The Value Chain Analysis is a tool designed by Michael Porter. It looks at how a company could improve its own position within the market.
The basic principle in the value chain analysis is to look through all the steps a company goes through in getting its product or service to the market. It considers the following: how the product is created; designed, delivered; marketed, and what channels will be used. It claims that improving your company’s competitiveness is based on an ability to understand how the company could do each of those areas better.
Using The Value Chain Analysis Tool Better
Here are two ways of using the tool better:
- Cost strategy – reducing the cost of doing that activity
- Differentiation strategy – executing it in a different way to command a premium.
Here’s a business scenario:
Manufacturing a product or widget and then getting it out to the customer.
One element the business would need to consider is the physical delivery of the widget to the customer. There are two ways a company could make itself competitive here:
- It could go and try for the cheapest, which is a cost strategy. It could reduce the cost so that it makes itself competitive against others in the industry.
- Or it could differentiate that delivery phase. They could make it a one-day delivery, or the shortest time delivery, or add some fancy things to the delivery.
For each aspect of the tool, a business owner can use either the cost reduction strategy OR the differentiation strategy.
However, maybe business owners should start looking at Porter’s tool from a slightly different angle.
Using The Tool for Your Customers
Instead of doing a Value Chain Analysis for your business, try and do a Value Chain Analysis on your potential customer or prospect. Look at what their value chain is – what change do they need to make to the necessary processes so they become more productive?
You will find that there are areas in which your customer is being forced to do things, which are not very effective for themselves. It either costs them a lot of money or it’s not their core competence and hence the returns are very low. This could easily help you identify how you could better serve your potential customers. This might be, either creating a product that would meet that requirement, or it could be communicating more effectively towards your customer’s pain points.
As GDPR picks up speed, most people are looking at how they can actually implement it. There are various things they need to achieve, which includes:
- Getting the consent of their customers (and the people that they hold data about)
- Making sure to store data securely
- Having some level of access
- Being able to produce the data when the customer requires it
Some of these things that firms can do themselves much more easily than outsource it. There may also be strategic reasons that they don’t want to give up their own customer data. But then there may be other elements of managing this data where they’re forced to do so, such as processing customer requests and keeping track of them. In these areas they need to make sure that it meets GDPR regulations, and ensure that it’s turned around within the 30-day deadline that the regulations specify. That might cost the company a lot, but is not really adding much value.
So for those GDPR companies out there, rather than trying to get hold of the customer data which is crucial, would it be more effective to produce an offering that serves the segment that’s really a high cost in the customer’s value chain?
Give that a thought. Don’t just use value chain analysis for your own firm, but start looking at doing value chain analysis for your prospects too. When you do that, you’ll be able to identify opportunities where you find yourself competitive enough to make an offering to your customers.