disintermediation

disintermediation, the process of removing intermediaries from a supply chain, a transaction, or, more broadly, any set of social, economic, or political relations.

The term disintermediation was first used in the early 1980s to describe change in the financial sectors of capitalist economies, especially the impact on broker firms of new technology in the stock market. It then became popular during the dot-com boom of the 1990s, when it was commonly used to capture the ways in which the Internet was reducing the role of previously powerful organizations in social, economic, and political life; in one view, Internet communication networks reduced the need for those who had some traditional claim to expert knowledge or market dominance.

An excellent example of disintermediation in action was the strategy adopted by the online computer retailer Dell at the beginning of the 21st century. The company sold goods through its Web site but had no physical presence in shopping centres. The overhead cost savings enabled it to offer a wide range of goods at lower prices than traditional retailers charged. Equally significant was its network model of internal governance, which rested on fine-grained management of supply chains, just-in-time manufacturing and distribution, and a global division of labour based on outsourcing.

In politics, some have argued that virtual communities and electronic voting might undermine traditional intermediaries such as parties, interest groups, legislatures, and bureaucracies. For example, the ideas of e-government and e-democracy were criticized for opening up public bureaucracies to direct citizen influence, thus “disintermediating” elected representatives whose traditional role was to scrutinize unelected officials.

Yet it is by no means clear that intermediaries are being undermined by new information and communication technologies. The claim needs to be assessed alongside an appreciation of broader institutional concentrations of power. Old intermediaries have found their skills highly relevant to the Internet age. They have at their disposal forms of knowledge, expertise, and wealth that are not distributed evenly throughout society. In some areas, new intermediaries are mushrooming. Existing power brokers are often just as likely to have their positions enhanced by the Internet as they are to have them reduced as a result of competition with smaller or newly emergent players.