language of "value chains" in the 1980s.⁶ Suddenly, we had a framework to visualize competitive advantage as a system rather than isolated strengths. Porter showed that firms compete through integrated networks of value-creating activities, with advantage arising from controlling key linkages.

His Five Forces framework revealed where value concentrated: at the intersection of competitive dynamics, barriers to entry and bargaining power. Companies could now see their industry as an interconnected system and identify which positions commanded premium returns.

The 2000s brought empirical rigor through Global Value Chain research. Studies of international production networks revealed that lead firms captured disproportionate value by controlling critical nodes.⁷ Whether examining electronics manufacturing in Asia or automotive supply chains in Europe, profits concentrated at bottlenecks.

Christensen Insights

Clayton Christensen added the crucial temporal dimension to this framework. His research on disruptive innovation demonstrated that disruption systematically shifts value across industry bottlenecks in specific ways that create asymmetrical threats and opportunities.⁸ The profound insight: success comes from positioning your business where value will be tomorrow, not where it is today.

Christensen's modularity framework also provides particularly actionable guidance.⁹ Companies should integrate and build internal capabilities that are "not good enough" for market needs (representing bottlenecks where competitive advantage concentrates). Conversely, they should modularize or outsource what has become "more than good enough."

To shift these lessons from theory to practice, my work with Christensen at Harvard beginning in 2007 transformed qualitative observations into quantitative models and predictive analytics.¹⁰ This collaboration laid the groundwork for today's computational era of value chain analysis.

From Art to Science

Today, we stand at a historic moment. For over a century, business thinkers from Adam Smith to Porter to Christensen could see the patterns but did so during epochs when humanity lacked the tools to fully operationalize them. The democratization of computational power changes everything. Cloud computing puts supercomputer-level processing in every manager's hands. Open-source machine learning libraries provide analytical capabilities that would have cost millions just a decade ago.

We can now map entire industry value chains with millions of data points, quantify bottleneck formation as it happens and diagnose where value is migrating in real-time. Any company can run analyses that would have required entire research departments.

This isn't abstract theory. Consider three industry transformations:

Semiconductors: Intel thrived for decades as a vertically integrated manufacturer. When customization became critical, value migrated to flexible foundry services. TSMC positioned itself at this new bottleneck, becoming the platform enabling the entire fabless ecosystem. Today, TSMC commands over 50% market share while Intel's foundry division struggles with losses.¹¹

Digital Marketplaces: Amazon and Apple recognized that network effects would concentrate value at coordination points.¹² Rather than competing with retailers or developers, they became essential infrastructure. Value migrated from product creation to marketplace orchestration.

Renewable Energy: While solar panel manufacturing commoditized, value concentrated at new constraints: battery technology, grid integration and rare earth processing. Tesla's early bet on Gigafactories¹³ and companies like Albemarle's focus on lithium processing¹⁴ captured emerging bottlenecks before their strategic importance became obvious.

The lesson is clear: position yourself where value will concentrate. Timing matters because bottleneck positions exhibit natural monopoly characteristics. Network effects, switching costs and capability requirements compound to create durable advantages for early movers.

A World of Accelerating... Everything

Today's landscape presents unprecedented challenges. AI reshapes entire industries, trade wars fragment global supply chains and geopolitical conflicts disrupt established patterns. New bottlenecks emerge in unpredictable ways: semiconductor manufacturing becomes a national security issue, rare earth processing determines green technology leadership and AI compute capacity creates new power dynamics.

All this acceleration can cause bottlenecks to form and dissolve faster than ever. What took decades in manufacturing now happens in years in software and months in AI.

This creates threats and opportunities.

Clearing the Path Forward

For over a century, the core challenge of strategy has remained constant: identify where value will migrate and positioning to capture it. What's changed is our ability to see these patterns with clarity and precision.

Modern analytical capabilities have finally transformed strategic intuition into empirical measurement. This democratizes strategic insight, enabling a wider range of organizations of all sizes to map value flows. This convergence of century-old theory with computational power is an unprecedented moment. Understanding value migration isn't just academic. It's the difference between thriving through disruption or becoming its casualty. Never waste a crisis.

Endnotes

¹ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). Smith documented how merchants and manufacturers would use various means, including violence, to establish and maintain monopolistic control over trade routes and valuable market segments, recognizing that extraordinary profits accumulated at these strategic bottlenecks.

² Ronald H. Coase, "The Nature of the Firm," Economica, Vol. 4, No. 16 (1937), pp. 386-405. Coase's seminal work identified transaction costs as fundamental determinants of firm boundaries and laid the groundwork for understanding how economic value concentrates at specific constraint points.

³ Joseph A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1942). Schumpeter's theory of creative destruction explained how innovation creates temporary monopoly positions where extraordinary profits accumulate before competition erodes these advantages.

⁴ Jay W. Forrester, Industrial Dynamics (Cambridge, MA: MIT Press, 1961). Forrester pioneered the field of system dynamics, developing mathematical models that explicitly showed how constraints determine system behavior and performance.

⁵ Oliver E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (New York: Free Press, 1975). Williamson's transaction cost economics framework explained why firms vertically integrate around high-specificity activities to avoid hold-up problems and capture value at bottlenecks.

⁶ Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985). Porter's value chain framework revolutionized strategic thinking by providing the first systematic method for mapping competitive advantage across interconnected business activities.

⁷ Gary Gereffi, John Humphrey, and Timothy Sturgeon, "The governance of global value chains," Review of International Political Economy, Vol. 12, No. 1 (2005), pp. 78-104. This foundational work in Global Value Chain theory demonstrated through extensive empirical research how lead firms capture disproportionate value by controlling critical nodes in international production networks.

⁸ Clayton M. Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Boston: Harvard Business Review Press, 1997). Christensen's groundbreaking research showed how disruptive innovation systematically shifts industry bottlenecks and creates predictable patterns of value migration.

⁹ Clayton M. Christensen and Michael E. Raynor, The Innovator's Solution: Creating and Sustaining Successful Growth (Boston: Harvard Business Review Press, 2003). The modularity framework provided actionable guidance on when to integrate versus outsource based on whether capabilities address performance gaps (bottlenecks) or exceed market needs.

¹⁰ The computational approach to value chain analysis emerged from Thomas Thurston's research partnership with Clayton Christensen at Harvard beginning in 2007, where they pioneered quantitative methods for understanding disruption and value migration patterns. This collaboration laid the foundation for transforming strategic analysis from qualitative observation to data-driven science.

¹¹ Industry analysis based on multiple sources: TSMC's market dominance reported in AnandTech (December 6, 2023) showing over 50% foundry market share; Intel's foundry struggles documented in Reuters (March 13, 2025) and TechSpot (February 17, 2025) reporting significant operational losses in the foundry division.

¹² For comprehensive analysis of platform dynamics and network effects, see Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary, Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You (New York: W. W. Norton & Company, 2016).

¹³ Tesla's strategic battery investments detailed in company annual reports (2014-2024) and industry analyses of Gigafactory development, representing early recognition of energy storage as a critical bottleneck in the electric vehicle value chain.

¹⁴ Lithium processing bottleneck analysis based on market research showing how companies like Albemarle Corporation and Livent Corporation positioned themselves at critical mineral processing constraints, capturing value from the entire electric vehicle ecosystem through strategic investments in refining capacity.