Value Chain Analysis


The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value. Customer value derives from three basic sources: activities that differentiate the product, activities that lower its cost, and activities that meet the customer’s need quickly. Value chain analysis (VAC) attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.

VCA takes a process point of view: it divides (sometimes called disaggregates) the business into sets of activities that occur within the business, starting with the inputs a firm receives and finishing with the firm’s products (or services) and after-sales service to customers. VCA attempts to look at its costs across the series of activities the business performs to determine where low-cost advantages or cost disadvantages exist. It looks at the attributes of each of these different activities to determine in what ways each activity that occurs between purchasing inputs and after-sales service helps differentiate the company’s products and services. Proponents of VCA believe it allows managers to better identify their firm’s strengths and weaknesses by looking at the business as a process—a chain of activities—of what actually happens in the business rather than simply looking at it based on arbitrary organizational dividing lines or historical accounting protocol.

Judgment is required across individual firms and different industries because what may be seen as a support activity in one firm or industry may be a primary activity in another. Computer operations might typically be seen as infrastructure support, for example, but may be seen as a primary activity in airlines, newspapers, or banks.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Walking and Talking Customer Value


To survive in this value era firms concentrate on improving four key business processes: designing, making, marketing, and supporting. Customer value is maximized when product, order, and experience—which are outcomes of the first three processes—are correct, timely, appropriate, and economical.

We are moving into the value era and firms will no longer survive if they simply focus on price and product features. Several non-price factors are thought to have great influence on customers perceptions of value received: 1) the length of customer lead times; 2) variation from promised delivery dates; 3) condition of product on arrival; 4) sales call and order initiation procedures; 5) credit, billing, and collection procedures; 6) effectiveness of after-sales support; 7) product documentation; 8) product performance; 9) product downtime frequency and duration; and 10) maintenance cost and difficulty.

There are four key business processes responsible for creating better customer value: 1) design—integrating the “voice of the customer” when building the product; 2) making –getting key inputs from suppliers and transforming them into other components or finished products leading to filled customer orders; 3) marketing—transforming sales leads into sales calls, sales orders, service calls, and sales support which lead to completed service transactions; and 4) support—those activities and tasks that serve internal customers.

In addition, the four key business processes must be reengineered and firms should strive for: 1) simplicity—provide the required variety of outputs at low cost and with minimum capital intensity; 2) focus—customer and supplier processes should be treated at the same process; 3) energy—employees should be empowered and also have problemsolving skills; 4) continuity—processes must have extensive improvement and refinement; 5) linearity—subprocesses within each process must be linked together and be customer driven; and 6) dependability—strong customer-supplier relationships assure the success of each process.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight