Although it was first introduced almost 25 years ago in his book Competitive Advantage: Creating and Sustaining Superior Performance, Michael Porter’s concept of Value Chain remains valuable today. In a world where different concepts of how to run a business come and go with increasing rapidity (see my posting Strategy Execution: Another Flavor of the Month?) finding a concept that is as valid today as it was 24 years ago is important.
The real importance of Value Chain is the perspective that it can give you of your “whole business”. The world turns fast these days, and business turns with it. Instant communications brings the operating executive a myriad of pieces of information all day every day. It is becoming increasingly easy to be inundated with information that may or may not be relevant to operating your business.
Many operating executives I know run from dawn to dusk and well beyond, but seem to be getting farther behind in keeping up with all of the information. It is very easy to lose your way in the maelstrom.
Why then do I bring up the concept of Value Chain? Not so much to get people to go back through the exercise, as much as to step back, take a breath and begin to look at their whole business. As situations, problems and crises present themselves; we have the tendency to begin moving so fast that we lose perspective. I like to use the analogy of an airplane about to go into a spin from which it is hard to pull out.
While I am not a pilot, I am an aviation enthusiast, and one of the things I have read is that inexperienced pilots get themselves in trouble by doing what is instinctive, rather than what is right, and aggravate the spin. Sometimes I think that some operating executives act like pilots when things are not looking very good. Their impulse is to jump in and start working hard and in doing so they miss the perspective of stepping back and looking at the whole business and getting an idea of what is really wrong.
How do I know this? Often I have been called in as a consultant to help a company solve a problem, I am told upon my arrival what solution the company would like me to implement. Problem is, the solution often has nothing to do with the real problem. That requires stepping back and looking at the whole business.
This brings me back to Porter’s Value Chain. Whether you use a formal process or diagram or not, when was the last time that you stepped back and looked at your whole business? Did you look carefully to see how the different areas of your business, both those that are primary to what your business does and those that support, are working together? If there are problems, have you looked at the symptoms and then tracked them back to the root cause?
Have you looked at your finances and ratios and compared them to industry medians to see if they are in balance? In those areas that your business differentiates themselves, are you performing above the industry median or do you need to make changes? In the areas where you need only be at the median in your industry, are you spending too much and using scarce resources to compete in ways that do not generate your required return?
Why not schedule some time today or tomorrow to sit back and look at your whole business. Perhaps gather a small group from different areas of the company to look with you. You might draw a Value Chain diagram as you discuss. You never know what you might find, but chances are you won’t regret taking the time.