Strategic Management: Value chain analysis:
Why use the tool?
Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers.
In business, we’re paid to take raw inputs, and to “add value” to them by turning them into something of worth to other people. This is easy to see in manufacturing, where the manufacturer “adds value” by taking a raw material of little use to the end-user (for example, wood pulp) and converting it into something that people are prepared to pay money for (e.g. paper). But this idea is just as important in service industries, where people use inputs of time, knowledge, equipment and systems to create services of real value to the person being served - the customer.
And remember that your customers aren’t necessarily outside your organization: they can be your bosses, your co-workers, or the people who depend on you for what you do. Or all of these people could be your customers in one way or another, just as long as they (directly or indirectly) pay your wages.
Now, this is really important: In most cases, the more value you create, the more people will be prepared to pay a good price for your product or service, and the more they will they keep on buying from you. On a personal level, if you add a lot of value to your team, you will excel in what you do. You should then expect to be rewarded in line with your contribution.
So how do you find out where you, your team or your company can create value?
This is where the “Value Chain Analysis” tool is useful. 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.
How to use the tool:
Value Chain Analysis is a three-step process:
1. Activity Analysis: Firstly, you identify the activities you undertake to deliver your product or service;...