Dear friends, Recently there was a requirement for conducting a training programme on "Value Chain to Value Creation." I have given my reply to this query. It is as below:
Understanding the Value Chain
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 the threshold of academia. MBA students use this model for their project purposes. Practicing managers benefit from this project and use it to their advantage. In contrast, "Porter's 5 Forces," a framework also propounded by Michael Porter in 1979, not only holds ground after thirty-seven years but is also popular.
Challenges of the Value Chain Model (VCM)
Measuring value on the Value Chain Model (VCM) is difficult and time-consuming. Other tools of business strategy like Porter's Five Forces, SWOT Analysis, McKinsey's 7S, and Ansoff Matrix are easier to implement. Rather than measuring 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 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?
Comparing with Porter's Generic Strategies
In contrast, "Porter's Generic Strategies" are far more popular. This tool helps in deciding the direction that an enterprise must choose, both now and in 4-5 years.
Let us consider the example of Nokia phones or Kodak cameras. Both fit perfectly on the VCM. Both companies measured value and tried to create value. Yet they failed miserably because they failed to identify the risks associated with their business. Both companies looked at the value of the product offered to their customers and not at the direction in which their enterprise was proceeding.
Importance of Supply Chain Understanding
Apart from VCM, for a manufacturing organization, understanding each component of their supply chain is also important. A classic example is Apple. The company was in the red in 1995 when Steve Jobs took over. However, the present CEO and the then CPO, Tim Cook, turned it around solely by introducing groundbreaking methods of supply chain management. Even after twenty years, Apple's supply chain is always a subject of study for academicians and practicing managers.
Managers always remember the 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 training programmes on the first chapter that they remember. Don't we find that many marketing managers keep on talking about the "4 P's of Marketing" throughout their lives? Possibly, this could be the case behind this query. However, rather than fulfilling the client's requirement obediently, it is important to give professional advice. That is the starting point of creating value for the customer!
Thanks,
Dinesh Divekar
From India, Bangalore
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8072Understanding the Value Chain
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 the threshold of academia. MBA students use this model for their project purposes. Practicing managers benefit from this project and use it to their advantage. In contrast, "Porter's 5 Forces," a framework also propounded by Michael Porter in 1979, not only holds ground after thirty-seven years but is also popular.
Challenges of the Value Chain Model (VCM)
Measuring value on the Value Chain Model (VCM) is difficult and time-consuming. Other tools of business strategy like Porter's Five Forces, SWOT Analysis, McKinsey's 7S, and Ansoff Matrix are easier to implement. Rather than measuring 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 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?
Comparing with Porter's Generic Strategies
In contrast, "Porter's Generic Strategies" are far more popular. This tool helps in deciding the direction that an enterprise must choose, both now and in 4-5 years.
Let us consider the example of Nokia phones or Kodak cameras. Both fit perfectly on the VCM. Both companies measured value and tried to create value. Yet they failed miserably because they failed to identify the risks associated with their business. Both companies looked at the value of the product offered to their customers and not at the direction in which their enterprise was proceeding.
Importance of Supply Chain Understanding
Apart from VCM, for a manufacturing organization, understanding each component of their supply chain is also important. A classic example is Apple. The company was in the red in 1995 when Steve Jobs took over. However, the present CEO and the then CPO, Tim Cook, turned it around solely by introducing groundbreaking methods of supply chain management. Even after twenty years, Apple's supply chain is always a subject of study for academicians and practicing managers.
Managers always remember the 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 training programmes on the first chapter that they remember. Don't we find that many marketing managers keep on talking about the "4 P's of Marketing" throughout their lives? Possibly, this could be the case behind this query. However, rather than fulfilling the client's requirement obediently, it is important to give professional advice. That is the starting point of creating value for the customer!
Thanks,
Dinesh Divekar
From India, Bangalore
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Thanks for this post. Indeed, I have some complementary comments as follows:
The practice and knowledge of the value chain in value creation is often misunderstood, with many associating it solely with logistics and procurement. However, as part of your post mentioned, companies like Nokia and Kodak were highlighted. Porter's idea of being competitive and having a differentiation strategy is a significant asset for companies today. Nokia and other companies that couldn't compete with Apple and survive in the market lacked research and development, and overall innovation, which is linked to this topic.
Nevertheless, marketing today is not limited to the old 4 P’s: Product, Place, Promotion, and Price. We must also consider People and Process, which create value in terms of customer satisfaction and value chain integration.
Overall, this topic is interesting and indeed has room for more discussion in different areas.
Regards, [Username]
From Singapore, Singapore
Acknowledge(0)Amend(0)
The practice and knowledge of the value chain in value creation is often misunderstood, with many associating it solely with logistics and procurement. However, as part of your post mentioned, companies like Nokia and Kodak were highlighted. Porter's idea of being competitive and having a differentiation strategy is a significant asset for companies today. Nokia and other companies that couldn't compete with Apple and survive in the market lacked research and development, and overall innovation, which is linked to this topic.
Nevertheless, marketing today is not limited to the old 4 P’s: Product, Place, Promotion, and Price. We must also consider People and Process, which create value in terms of customer satisfaction and value chain integration.
Overall, this topic is interesting and indeed has room for more discussion in different areas.
Regards, [Username]
From Singapore, Singapore
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