Five Value Chain Examples for the Modern Company

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There many value chain examples on the internet. Rightly so as leaders of modern business are intently focused on value creation for their businesses. Increased competition and other market pressures combined with rapid technology evolution are forcing companies to become more agile to survive.  But to what end?  It isn’t agility that leads to business success.  Agility just means you can react faster.  It’s the results of informed, calculated decisions combined with agile responsiveness that enable companies to maximize value creation.

Over the past few years, digital transformation has been the “hot topic” in the IT industry – with companies transforming their business processes to leverage technology in new ways.  Now that most organizations have completed their first wave of digital transformation, the focus is shifting to refinement – driving real-time data-driven decision making and optimizing the value outcomes that business processes create.  There is an important shift going on from focusing on the activities an organization performs towards focusing on the outcomes and value being produced.  Those organizations that embrace and master this shift will thrive, while those who continue executing process for process sake will not be as prosperous.

This focus on value creation has led to an increased focus on business architecture within organizations, and most importantly, the architecture of value chains – the sequence of activities and processes that transform raw materials into the finished goods and services that customers consume and value.  By understanding and optimizing the value chains within your organization, you will be able to focus your resources and activities better to maximize value.  Value chains exist in all parts of your company, and if you have gone through any digital transformation process, you know that your IT function is deeply engaged in all of them.  Here are five value chain examples to help you better understand.

Manufacturing Value Chain

The transformation of raw materials into finished physical products has been the heart of manufacturing processes for hundreds of years.  This is perhaps the easiest value chain example to recognize.  Minerals are mined, refined into things like metals and plastic, which are molded and cut into components.  These components are assembled into products that are packaged and distributed to customers for consumption.  Each step in the process enhances the value of the product in the eyes of the end customer.  That value is measured by the price the customer is willing to pay for the product.

IT Solution Value Chain

The systems and solutions that your IT teams develop are focused examples of a manufacturing value chain.  This value chain starts with the input of technology components, which in most companies today are commercially available devices, servers, and software, along with connectivity components and cloud services.  The IT function is responsible for designing, acquiring, assembling, configuring and deploying these solutions to various user groups inside and outside the company.  The value created isn’t measured by the deployment of the system, but rather the impact those systems have on business productivity.  Digital transformation is a good example of companies recognizing and seeking to enhance the value realization from IT solutions and services.

Data Management Value Chain

Business agility comes from the ability to quickly make informed decisions and act on them to mitigate risks and exploit opportunities.  The key to achieving business agility is data-driven decision making.  The data management value chain is the set of processes for capturing, aggregating, organizing, refining, analyzing, and communicating data. It transforms raw data into information, which is further transformed into actionable insights.  The data management value chain doesn’t deal with physical products, but it looks and operates like the manufacturing value chain that turns raw minerals into finished goods.  At each stage in the data management value chain, data becomes more refined and more valuable. What makes this value chain different is the element of speed.  Data starts losing value as soon as it is created, which means that the faster it can be processed, presented, and consumed the more valuable it is.  The value of the data management value chain is measured by the speed and quality of decisions that are made from the information insights being produced.

Intellectual Property Value Chain

Most products and services introduced by companies in the marketplace (and used internally) aren’t entirely new inventions – they are new combinations of components already in use somewhere else.  Intellectual property (IP), in the form of copyrights, patents, trade secrets, recipes, formulas, and techniques are the building blocks of all companies.  Many of these Intellectual Property building blocks aren’t owned by the company and are acquired through licensing agreements.  These may be specific legal documents for a purpose or inherited through the purchase of components that contain someone else’s IP.  For example, a company may buy a computer that includes a chip that is patented by Intel, a motherboard design owned by Lenovo, and an operating system patented by Microsoft.  In the purchase of this device, the company acquires the IP license to use those patented components in a limited capacity.  When this computer is used as a component in some finished product that is sold to customers (perhaps a kiosk used to order food at a fast-food restaurant), the IP licenses of all components, along with the IP that your company added through your manufacturing process (or things like open-source software) are combined and conveyed to the customer.  The value created by this value chain is measured by the legal risk exposure of the products and services you sell along with the royalty costs paid to others for the use of their IP.

Project Management Value Chain

Every company does projects (yes, even you Agile / DevOps folks).  These may be business initiatives, development of a new product or system, relocation of an office building, developing a new piece of software, or onboarding a new employee.  Projects are temporary endeavors to achieve a specific desired outcome. The way the project achieves those desired outcomes is through a sequence of activities that each add value to the finished product – a value chain.  Project plans outline the activities of this value chain, and the project management process orchestrates their execution.  What makes the project management value chain different from others is that each project is only executed once.  The delivery of project outcomes measures the value of a project management value chain, meeting quality and scope expectations (not exceeding) within the timeline and resource constraints applied.

Value chains are how companies organize their activities and resource investments to achieve the desired outcomes of their customers, employees, and shareholders.  As companies seek to become more agile and profitable, optimizing your many value chains is the key to success.  Digital transformation has changed the way business activities and technology interplay within value chains, creating new opportunities for efficiency, resiliency, agility, and competitive advantage.

Summary:

Five Value Chain Examples

The results of informed, calculated decisions combined with agile responsiveness that enable companies to maximize value creation. Here are five value chain examples to help you better understand. 1. Manufacturing Value Chain: This is perhaps the easiest value chain example to recognize. Minerals are mined, refined into things like metals and plastic, which are molded and cut into components. These components are assembled into products that are packaged and distributed to customers for consumption. That value is measured by the price the customer is willing to pay for the product. 2. IT Solution Value Chain: The IT function is responsible for designing, acquiring, assembling, configuring and deploying these solutions to various user groups inside and outside the company. The value created isn’t measured by the deployment of the system, but rather the impact those systems have on business productivity. 3. Data Management Value Chain: Business agility comes from the ability to quickly make informed decisions and act on them to mitigate risks and exploit opportunities. The key to achieving business agility is data-driven decision making. The data management value chain is the set of processes for capturing, aggregating, organizing, refining, analyzing, and communicating data. 4. Intellectual Property Value Chain: The value created by this value chain is measured by the legal risk exposure of the products and services you sell along with the royalty costs paid to others for the use of their IP. 5. Project Management Value Chain: Every company does projects (yes, even you Agile / DevOps folks). These may be business initiatives, development of a new product or system, relocation of an office building, developing a new piece of software, or onboarding a new employee. Projects are temporary endeavors to achieve a specific desired outcome. The way the project achieves those desired outcomes is through a sequence of activities that each add value to the finished product – a value chain.”

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Ryan Schmierer

Ryan Schmierer is a recognized industry thought leader in the areas of Digital Transformation, IT Strategy, Service Management and Operations. An accomplished Business and Enterprise Architect, he is presently the Principal Consultant for RS Consulting NW, based in Seattle, WA Ryan is formerly the Business Architect and Director of Business Programs for corporate IT at Microsoft and before that spent 14 years with Cisco Systems as a Business Architect and Project Manager. Ryan is a contributing author of The Open Group IT4IT Reference Architecture industry standard and is a recognized speaker and writer on topics of IT Transformation and Emerging Trends in Service Management.