A while ago I wrote about strategy execution and mentioned a method I’ve been using for a while. Last week I was asked how to choose factors that will make a difference?
One very good option is to draft a detailed value chain describing all the phases of your markets. It can be based on Michael E. Porter’s generic value chain, but as said, detailed enough to illustrate your markets and steps of your business.
After illustrating the value chain, you have to point out the most important issues to successfully serve customer needs in every step. Depending on the number of phases you may come up with 30-50 important issues. Big number of important issues is not bad at all. Actually, it is quite healthy not to be too critical at this point – filtering comes later.
Next task is to identify factors, where you really have to excel in order to add value. These are the critical ones. You may come up with 5-7 critical success factors that really make a difference. It is good to notice, that all of your competitors are in the same value chain, and may also have pointed out the same critical factors. Therefore differentiation in operative decisions has a great importance. The devil is in the details.
Using value chain analysis has at least two very clear advantages. 1) You focus only to core of your business and 2) You focus to points that add value for all stakeholders in the value chain.
Update July 2, 2009: This recent post is related to the topic above.
5 responses so far ↓
Mikko Hämäläinen // June 30, 2008 at 8:50 pm |
Value chain analysis is of great importance for established business models. However, only focusing on existing value chain easily leads to optimizing existing operations and thus focuses on cost optimization. More educated business analysts also focus on the sales – especially sales automation and customer segmentation.
While this is all good, in order to really make a difference one should also think outside the box and try to find ways to actually disrupt existing value chain in order to gain a unique position in the business. Some, somewhat tired, examples could be Apple with their content delivery platform (iTunes), Amazon with their Kindle and Google with their targeted ad network.
These all are good examples on how to gain a controlling position in a disrupted value chain and essentially have a robust model where it is practically impossible for the competition to enter the market – at least without massive investments to product development and infrastructure – something that of course can be analyzed with the traditional Porter framework.
Eero // July 1, 2008 at 6:21 am |
Great and challenging comment. You are right, we should constantly ask ourselves, do we really understand value chain and especially where and how we should operate there. To make it clear: while talking about “your market’s value chain”, I refer all steps of it from underlying customer need to fulfilling it. It includes steps where we have no participation whatsoever.
Recently I’ve been studying customer value needs in the every step of the value chain. According to some theories, there is only nine customer values; not more, not less. By comparing customers’ value expectations, your proposal and your competitor’s proposal in every step you soon find new opportunities for strategic differentiation. I find it very good addition to the success factor analysis described above, but you still need to identify the critical factors to excel when serving customer values.
About one of your examples: If thinking fulfilling customer value needs, is Apple’s proposal so disruptive? I think that the proposal is not. On the contrary, it is a perfect match for the underlying needs. However, what comes to Apple’s business approach from their competitors’ point of view, it is nothing but disruptive. Competitors were rather focused to cost optimization of existing process than maximizing their effort to fully focus satisfying customer value needs within the chain. Huge difference.
Kate // September 1, 2008 at 11:30 am |
Hi the writer,
I have working on my thesis, and I am trying to determine CSFs in tourism business in Thailand. I also need some guidelines to determine what theCSFs should be in the current situation. My advisor also suggests to use the Value Chain of Guru Porter, M. I toally agree too.
I have a question, could you tell me more which book i can get more information about customer value needs in the every step of the value chain?
Match the value chain with the customer value needs, it is how we think outside the box. I think.
Kate.
Eero // September 1, 2008 at 7:18 pm |
Hi Kate,
First of all, your method of linking customer value needs and industry value chain is really worth of studying.
While selecting the CSF’s, I’d recommend to interview a specialist of each part of the value chain. Then your questions could be “What is the most important success factor in this part of value chain?” or “What are the most important sources of customer value in this part of value chain?”.
As you already guessed, I have no good books to suggest. However, my good friend Mikolas found at least three good ones:
1. The New Industrial Revolution: The Power of Dynamic Value Chains
2. Harvard Business Review on Managing the Value Chain
3. Value Innovation Portfolio Management: Achieving Double-digit Growth Through Customer Value
Good luck with the thesis!
Eero
Kate // September 8, 2008 at 4:44 am |
thank you!