Value Chain Strategy: Securing A Competitive Advantage
Businesses are increasingly establishing competitive advantage by re-engineering their value chain. Value Chain re-engineering requires a new approach to capturing value, modelling and designing business process and rules, implementing technology-powered processes, and executing the new vision on an inter-enterprise basis. As companies assess their value chain requirements, they should ask themselves if they have the necessary control to influence change over the value chain, and the right people, processes and technologies to undertake the initiative?
Value Chain Evolution
New and re-emerging pressures are evolving the value chain into an integrated and responsive performance system
Current Value Chain Pressures
• Market Pressures – Globalization, Cost Pressures, & Local Responsiveness
• Business Pressures – Core Competency, Market Strategy (Domestic or Global), New Competitors/ New Business Models, and Outsourcing
• Operations – Scope, Flexibility, Customization, Supplier Responsibility,
• Across all organizational areas there is the pressure to reduce costs and increase performance.
Value Chain Model
Given today’s technology enabled environment, the value chain has the capability to match supply with demand at every level. Instant information access, visibility and control have transformed traditional intra-enterprise business focus to one of inter-enterprise. As organizations drive shareholder wealth by concentrating resources on core activities, the vertical integration of many participants in the value chain becomes critical.
Once again, opportunities derived from vertical integration are before us. As business processes weave together across organizations, functional work units are removed through streamlining and inter-enterprise economies of scale are achieved. That said, the traditional notion of vertical integration is vanishing. Vertical integration is no longer an asset-based advantage - it is an information advantage. Companies will not purchase every process in their value chain; they will form a seamless process through strategic alignment. The new Henry Fords will be those companies that recognize their symbiosis with trading partners and collaborate for both functional and financial advantage. Strategic collaboration provides the basis to control the value chain and sustain competitive advantage. It is foreseen that the new form of business competition will not be on the basis of product or service, but on the basis of value chain superiority. Companies that have products and services available when required, at prices that reflect the value they create, will define their marketplace.
Assessing
With this emerging business climate, traditional intra-enterprise modelling techniques have become inadequate. To achieve the benefits that inter-enterprise collaboration promises; new methods to test scenarios along the value chain are required. Simulation technology allows businesses to weigh the impacts of re-engineering on all value chain stakeholders before allocating capital and resources. These technologies identify the benefits (and costs) applicable to all parties involved in the proposed value chain reengineering. Performance metrics for all parties across the value chain are established and accounted for, with a new inter-enterprise balanced scorecard. Once the new network is designed, optimization technology allows for constant re-calibration of key variables such as capacity changes or exchange rates.
New ‘Balanced’ Scorecard
|
Implement & Operate
Creating a model and developing a new measurement scorecard is only part of the puzzle. Modelling calculates metrics and showcases optimal network opportunities, but it does not deliver value. The output of the modeling exercise, or the new network design, must be implemented, operated and sustained. Properly executed, the predicted value can be achieved across the value chain, matching the balanced scorecard. Designs based on the modeling effort are not easily implemented cross enterprise. In the past many supply chain activities were conducted in-house with functional success. As the supply chain focus extends to the greater value chain, change management issues arise and there is a need to consider alternatives for taking control and influencing change. The value chain typically encompasses several business and service partners, posing the challenge of integration and collaboration across cultures. Collaboration provides a new set of implementation challenges, as the full participation of other value chain stakeholders is essential - to realize the potential benefits modeled and deliver to the value chain balanced scorecard.
Third Party Perspective
To counter the change management challenge, 3rd party involvement can be a strategic benefit. Armed with a balance of people, process, and technology, a 3rd party delivers best-practice expertise. A 3rd party serves as an objective integrator, acting as a liaison and a confidential unbiased decision advisor among the businesses involved. Through business process outsourcing, an ‘objective integrator’ approach reduces the financial and organizational risk that can accompany cross-enterprise business process re-engineering, ultimately delivering the modeled value to all parties.
On That Note
Results speak for themselves. Companies are beginning to realize value chain benefits through the use of an integrated approach. Businesses are also discovering the capital and organizational freedom that a holistic 3rd party service provides as they do not have to invest in expensive technology and processes. Inter-enterprise economies of scale are delivered through the alignment of common supply chain functions such as demand forecasting, procurement, and logistics with other partners throughout the value chain. The ultimate output is competitive advantage; the longer and more complex the string of business processes, the harder it is to transform them into a competitive advantage. Once integrated, value chain re-engineering can provide differentiation and cost efficiencies that are difficult for competitors to imitate.