Monday, August 31, 2009

In the good land of Value Chains

I think that the "Value Chain" must be one of the most mis-used concepts in business modelling. Even in the academic world one will find the argument around the concept of "Value Chain" vs "Supply Chain". See the following article on another argument around what means what ( ).

The value that I get out of the concept centers around the conceptual understanding of how a business works, and what processes focus on what (e.g. strategic, support, tactical, or operational ). From an architecture perspective each of these have their own inherent designs!
When one creates a translation of strategy into an operational model the following concepts assist in this:

a) Business Strategy
b) Value Chain consisting of its end-2-end processes
c) Supporting Key Performance Indicators for these end-2-end processes.
d) Defined scenario's for the strategy.

As I explain to people, this mix is sometimes more art than science; and requires a fundamental systems insight into how the business works. If understood and applied in the correct fashion you should get a very clear model which shows the following alignment/or mis-alignment between:
1. What the customer wants; as defined through a value proposition.
2. What we deliver operationally as a value proposition through the value chain.
3. How we reward people (performance system) to do their work.
4. What the business strategy wants.
5. What the risk of all the above is.

In most businesses I have consulted there is always a disjoint between these, and this always causes middle management a huge amount of stress. Some are worse than others; some are less!
But, the success of this exercise is where you are able to create a "flight simulator" for the value chain through which one can model your business plans across time to understand the what-if impacts of different scenario's - impossible to do if you don't have a value chain model.
So in essence the value chain is NOT that pretty ARIS diagram, or only a Porter Value Chain model!

It requires a deep conceptual understanding of how the company creates value as a system.
Good places to start is the use of reference models, I think the following models are for example good: ; or , and then, if you seriously want to get confused, look at the eTOM model . I don't know all of them, but I always prefer to look at something that is simple and logical to understand, especially those that can assist in making my business a little simpler.

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