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a value chain approach – part 1

creating value

linking value creating activities

by Kenneth Rudich

I’m always intrigued by concepts that have a universal applicability.  You know, the kind that transcend time and place; never really lose appeal; or diminish in purpose and functionality.  At the end of the day, they are the ones that endure while so many others quietly fade away.

The invention of electricity – or rather, the harnessing of it – comes to mind.  Its perceived value crisscrosses calendars and continents alike, and there’s no end in sight for achieving abundant success with marketing it.  Indeed, I’m guessing the average Vice President of Marketing for a power utility gets to spend the better part of each day playing golf – assuming, of course, it’s not lightening outside (wouldn’t that combination invite the mother of all ironies?).

The concept of a value chain holds the same sort of intrigue for me.  This is partially because it summons to mind the kind of imagery that seems especially appropriate in a marketing setting; but mostly because it can be extended and used in so many ways and under so many circumstances.  It really has a bona fide air of universal applicability.  (If you want to refresh your memory about the definition of value, take a moment to visit “Creating Value…or Climbing Up a Waterfall?” in this blog.)

the generic value chain

Harvard Business School professor Michael Porter originally described the value chain in 1985, back when industrial-based thinking — that is, converting raw materials into physical products — was still at the center of attention in many circles.  He introduced it as a generic analytical business model for that specific type of environment.

Porter’s concept relies on a visual mapping technique to isolate the key functions or activities found in a manufacturing environment, from starting with the raw materials, to turning them into finished goods, to getting them into the hands of customers.  Each separate activity is then studied to see if an opportunity exists to generate more value from it.

In the course of this analysis, value might be improved from within an individual activity, or it might be enhanced by strengthening the relationships between activities.  Making piecemeal gains all along the chain can yield a powerful cumulative effect at the end of it, one that significantly increases the total value offered.

At least, that’s my quick take.   If you want a more in-depth explanation, visit NetMBA.

the customized value chain

Though the original concept of the value chain focused specifically on manufacturing, other people have since adapted it to reflect the key activities that are particular to their business concern.  In other words, they have borrowed the same basic principles but customized the model to better suit their analytical needs.  (This is another example of the rising trend toward customization as previously discussed in “As the Marketing World Turns.”)

These modifications have spawned a number of variations, like the value network or the value grid, which sought to capture the somewhat more complex nature of delivering value in a services-based environment.  There is also something Porter calls the value system, which looks at the larger infrastructure of activities that surround and support a firm’s value chain.  His brainchild may have also had a hand in the development of some other popular business analysis methods that have emerged in recent years, such as the field of supply chain management or the formulation of a customer touchpoints analysis.

Regardless of the tool or technique, they all essentially have the same goal in common — namely, they support the push to produce optimum value from a diverse mix of business-related activities that have been brought together to form a product or service.

up next

Marketing is obviously in that mix of business activities typically associated with a product or service.  And like many others in this mix, it is comprised of its own subset of key activities.  Thus, enhancing the effectiveness of the marketing function becomes a matter of identifying the value-creating activities contained within that subset, and then working on them to realize the best effect possible.

In part 2, I intend to propose a generic value chain for managing a marketing strategy across time.  I will roll it out, summarize it, and list the potential benefits that can be derived from adopting it.

Many posts thereafter will use this generic value chain as a base reference while improving its deployment through customization.

I believe individuals and organizations alike can benefit from the versatility and usability of the value chain concept, and I hope you will join in on the discussion as it moves along.


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