Value Chain Analysis

Achieving Excellence - Drivers of Uniqueness

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.
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.

Note:
This article looks at a simple approach to using value chains. A more structured approach was developed by Harvard Business School professor Michael Porter (also creator of the 5 Forces tool) in his book "Competitive Advantage". 

How to Use the Tool:

Value Chain Analysis is a three-step process:

1. Activity Analysis: First, you identify the activities you undertake to deliver your product or service;
2. Value Analysis: Second, for each activity, you think through what you would do to add the greatest value for your customer; and
3. Evaluation and Planning: Thirdly, you evaluate whether it is worth making changes, and then plan for action.

We follow these through one-by-one:-

Step 1 – Activity Analysis

The first step to take is to brainstorm the activities that you, your team or your company undertakes that in some way contribute towards your customer's experience.
At an organizational level, this will include the step-by-step business processes that you use to serve the customer. These will include marketing of your products or services; sales and order-taking; operational processes; delivery; support; and so on (this may also involve many other steps or processes specific to your industry).
At a personal or team level, it will involve the step-by-step flow of work that you carry out.
But this will also involve other things as well. For example:

• How you recruit people with the skills to give the best service.
• How you motivate yourself or your team to perform well.
• How you keep up-to-date with the most efficient and effective techniques.
• How you select and develop the technologies that give you the edge.
• How you get feedback from your customer on how you're doing, and how you can improve further.

Tip:

If you carry out the brainstorming behind the Activity Analysis and Value Analysis with your team, you'll almost certainly get a richer answer than if you do it on your own. You may also find that your team is more likely to "buy into" any conclusions you draw from the exercise. After all, the conclusions will be as much theirs as yours.

Once you've brainstormed the activities which add value for your company, list them. A useful way of doing this is to lay them out as a simplified flow chart running down the page – this gives a good visual representation of your "value chain". 

Step 2 – Value Analysis

Now, for each activity you've identified, list the "Value Factors" – the things that your customers' value in the way that each activity is conducted.
For example, if you're thinking about a telephone order-taking process, your customer will value a quick answer to his or her call; a polite manner; efficient taking of order details; fast and knowledgeable answering of questions; and an efficient and quick resolution to any problems that arise.
If you're thinking about delivery of a professional service, your customer will most likely value an accurate and correct solution; a solution based on completely up-to-date information; a solution that is clearly expressed and easily actionable; and so on.
Next to each activity you've identified, write down these Value Factors.
And next to these, write down what needs to be done or changed to provide great value for each Value Factor.

Step 3 – Evaluate Changes and Plan for Action

By the time you've completed your Value Analysis, you'll probably be fired up for action: you'll have generated plenty of ideas for increasing the value you deliver to customers. And if you could deliver all of these, your service could be fabulous!
Now be a bit careful at this stage: you could easily burned your energy away on a hundred different jobs, and never really complete any of them.
So firstly, pick out the quick, easy, cheap wins – go for some of these, as this will improve your team's spirits no end.
Then screen the more difficult changes. Some may be impractical. Others will deliver only marginal improvements, but at great cost. Drop these.
And then prioritize the remaining tasks and plan to tackle them in an achievable, step-by-step way that delivers steady improvement at the same time that it keeps your team's enthusiasm going.

Tip:

If you have a strong enough relationship with one or more of your customers, it may be worth presenting your conclusions to them and getting their feedback – this is a good way of either confirming that you're right or of getting a better understanding of what they really want.

Example:

Ashok is a software development manager for a software house. He and his team handle short software enhancements for many clients. As part of a team development day, he and his team use Value Chain Analysis to think about how they can deliver excellent service to their clients.
During the Activity Analysis part of the session, they identify the following activities that create value for clients:

• Order taking
• Enhancement specification
• Scheduling
• Software development
• Programmer testing
• Secondary testing
• Delivery
• Support

Ashok also identifies the following non-client-facing activities as being important:

• Recruitment: Choosing people who will work well with the team.
• Training: Helping new team members become effective as quickly as possible, and helping team members learn about new software, techniques and technologies as they are developed.

Ashok marks these out in a vertical value chain on his whiteboard (you can see the first three client-facing activities shown in the "Step 1: Activity Analysis" figure below):

Next, he and his team focus on the Order Taking process, and identify the factors that will give the greatest value to customers as part of this process. They identify the following Value Factors:

• Giving a quick answer to incoming phone calls.
• Having a good knowledge of the customer's business, situation and system, so that they do not waste the customer's time with unnecessary explanation.
• Asking all the right questions, and getting a full and accurate understanding of the customer's needs.
• Explaining the development process to the customer and managing his or her expectations as to the likely timetable for delivery.

You can see these in the "Value Factors" column of figure 1.

They then look at what they need to do to deliver the maximum value to the customer. These things are shown in the Figure 1's "Changes Needed" column.
They then do the same for all other processes.
Once all brainstorming is complete, Ashok and his team may be able to identify quick wins, reject low yield or high cost options, and agree their priorities for implementation.

Key Points:

Value Chain Analysis is a useful way of thinking through the ways in which you deliver value to your customers, and reviewing all of the things you can do to maximize that value.
It takes place as a three stage process:

• Activity Analysis, where you identify the activities that contribute to the delivery of your product or service.
• Value Analysis, where you identify the things that your customers value in the way you conduct each activity, and then work out the changes that are needed.
• Evaluation and Planning, where you decide what changes to make and plan how you will make them.

By using Value Chain Analysis and by following it through to action, you can achieve excellence in the things that really matter to your customers.

Ref:
http://research-methodology.net/starbucks-value-chain-analysis/
http://www.bp.com/en/global/corporate/about-bp/company-information/our-business-model.html
http://innovationcenter.deteconusa.com/events/summary-plugnplay-expo-2011/

Creating a Value Proposition

Communicating the benefits of your product, service or idea, simply and clearly.

Imagine a world where everyone is in sales. Well, the fact is, everyone is in sales, in some fashion. It's not just the salesman at the car lot or computer reseller who qualifies: Maybe you are trying to sell your spouse your ideas for the next holiday; Maybe you're pitching a new project to your boss; Maybe you are headhunting someone to join your firm. It's all selling, and, whatever your offer (product, idea, project or job) it's important to have a really strong value proposition.
A value proposition is a short statement that clearly communicates the benefits that your potential client gets by using your product, service or idea. It "boils down" all the complexity of your sales pitch into something that your client can easily grasp and remember.
It needs to be very specific: Simply describing the features or capabilities of your offer is not enough. Your value proposition must focus closely on what your customer really wants and values. Your customer wants to solve problems, to improve on existing solutions, to have a better life, build a better business or do more, better, faster, and so on.

Creating a value proposition is a useful marketing technique that had wider application than product marketing. Whatever you are 'selling' and to whom, a value proposition is useful, if not essential, tool. Whether your 'customers' are external customers, employees, co-workers or even your family, the idea is to help them see the specific value your offer brings to them. And by doing so, you will grab their attention in such a way that they know: "Yes, that's right for me".

Creating a Great Value Proposition

"Why should I buy this specific product or idea?" asks your customer: And your value proposition must answer this, in a compelling way. In creating a good value proposition, the trick is to know your product or idea well, know how it compares with those of your competitors and, very importantly, put yourself in your customer's shoes to find the answers.

Your value proposition can be created step-by-step, by answering a series of questions. Once you answer these, you have the ingredients to create a value proposition that answers your customer's question: "Why should I buy this specific product or idea?"

Step 1: Know your customer

Thinking from the perspective of your customer, ask the following:

• Who is your customer? What do they do and need?
• What problems do they need to solve?
• What improvements do they look for?
• What do they value?

Tip: If you don't know, ask!
It's easy to try to second guess what your customers want. And very easy to get it wrong.
So do some market research: This could be a simple matter of asking customers directly, or organizing a focus group or surveys. 'Market research' is not just for external customers, it works for other 'markets' too: Depending on your product or idea, your 'market' could be employees, colleagues, or even your family.

Step 2: Know your product, service or idea

From your customer view point:

• How does the product, service or idea solve the problem or offer improvement?
• What value and hard results does it offer the customer?

Tip: Include numbers and percentages
To grab your customer's attention even faster in this financially-oriented world, your value proposition should also speak percentages and numbers: How much will your customer gain, save or improve? How much more efficient will he or she become? How much safer, smarter, faster, brighter will the solution be? And so on.

Step 3: Know your competitors

Keep on thinking from the perspective of your customer, and ask:

• How does your product or idea create more value than competing ones?

Tip:
This can be quite difficult. SWOT Analysis is an useful tool for doing this.

Step 4: Distill the customer-oriented proposition

The final step is to pull it all together and answer, in 2 or 3 sentence: "Why should I buy this specific product or idea?"
Try writing from the customer viewpoint by completing the following, (and don't forget to include the numbers and percentages that matter!):

• "I want to buy this product or idea because it will..."
• "The things I value most about the offer are..."
• "It is better than competing products or ideas because..."

Step 5: Pull it all together

Now, turn around your customers 'answer' from step 4 into a value proposition statement.

Example:

Here's a simple example. Let's say that you sell lawn mowers, and your customer is someone with a large back yard.

Step 1: Know your customer

Your customer is a businessman with quite a large house, who likes the "meditative feeling" of cutting his own lawn, but gets bored by the job when it takes too long.
He's looking for a good quality of cut, for the job to be done quickly and enjoyably.

Step 2: Know your product or idea

The product is a ride-on mower with a 25 horsepower (powerful) engine and 45 inch (wide) cutting blades.

Step 3: Know your competitors

The mower goes faster and cuts wider than the competition.

Step 4: Distill the customer-oriented proposition

"Our mower cuts your grass in 50% of the time of 'big brand' mowers in its class. And it leaves the lawn looking beautiful too!"

Stakeholder Analysis - Winning support for your projects

Winning support for your projects

"Stakeholder management is critical to the success of every project in every organization I have ever worked with. By engaging the right people in the right way in your project, you can make a big difference to its success... and to your career."

http://sathishchandramouli.blogspot.in/2014/05/13-stakeholder-management.html

As you become more successful in your career, the actions you take and the projects you run will affect more and more people. The more people you affect, the more likely it is that your actions will impact people who have power and influence over your projects. These people could be strong supporters of your work – or they could block it.

Stakeholder Management is an important discipline that successful people use to win support from others. It helps them ensure that their projects succeed where others fail.
Stakeholder Analysis is the technique used to identify the key people who have to be won over. You then use Stakeholder Planning to build the support that helps you succeed.
The benefits of using a stakeholder-based approach are that:

• You can use the opinions of the most powerful stakeholders to shape your projects at an early stage. Not only does this make it more likely that they will support you, their input can also improve the quality of your project
• Gaining support from powerful stakeholders can help you to win more resources – this makes it more likely that your projects will be successful
• By communicating with stakeholders early and frequently, you can ensure that they fully understand what you are doing and understand the benefits of your project – this means they can support you actively when necessary
• You can anticipate what people's reaction to your project may be, and build into your plan the actions that will win people's support.

How to Use the Tool:

The first step in Stakeholder Analysis is to identify who your stakeholders are. The next step is to work out their power, influence and interest, so you know who you should focus on. The final step is to develop a good understanding of the most important stakeholders so that you know how they are likely to respond, and so that you can work out how to win their support – you can record this analysis on a stakeholder map.
After you have used this tool and created a stakeholder map, you can use the stakeholder planning tool to plan how you will communicate with each stakeholder.
The steps of Stakeholder Analysis are explained below:

Step 1. Identify Your Stakeholders

The first step in your stakeholder analysis is to brainstorm who your stakeholders are. As part of this, think of all the people who are affected by your work, who have influence or power over it, or have an interest in its successful or unsuccessful conclusion.

The table below shows some of the people who might be stakeholders in your job or in your projects:

Your boss	Shareholders	Government
Senior executives	Alliance partners	Trades associations
Your coworkers	Suppliers	The press
Your team	Lenders	Interest groups
Customers	Analysts	The public
Prospective customers	Future recruits	The community
Your family

Remember that although stakeholders may be both organizations and people, ultimately you must communicate with people. Make sure that you identify the correct individual stakeholders within a stakeholder organization.

Step 2. Prioritize Your Stakeholders

You may now have a long list of people and organizations that are affected by your work. Some of these may have the power either to block or advance. Some may be interested in what you are doing, others may not care.

Figure1: Power/Interest Grid for Stakeholder Prioritization

Map out your stakeholders on a Power/Interest Grid on our free template as shown in figure 1, and classify them by their power over your work and by their interest in your work.

For example, your boss is likely to have high power and influence over your projects and high interest. Your family may have high interest, but are unlikely to have power over it.
Someone's position on the grid shows you the actions you have to take with them:

• High power, interested people: these are the people you must fully engage and make the greatest efforts to satisfy.
• High power, less interested people: put enough work in with these people to keep them satisfied, but not so much that they become bored with your message.
• Low power, interested people: keep these people adequately informed, and talk to them to ensure that no major issues are arising. These people can often be very helpful with the detail of your project.
• Low power, less interested people: again, monitor these people, but do not bore them with excessive communication.

Step 3. Understand Your Key Stakeholders

You now need to know more about your key stakeholders. You need to know how they are likely to feel about and react to your project. You also need to know how best to engage them in your project and how best to communicate with them.

Key questions that can help you understand your stakeholders are:

• What financial or emotional interest do they have in the outcome of your work? Is it positive or negative?
• What motivates them most of all?
• What information do they want from you?
• How do they want to receive information from you? What is the best way of communicating your message to them?
• What is their current opinion of your work? Is it based on good information?
• Who influences their opinions generally, and who influences their opinion of you? Do some of these influencers therefore become important stakeholders in their own right?
• If they are not likely to be positive, what will win them around to support your project?
• If you don't think you will be able to win them around, how will you manage their opposition?
• Who else might be influenced by their opinions? Do these people become stakeholders in their own right?

A very good way of answering these questions is to talk to your stakeholders directly – people are often quite open about their views, and asking people's opinions is often the first step in building a successful relationship with them.
You can summarize the understanding you have gained on the stakeholder map, so that you can easily see which stakeholders are expected to be blockers or critics, and which stakeholders are likely to be advocates and supporters or your project. A good way of doing this is by color coding: showing advocates and supporters in green, blockers and critics in red, and others who are neutral in orange.

Figure 2: Example Power/Interest Grid With Stakeholders Marked

Figure 2 shows an example of this – in this example, you can see that a lot of effort needs to be put into persuading Piers and Michael of the benefits of the project – Janet and Amanda also need to managed well as powerful supporters.

Example:

You can create your own example of stakeholder analysis at work – whether for your current role, a job you want to do or a new project.
Conduct a full stakeholder analysis. Ask yourself whether you are communicating as effectively as you should be with your stakeholders. What actions can you take to get more from your supporters or win over your critics?

Key Points:

As the work you do and the projects you run become more important, you will affect more and more people. Some of these people have the power to undermine your projects and your position. Others may be strong supporters of your work.
Stakeholder Management is the process by which you identify your key stakeholders and win their support. Stakeholder Analysis is the first stage of this, where you identify and start to understand your most important stakeholders.
The first stage of this is brainstorm who your stakeholders are. The next step is to prioritize them by power and interest, and to plot this on a Power/Interest grid. The final stage is to get an understanding of what motivates your stakeholders and how you need to win them around.

Deming's 14-Point Philosophy - Quality Matters

The concept of quality is at the core of many of our ideas about effective management and leadership, and programs like Total Quality Management and Six Sigma have been at the heart of many companies' success.
We know now that quality needs to be built into every level of a company, and become part of everything the organization does. From answering the phone to assembling products and serving the end customer, quality is key to organizational success.
This idea is very much a part of modern management philosophy. But where did this idea originate? Before things like globalization and technological advances became so important, competitive pressures were typically much lower, and companies were usually satisfied with focusing their quality efforts on the production process alone. Now, quality is often thought to start and end with the customer, and all points leading to and from the customer must aim for high-quality service and interaction.

A New Business Philosophy

We owe this transformative thinking to Dr. W. Edwards Deming. A statistician who went to Japan to help with the census after World War II, Deming also taught statistical process control to leaders of prominent Japanese businesses. His message was this: By improving quality, companies will decrease expenses as well as increase productivity and market share.
After applying Deming's techniques, Japanese businesses like Toyota, Fuji, and Sony saw great success. Their quality was far superior to that of their global competitors, and their costs were lower. The demand for Japanese products soared – and by the 1970s, many of these companies dominated the global market. American and European companies realized that they could no longer ignore the quality revolution.
So the business world developed a new appreciation for the effect of quality on production and price. Although Deming didn't create the name Total Quality Management, he's credited with starting the movement. He didn't receive much recognition for his work until 1982, when he wrote the book now titled "Out of the Crisis." This book summarized his famous 14-point management philosophy.
There's much to learn from these 14 points. Study after study of highly successful companies shows that following the philosophy leads to significant improvements. That's why these 14 points have become a standard reference for quality transformation.

Note:
Deming's points apply to any type and size of business. Service companies need to control quality just as much as manufacturing companies. And the philosophy applies equally to large multinational corporations, different divisions or departments within a company, and one-man operations.

The 14 Points

1. Create a constant purpose toward improvement.
   • Plan for quality in the long term.
   • Resist reacting with short-term solutions.
   • Don't just do the same things better – find better things to do.
   • Predict and prepare for future challenges, and always have the goal of getting better.
2. Adopt the new philosophy. 
   • Embrace quality throughout the organization.
   • Put your customers' needs first, rather than react to competitive pressure – and design products and services to meet those needs.
   • Be prepared for a major change in the way business is done. It's about leading, not simply managing.
   • Create your quality vision, and implement it.
3. Stop depending on inspections. 
   • Inspections are costly and unreliable – and they don't improve quality, they merely find a lack of quality.
   • Build quality into the process from start to finish.
   • Don't just find what you did wrong – eliminate the "wrongs" altogether.
   • Use statistical control methods – not physical inspections alone – to prove that the process is working.
4. Use a single supplier for any one item. 
   • Quality relies on consistency – the less variation you have in the input, the less variation you'll have in the output.
   • Look at suppliers as your partners in quality. Encourage them to spend time improving their own quality – they shouldn't compete for your business based on price alone.
   • Analyze the total cost to you, not just the initial cost of the product.
   • Use quality statistics to ensure that suppliers meet your quality standards.
5. Improve constantly and forever.
   • Continuously improve your systems and processes. Deming promoted the Plan-Do-Check-Act approach to process analysis and improvement.
   • Emphasize training and education so everyone can do their jobs better.
   • Use kaizen as a model to reduce waste and to improve productivity, effectiveness, and safety.
6. Use training on the job.
   • Train for consistency to help reduce variation.
   • Build a foundation of common knowledge.
   • Allow workers to understand their roles in the "big picture."
   • Encourage staff to learn from one another, and provide a culture and environment for effective teamwork.
7. Implement leadership.
   • Expect your supervisors and managers to understand their workers and the processes they use.
   • Don't simply supervise – provide support and resources so that each staff member can do his or her best. Be a coach instead of a policeman.
   • Figure out what each person actually needs to do his or her best.
   • Emphasize the importance of participative management and transformational leadership.
   • Find ways to reach full potential, and don't just focus on meeting targets and quotas.
8. Eliminate fear.
   • Allow people to perform at their best by ensuring that they're not afraid to express ideas or concerns.
   • Let everyone know that the goal is to achieve high quality by doing more things right – and that you're not interested in blaming people when mistakes happen.
   • Make workers feel valued, and encourage them to look for better ways to do things.
   • Ensure that your leaders are approachable and that they work with teams to act in the company's best interests.
   • Use open and honest communication to remove fear from the organization.
9. Break down barriers between departments.
   • Build the "internal customer" concept – recognize that each department or function serves other departments that use their output.
   • Build a shared vision.
   • Use cross-functional teamwork to build understanding and reduce adversarial relationships.
   • Focus on collaboration and consensus instead of compromise.
10. Get rid of unclear slogans.
    • Let people know exactly what you want – don't make them guess. "Excellence in service" is short and memorable, but what does it mean? How is it achieved? The message is clearer in a slogan like "You can do better if you try."
    • Don't let words and nice-sounding phrases replace effective leadership. Outline your expectations, and then praise people face-to-face for doing good work.
11. Eliminate management by objectives.
    • Look at how the process is carried out, not just numerical targets. Deming said that production targets encourage high output and low quality.
    • Provide support and resources so that production levels and quality are high and achievable.
    • Measure the process rather than the people behind the process.

Tip:
There are situations in which approaches like Management By Objectives are appropriate, for example, in motivating sales-people. As Deming points out, however, there are many situations where a focus on objectives can lead people to cut corners with quality. You'll need to decide for yourself whether or not to use these approaches. If you do, make sure that you think through the behaviors that your objectives will motivate.

12. Remove barriers to pride of workmanship.
    • Allow everyone to take pride in their work without being rated or compared.
    • Treat workers the same, and don't make them compete with other workers for monetary or other rewards. Over time, the quality system will naturally raise the level of everyone's work to an equally high level.
13. Implement education and self-improvement.
    • Improve the current skills of workers.
    • Encourage people to learn new skills to prepare for future changes and challenges.
    • Build skills to make your workforce more adaptable to change, and better able to find and achieve improvements.
14. Make "transformation" everyone's job.
• Improve your overall organization by having each person take a step toward quality.
• Analyze each small step, and understand how it fits into the larger picture.
• Use effective change management principles to introduce the new philosophy and ideas in Deming's 14 points.

Key Points

Deming's 14 points have had far-reaching effects on the business world.

While they don't really tell us exactly how to implement the changes he recommends, they do give us enough information about what to change. The challenge for all of us is to apply Deming's points to our companies, departments, and teams. Taken as a whole, the 14 points are a guide to the importance of building customer awareness, reducing variation, and fostering constant continuous change and improvement throughout organizations.