Value Chain Analysis: Best Practices for Improvements

The importance of value chain analysis (VCA) is more than just driving revenue because it not only boosts profits, but it also improves customer relationships and helps the enterprise gain a competitive edge.

A VCA framework enables leaders to understand the full scope of their company’s activities and identify improvement opportunities across the organization.

One example would be analyzing customer support interactions and determining which processes could be run more efficiently.

In practice, this could look like evaluating messaging strategies and implementing automated self-service prompts to customers, which would reduce operational costs by getting ahead of service issues before they happen.

The key to a successful value chain analysis is having each organization’s leader evaluate their own processes and identify opportunities to increase profit margins.

VCA Strategies Have Several Stakeholders

Jon Geater cofounder and CPO of RKVST, explains value chains form because organizations naturally recognize that there’s power in collaboration.

“Working together with specialist suppliers is cheaper and often higher quality than vertically integrating and doing everything yourself,” he says.

To stay competitive, organizations must ensure that they have picked the right partners for each of the functions in the value chain, and that appropriate value is captured by each participant.

“In addition to ensuring each participant’s value and usefulness in the chain, value chain analysis enables organizations to periodically verify that functions are still necessary, and that value is being delivered efficiently without undue waste such as administrative burden, communications costs or transit or other ancillary functions,” he says.

Business leaders and IT leaders like the chief information officer and chief data officer must prove that they are benefiting the bottom line.

While it is time consuming, value chain analysis is a key method to examine company value -- an essential practice during times of high stakes and economic uncertainty.

Jon Aniano, senior vice president, Zendesk, adds running a full VCA requires analyzing and tracking a massive amount of data across your entire company.

“The last thing you want is to end up spending more time and effort on a value chain analysis than it’s worth,” he says. “Tech tools that can track data and provide on-demand reports allow teams to easily access these insights to make informed decisions.”

He explains it's important to involve multiple leaders in any VCA improvement process. By collecting feedback from various stakeholders, organizations can insure there is a holistic approach to what improvements can be made.

“It also eliminates gaps in the analysis that underrepresent certain parts of the business,” Aniano adds.

He points out customer experience (CX) leaders are an often-overlooked source of key value chain analysis information.

“Because CX leaders can see and report on issues across all areas of the business including product and service delivery issues, they can often be a valuable starting point for identifying problem areas,” he says.

Aniano points out CX also may be one of few areas of the business that capture customer’s specific feedback in their own words at different points of the customer journey.

Benefits of VCA in the Era of Digitalization

Rita Sallam, distinguished VP analyst and Gartner fellow in the data and analytics team, explains classic value chain analysis has existed for a long time and involves identifying the key steps in a long process from raw materials to the product or service delivered to the customer.

“One of the best things a technology leader can do is to figure out what the friction points are in that process and the opportunities to disrupt different points in the process and where technology can play a role in improving that process,” she says.

Sallam adds the use of VCA frameworks can be a valuable and important way that technology leaders can think about how they can identify initiatives that will have a meaningful impact on the organization.

“That can happen either by improving the customer experience, improving the product, improving the packaging, and improving the cost of delivering that particular product or service -- or maybe even employee improving employee experience through that process,” she says.

However, with digital disruption affecting businesses in more deep-seeded ways, Sallam points out VCA should be applied as just one possible tool for technology and business leaders looking to improve value chains.

“Maybe digital requires a completely new, a completely different value chain,” she explains. “Not tweaking the one we have, but actually rethinking the entire delivery process. I think value chain analysis is good. It's one technique that we can use, but I don't think it's sufficient for optimizing what we invest in from a technology perspective in the digital world where oftentimes we're talking about completely disrupting processes and business models.”

Geater adds once the value chain analysis is performed it is important to know what to do with the results.

“One very fruitful area to look for is digital efficiency,” he explains. “Are there manual administrative costs at the borders in the value chain where digital technology can help? Or is there digital technology already in the chain that is failing to deliver on its promises due to ancillary issues like cybersecurity or regulation?”

Improving VCA and Boosting CX

Sallam says organizations can leverage process mining tools and analytics tools to identify parts of formal and informal process and better identify how relationships connect through a process flow.

“Data and analytics can certainly be used to measure the efficiency and effectiveness of different parts of the process, and those measurements are becoming increasingly AI-enabled and automated,” she says.

Software tools can also be used identify collaboration flows and help identify the effectiveness of each point in the process using data and analytics.

“Different types of analytics tools and data can help optimize value chain analysis and can accelerate finding points in the process that are ripe for improvement,” Sallam says. “Certainly, data is always at the heart of that kind of re-engineering activity.”

From Aniano's perspective, a good value chain analysis strategy is one that not only increases revenue, but also improves customer relationships and helps you gain a competitive edge.

For example, customer experience teams can analyze customer support interactions and determine which processes could be run more efficiently.

“This could look like evaluating messaging strategies and implementing automated self-service prompts to customers,” he explains. “This reduces operational costs by getting ahead of service issues before they happen.”

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