Value Chain Analysis

What is Value chain analysis and why is it required?

Value Chain Analysis or Value Stream Mapping is a useful tool for working out how you can create the greatest possible value for your customers, as well as your best route to profit maximization.

Value Chain Analysis helps you identify the ways in which you create value for your customers, and then helps you think through how you can maximize this value: whether through superb products, great services, or jobs well done.

Steps in Studying a Value Chain

Value chain analysis can be broken down into a three sequential steps:

1. Break down a market/organisation into its key activities under each of the major headings in the model;
2. Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;
3. Determine strategies built around focusing on activities where competitive advantage can be sustained

Things to be covered while studying value chain:

• Various members in the chain
• Interlinkages between each element
• Stages of production between each element
•  Any special relationship between any two elements
• Some typical players in each stage along with their sizes, products and their special relationship between any other player
• Scope of vertical integration (Need and hurdles)
• Any particular dependency on one particular player (monopoly situation at any stage)
• Cost/price mark-up and value addition at  each stage

Value Chain Analysis is a three-step process:

1. Activity Analysis: Firstly, you identify the activities you undertake to deliver your product or service;
2. Value Analysis: Secondly, for each activity, you think through what you would do to add the greatest value for your customer; and
3. Evaluation and Planning: Thirdly you evaluate whether it is worth making changes, and then plan for action.

We follow these through one-by-one:-

1. Activity Analysis:

The first step to take is to brainstorm the activities that you, your team or your company undertakes that in some way contribute towards your customer’s experience.

These will include marketing of your products or services; sales and order-taking; operational processes; delivery; support; and so on (this will may also involve many other steps or processes specific to your industry).

At a personal of team level, it will involve the step-by-step flow of work that you carry out.But this will also involve other things as well (Porter’s “Support Activities”). For example:-

• How you recruit people with the skills to give the best service;
• How you motivate yourself or your team to perform well;
• How you keep up-to-date with the most efficient and effective techniques;
• How you select and develop the technologies that give you the edge; and
• How you get feedback from your customer on how you’re doing, and how you can improve further.

2. Value Analysis:

Now, for each activity you’ve identified, list the “Value Factors” - the things that your customers’ value in the way that each activity is conducted. 

e.g. if you’re thinking about a telephone order-taking process, your customer will value a quick answer to his or her call; a polite manner; efficient taking of order details; fast and knowledgeable answering of questions; and an efficient and quick resolution to any problems that arise. 

If you’re thinking about delivery of a professional service, your customer will most likely value an accurate and correct solution; a solution based on completely up-to-date information; a solution that is clearly expressed and easily actionable; and so on. Next to each activity you’ve identified, write down these Value Factors. And next to these, write down what needs to be done or changed to provide great value for each value factor.

3. Evaluate Changes and Plan for Action:

By the time you've completed your Value Analysis, you’ll probably be fired up for action: you’ll have generated plenty of ideas for increasing the value you deliver to customers. And if you could deliver all of these, your service could be fabulous!

Now be a bit careful at this stage: you could easily fritter your energy away on a hundred different jobs, and never really complete any of them. So firstly, pick out the quick, easy, cheap wins – go for some of these, as this will improve your team's spirits no end. Then screen the more difficult changes. Some may be impractical. Others will deliver only marginal improvements, but at great cost. Drop these. And then prioritize the remaining tasks and plan to tackle them in an achievable, step-by-step way that delivers steady improvement at the same time that it keeps your team’s enthusiasm going.

Some Tips

• If you carry out the brainstorming behind the Activity Analysis and Value Analysis with your team, you’ll almost certainly get a richer answer than if you do it on your own. You may also find that your team is more likely to “buy into” any conclusions you draw from the exercise. After all: the conclusions will be as much theirs as yours.
• If you have a strong enough relationship with one or more of your customers, it may be worth presenting your conclusions to them and getting their feedback – this is a good way of either confirming that you’re right or of getting a better understanding of what they really want.
  

Source: mindtools.com