Recently there was requirement for conducting training programme on "Value Chain to Value Creation". I have given my reply to this query. It is as below:
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The concept comes from business management and was first described and popularized by Michael Porter in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance.
Nevertheless, this particular tool of strategy has not crossed threshold of the academics. MBA students use this model for their project purposes. Practising managers take benefit of this project and use to their advantage. In contrast, “Porter’s 5 Forces”, a framework, also propounded by Michael Porter in 1979, holds not just ground after thirty-seven years but popular too.
Measuring value on Value Chain Model (VCM) is difficult and time consuming too. Whereas other tools of business strategy like Porter’s Five Forces, SWOT Analysis, McKinsey’s 7S, Ansoff Matrix are easy to implement. Rather than measurement value or how to create value, business owners are more interested in how to gain competitive advantage. To gain sustained advantage, it is important to identify risks associated with the business and further take steps to mitigate these risks. This is the downside of VCM. It does not take into account the risk factors. To identify the risks, we need to use other tools of strategy. In that case why waste time on VCM?
In contrast, “Porter’s Generic Strategies”, far more popular. This tool helps in deciding the direction that enterprise must choose. Direction that enterprise should take now and direction after 4-5 years.
Let us consider example of Nokia phones or Kodak camera. Both fit perfectly on the VCM. Both the companies measured value and tried to create value. Yet they failed miserably because both failed to identify the risks associated with their business. Both the companies looked at the value of the product that is offered to their customers and not at the direction in which their enterprise was proceeding.
VCM apart, for manufacturing organisation, understanding each component of their Supply Chain is also important. Classic example is Apple. The company was in red in 1995, when Steve Jobs had taken over. However, the present CEO and the then CPO, Tim Cook, turned it around solely by introducing path breaking methods of supply chain. Even after twenty years also, Apple’s supply chain is always a subject of study, for academicians or for practising managers.
Managers always remember first chapter of the subject. VCM is taught as a first lesson, either in supply chain or in business strategy. Many times Managers raise queries for the training programmes on the first chapter that they remember. Don’t we find that many marketing managers keep on talking about “4 P’s of Marketing” throughout their life! Possibly this could be the case behind this query. However, rather than fulfilling the client’s requirement obediently, it is important to give a professional advice. That is the starting point of creating value to the customer!
Thanks, Dinesh Divekar 21st September 2016 From India, Bangalore