Why should you identify the value chain in your business?

An attractive, competitive offer for customers is the core part of running a business. The value that your product or service provides is what makes or breaks the company in the long term. So, to remain in business, you should focus on finding ways to make your services as valuable to the customers as possible. A tried and tested approach to working on it is pinpointing the business’ value chain and aligning all actions to match its needs perfectly.

A businesswoman views documents in an office.

Who defined the “value chain” concept?

Michael Porter, a professor at the Harvard Business School, wrote the “Competitive Advantage: Creating and Sustaining Superior Performance” book in 1985. Porter introduced the now classic division of primary and secondary activities, simplifying value chain identification. Primary activities pertain to product development, physical production, marketing, sales, and support, while secondary ones aid and serve the primary ones through HR management, procurement, supporting technology, and infrastructure.

What is the benefit of analyzing value chains?

Analysis of your company’s value chain will help you learn which actions you should focus on and which are draining your resources with no results whatsoever. That, in turn, will help you make informed decisions about daily operations and changes, allow you to reduce wasteful activities and save money, reveal the dependencies between your various proceedings and show the areas in highest need of change.

How to analyze the value chain?

  • Subdivide all activities
    Split each separate activity, both primary and secondary, into sub-actions. Porter suggests that each activity can subdivide into direct, indirect, and quality-assuring activities. A further split based on that pattern will aid a deeper analysis of costs and dependencies between each action taken.
  • Try to spot links between inefficiencies
    Very often, weak decision-making in one area will negatively impact several others. See how actions influence one another, and if most dropped balls don’t all have a common origin, by chance.
  • Pin-point the things to improve
    Based on found inefficiencies, decide which problems tackling will yield the highest return. Ideally, start with the matter that impacts the largest number of other areas and then move on to the less poignant problems. The goal here is to either increase the delivered value in the product or service or minimize costs.
A team looks over documents and performance metrics spread on an office table.

At what scale to analyze the value chain?

An analysis of the value chain should be done at the level of your entire company. If not attainable, turn to look at value delivery and production within the bounds of one of your products only. After all, the different products’ respective value chains can differ. However, by scaling down, you may be moving towards the value stream mapping route, rather than a value chain analysis.

To make either of these processes easier, consider tracking the value in your production process on a visual team board. The bottom line is to find the core element that makes your product attractive to customers and emphasize that value: align all actions to work towards increasing this property while cutting down the cost of all non-crucial activities.

The article was originally posted on the Kanban Tool Blog.

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