From my “Lost Art of Concept Modeling” series. The purpose of this article is to present a modern view of value chains and how this communication tool can help teams discover insights into their product or service. This article will present the benefits of understanding the value chains within your business. My goals are to:
- make this exercise as simple as possible, without being simplistic.
- provide an accessible framework so that Mere Mortals can understand and communicate the concept.
- complete the exercise in an “Agile timeframe” without consuming days or weeks of time!
Note: I will use the term Value Chain instead of Value Stream or Value Map in order to stay true to my third point above and get the work done! There are scholarly articles that explain these differences online.
What are Value Chains?
The entire reason for the existence of a business is to provide valuable transactions between people. Where value is created when a participant receives a benefit from a transaction in which they exchange a benefit to the other party of the transaction. Markets and economies are the aggregates of all the transactions that occur.
The value chain as a concept has its origins with Michael Porter who used the term to show how raw materials move through the steps in production processes to be converted into something of value, which customers would pay for. The legendary example was set by Henry Ford when he determined how to assemble an automobile using a process that makes the resulting good inexpensive enough that his factory workers could afford it.
In today’s knowledge powered era, value chains are not limited to production lines. Businesses have process flows and user journeys that show how the customers interact with the product or service. The aim of the value chain is to better understand those customer interactions.
For the purpose of this series on Value Chains, I would like to propose a metaphor of the Value Chain as a container. Within this container is all of the work required to deliver a product or service that satisfies a need or needs of the customers. Specifically:
- stakeholder transactions; customers included
- business processes (Core, Enabling, and Guiding)
- other value chains
The Importance of a Value Chain
Businesses require coordination of people, processes, and materials in order to deliver value. Deficiencies in processes or capabilities could be a strategic weakness of the business that opens opportunities for competitors to take market share. Left unchecked, the reduction of market share leads to a reduction of the lifetime value of a customer which results in loss of revenues. Ultimately the company may run out of customer traction, money, then support from investors.
The overall purpose of the Value Chain exercise is to get everyone in the company on the same page with respect to the value the company provides to its external stakeholders and customers.
- It is a bridge between creating the business strategy and executing on that strategy.
- It is the starting point for aligned scorecards across the business units.
- It is an indicator where there are poor experiences in the customer journey.
- It is a start point for a program of change in an area of the business.
From an Agile development perspective, it adds needed context which assists in the development of user stories. Product Managers can use the value chain map to identify customers or stakeholders that are under-served by the product. They can make assumptions and design tests for those assumptions, using the value chain map as a reference guide.
In my next article, I’ll walk through the steps needed to document the Value Chain. Feel free to follow me to receive notification when the article is published.
Happy New Year 2018 to everyone!