Business Management: Value Chain Analysis

Description

A method to present graphically the relationships between business functions by grouping them into high-level core and support processes which, taken together, add value to an organisation’s customers.

Assists management in visualising the core processes in the organisation that create value for customers and their interrelationships with other support processes.

When to Use

The value chain is a subset of the Holistic Business Model and is completed during the creation of that deliverable. It is used to represent the functions of the organisation in a standard diagram which serves as a unifying focal point for the organisation, and during analysis and selection of Focus Areas for improvement.
It is particularly useful in organisations that have been exposed to the concept, are familiar with the format and are eager to develop a process-focused organisation.
The value chain is also used to illustrate the relationship with suppliers and customers in what is known as a value system. The value system consists of multiple value chains for organisations that purchase, or provide goods and services to each other.

Approach

The activities performed in creating an Entity-level Business Model will often generate enough information to develop a client’s value chain. If sufficient detail is not gathered, a decision may be made to do further, more detailed business modeling. Various modeling techniques may be utilised to diagram the business system and organisational linkages. (Business Modeling) At a minimum, they must be able to connect the different functions (objects) of the organisation, with the ability to depict work and information flows between them.

Once sufficient detail is collected, the value chain is completed by grouping the functions of the Business Model into logically related core and support processes.

Collect and organize information.

Use Entity-level Business Model
Collect organisational charts, procedures and other information about the flow of information and processes through the organisation
Interview department and area managers to learn more about the application of procedures and coordination aspects with other areas of the organisation.

Determine if secondary Business Modeling is necessary

If previous activities and experience do not provide enough information to create a draft business model, workshops and individual interviews may be conducted. Material from these sessions, along with client-provided information should allow the development of a pictorial representation of the value chain. Multiple sessions may be required to finalize the business model. In most cases, it is desirable to start with a high-level model and add detail.

Develop the draft value chain

Logically thread functions of the business together to reflect the client's view of how "work gets done".
Group the value-adding functions together, since they are the core processes.
Group the remainder into logically-related support processes.
Isolate the strategic management process as a stand-alone.
Delineate the business into not more than 15 major process names and 45 subcomponents.
Realise that the relationships between the 15 are the point of focus while the others are merely named.

Validate and revise the value chain model

Review the completed models with the selected workshop participants to confirm their validity.
Resolve the discrepancies and make adjustments as required.

Guidelines

Tactics/ Helpful Hints

Isolating and naming business processes is often a demanding process. Using conventional names may be easier, but it will reflect the industry and not a value chain specifically customised for the nuances of the way the client views the business (this is drawn out of the client through creative workshops). Always declare the start and end points (or events) of a process first, then describe the things that happen between these two ends. This will allow you to identify and group the various business functions/departments together into a final discrete process.
Since value chains are intended to be high-level models, it is too early to define processes in detail at this time.
Know that organisation staff involvement may be extensive, depending on the size and complexity of the business model. This involvement may include participation in workshops, individual interviews and validation of the interpretation of the process relationships. The duration of this activity will depend on the number of processes, the number of functional areas in the organisation involved, and the depth to which the analysis is taken.

Resources/Timing

Ensure that skill sets include interviewing skills and an ability to work at multiple levels of the organisation, and excellent workshop leadership and facilitation skills.
Guide team members toward organisational structure, information flows and processes, and away from identifying organisational problems. Problems can be associated with the model later.

Templates

There are a number of Frameworks and Templates that can be used in developing the Value Chain. Many of the Business Process Tools support and have standard templates for the frameworks illustrated below: