Tuesday, January 13, 2015

Que Vadis Value Chain?

Classical management practices describes the traditional value chain as consisting of marketing, sales, operations and billing activities which work together with the aim to deliver customer value propositions.

In reality the value chain components are owned by various departments in the organisation and information sharing and integrated processes are rather myths than realities. Functional blaming is an organisational sport – something that one needs to master to survive. Business Schools, Enterprise Architecture and ERP systems support this thinking and much of management energy is spend on re-engineering, restructuring and process optimization between the functions to deliver better customer experience.

Fortunately technology has passed conventional thinking and starts to enable “on-demand” services which turn old-school value chains up-side down. Instead of relying on a “push” value chain, customer demand “pull” the value chain into action from a marketing, sales, operations and billing within a few minutes.

This can only be done if one views all data and processes in context as a system to deliver on “pull” rather than a “push” system.

How can this be?

Take the taxi service Uber (with all of its controversy) as an example. All of its information on geographical customer demand, driver availability and location are in context via space & time. Because of this, pricing is not a separate financial discussion, but kicks in by providing real-time quotations based on the customer’s real-time requirements. It happens in context of the customer, the driver and time (peak/off-peak) – allowing effective yield management to play across time and space for optimal supply and demand contracting. Company reputation is not something that is addressed through long-winding strategy sessions – but relies on the service delivery that takes place when the service is concluded and rated by the customer. Again, customer experience is placed within context of the transaction, customer and service delivery in real-time.

Not only can the value chain be completed in 20 minutes – but this level of integration and automation creates a business that can scale – Uber expanded in 153 countries within four years. The hidden gem here is that due the context of information, business assets operate much more productive to their competitor’s assets – something that will be hard to beat on price and service in the short, medium and long term.

I am not arguing that all corporations will end in “Uber” street – but at least management can take lessons from the “on-demand” economy and start to reform the value chain in context of all its business assets. This “context” will define integration, execution and resource management and ensure performance improvements of 10% and higher from existing levels. 

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