Creating value chains can be integral part of decision-making thanks to their ability to illustrate how a firm is delivering a valuable product or service to market. A value chain can support other decision tools and benefit competitive strategies with the additional information they supply.According to Andrew Campbell, from the Ashridge Strategic Management Centre Focus, value chains are the best way to start working on an operating model for those that don’t operate in the enterprise architect profession. In an article, Campbell lists examples of how the simple analysis process of value chains have helped businesses streamline and improve their operations. While he recognises that an operating model is much more than a value chain he urges firms to try it on their business and gain a better understanding of how to advance and enhance their business and their decision-making process.
Campbell gives businesses a simple 4-step exercise that should be conducted in less than 30 minutes to being working from:
- Select a business area that has more than one product, market or customer segment.
- Identify the different segments but keep it to a maximum of five to allow for efficiency.
- Draw a value chain for each segment that, again, limits to five steps.
- Compare across the value chain. Businesses should look for similar steps, opportunities to standardise and opportunities to differentiate.
But is the value chain enough? Whether creating a capability map or a value chain, it’ll have little impact unless incorporated and tied to strategy. In an article, written by William Ulrich, President of TSG, and Jim Rhyne, Principle Consultant of Software Renovation Consulting, the authors argue the importance of tying business capabilities to value chains.
While Ulrich and Rhyne support the use of value chains, they go further to suggest that we need to tie together a network of business capabilities under each value chain to be viewed as a group. This practice provides a richer analysis to help business executives formulate and execute strategy. While capabilities are shared across value streams, their relative importance to a strategy derives from the importance of the value stream. Without linking the value stream to capabilities, the ability to execute on a strategy becomes more difficult to accomplish.
While this may seem pedantic and complex, the results can be dramatic. Using a capability-first approach is central to developing an effective strategy that leverages the core capabilities of an organization.
In fact, Vanguard EA’s own Nick Malik has previously noted that capability thinking could have saved Kodak, the photography firm that failed to keep up in the modern age. In that case, ‘brand thinking’ meant that Kodak continued to rely on it’s outdated business model and segments, believing that its strategy should be formed around its well-known brand. Capability thinking could have highlighted the need to innovate around their most valuable capabilities in the manufacture and processing of light sensitive plastics, rather than building digital cameras and printers.