Mastering Value Chain AnalysisUnderstand where value is being created and identify areas of competitive advantage or disadvantagePeople will sit up and take notice of you if you will sit up and take notice of what makes them sit up and take notice.”“ Harry SelfridgeObjectives of this Expert Toolkit GuideMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 31.Provide an introduction to value chains and Value Chain Analysis2.Explain the benefits and value that can be added to an organization through effective Value Chain Analysis3.Introduce and explain a proven 5-step process for performing Value Chain Analysis4.Provide Expert Tips for conducting Value Chain AnalysisAn introduction to value chainsMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 4•A value chain is a set of activities that an organization performs in order to deliver a valuable product or service to its customers and the market.•A value chain is also a description of the processes and key activities that are performed across an industry or across a company. It is usually shown in the form of a linear flow of activities, with raw materials and other inputs resulting in some form of finished product or service. It is typical, when representing the value chain of an organization to show the related activities and functions that support the “core” value chain.•A value chain should always seek to clearly show where value is being created within an industry or within an organization. Ideally a value chain should be quantitative and should identify the value of costs and revenues at each key step in the value chain.What is a Value Chain?Value chains are a critical component in understanding how an organization produces “supply” to address a market “demand” –delivering value for the market and the organizationAn introduction to value chain analysisMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 5•Value Chain Analysis seeks to understand the performance of a value chain in detail and therefore uncover competitive advantage or disadvantage. •Value Chain Analysis also supports answering key market-related questions:–Where is a company and its competitors earning profit? –Should a company integrate its value chain more extensively forwards or backwards for greater competitive advantage?–Should a company consider outsourcing, selling or partnering to deliver certain components of the value chain?–What value chain performance factors are critical to the success of companies operating in this industry and market?–What opportunities for improvement exist within a company’s value chain? What action plans could be employed to improve costs, quality, service and customer value?What is Value Chain Analysis?Value Chain Analysis is an important method for understanding organizational performance and market dynamicsThe benefits of value chain analysisMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 6•There are a range of benefits to be gained by utilizing Value Chain Analysis:–It provides a structured approach for performing competitive analysis by separating value-generating stages of the value chain to facilitate better comparison across companies, markets, industries.–It assists in identifying the improvement opportunities within the value chain –such as cost, performance, quality, productivity, control, value.–It facilitates performance benchmarking and peer comparison on key measures such as cost, service levels, customer value.–It allows the analysis of opportunities for extending (further integrating) the value chain –either towards suppliers or towards customers.–It allows the ecosystem of players that support and operate within an industry’s value chain to be mapped and analyzed.–It allows the creation of a linkage between: the end customer / market; their experience and value received; and the suppliers and ecosystem players that play a role in delivering the value.Why Utilize Value Chain Analysis?The end to end value chain•A value chain should clearly identify the key component parts (core and supporting) that are involved in taking “raw materials” in and delivering customer value out. •When representing a value chain:–Focus on an end-to-end view and ensure it is reflective of the industry elements and taxonomy–Aim to distinguish discrete activities performed by an organization and how those activities impact and are impacted by other players in the value chain of the end customer–Compartmentalize discrete value chain components to allow cost drivers and performance to be compared in order to identify potential improvement opportunities and/or competitive advantage.Mastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 7How is a Value Chain Represented?Typical High-Level Representation of a Value ChainValue chain analysis involves a 5-step processMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 8The Steps Involved in Value Chain Analysis1. Scope & PlanDefine the scope and objectives of the analysis2. IdentifyIdentify the industry value chain and map the linkages3. Assign Assign costs, revenues and assets to value activities4. DriversDetermine the relevant cost drivers for each value activity5. HypothesesIdentify potential competitive advantagesStep 1: Define the scope and plan the analysisMastering Value Chain Analysis v1.0© 2018 EXPERT TOOLKIT | ALL RIGHTS RESERVED | USAGE PERMITTED AS PER USER AGREEMENTPage 9•Before commencing any value chain analysis exercise, it is important to clearly define the scope and objectives of the analysis:–Establish clear objectives for the analysis and research–Agree on the resources, methods and timeframe for the analysis to occur–Identify the most appropriate research, data collection and analysis methods–Confirm that analysis can be effectively conducted given the scope and resources•Once the above is clear, identify the organizations, suppliers, operators and products that are considered to be the major competitors in the industry:–Utilize industry analyst reports, market experts, company executives, trade associations and other secondary research–When identifying companies and products within the industry also seek to identify the key performance drivers and metrics Define scope and objectivesExpert Tip!Balance the scope of your analysis with the resources and time available to conduct the analysis.Expert Tip!Ensure that all stakeholders agree with the scope and objectives of the analysis before proceeding!Next >