A third party adds most value when:

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BlackTom AI · Accepted Answer

To evaluate when a third party adds the most value, we consider what the third party can leverage: information asymmetry, specialization, and flexibility in handling uncertainty.
Option 1: 'Demand is large and stable' A large, stable demand reduces the need for a third party to buffer risk or adapt to changing needs. In such a scenario, the value of external intermediaries is often lower because the market can rely on predictable demand without extra coordination or adaptation. This makes this choice less likely to be where value is maximized.
Option 2: 'Requirements are small and uncertain' This combination heightens value creation for a third party. Small, uncertain requirements imply frequent changes and limited clarity about what is needed. A third party can aggregate, standardize, and pace the requirements, providing flexibility, experimentation, and rapid reconfiguration, which minimizes transaction costs and misalignment between buyer and supplier. Such dynamics are where intermediaries typically excel, delivering cost savings and risk-sharing.
Option 3: 'Assets are highly specific' When assets are highly specialized, the risk of incompatibility and high switching costs exists, which might reduce the ability of a third party to reconfigure efficiently. In such contexts, the buyer may prefer to own or tightly control those assets rather than rely on a third party, so the value-add from the intermediary is not as clear-cut.
Option 4: 'Buyer has excess capacity' If the buyer already has spare capacity, the incentive to engage a third party to obtain flexibility or efficiency is weaker. The buyer can utilize internal resources instead of outsourcing or outsourcing to gain marginal benefits, diminishing the value proposition of a third party.
Overall, the scenario that maximizes a third party's value is when requirements are small and uncertain, because it favors the intermediary’s ability to standardize, adapt, and rapidly reconfigure to changing needs, while reducing coordination costs for the buyer.

A third party adds most value when:

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A third party adds most value when:

View Explanation

Log in for full answers

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